Housing Is A Bubble. No Point In Denying It Now
Home prices are a lot like input price gauges these days -- just as you don't need to look at the latest prices paid subindex on whatever PMI is making the rounds to know that price pressures are building, you scarcely need confirmation that the US housing market is on fire.
And yet, I suppose you could argue there is one advantage to documenting each successive scorching print -- namely, you'll have something to point to in hindsight when the bubble bursts. "That was the top," you can declare.
US housing prices look scary – unless you compare them to Canada where the average house price, on a nominal basis, is almost twice as much as in the US.
Well, I was trying to be nice. I have a lot of Canadian subscribers. 🙂
I live in that town in Pennsylvania, and LOL. Nothing stays on the market for more than a week.
I tried to buy six 8 foot 1×6 cedar boards to build a raised bed garden. Didn’t care too much about the price, but the order got rescheduled from April 6th to April 30. Figured I would cancel the order and just buy from a different supplier, and no one else had any at less than contractor volumes. C’est la guerre
I wish my co-op apartment in Brooklyn was participating in this bubble. Oh well.
Could the fed stop/reduce its buying of mortgage bonds??? Or even sell them??? What would this do to the housing market???
It could buy additional T-bills or Treasuries to ensure there’s no taper tantrum…
My wife and I were sure that it was us, not the market. Today houses in south Denver are 12-15% higher than last year across the board. We put offers on three houses at the current asking price, no contingencies and an escalation clause of up-to-15%-above the asking…and we’ve lost out three times. Maybe we should take showers before we make the next offer, or better yet, offer the seller a round-the-world cruise on the QEII, or better yet half a bitcoin on top of the escalation clause.
To call rising prices a bubble implies a bust in the not-distant future.
I’m wondering what will bust the house price bubble.
Supply – house building is a slow process, or rather locating and developing the land for tract SFH is slow. There is a big movement to rezone for row houses, duplexes and quadplexes, but those still get built a handful at a time.
Demand – Millennials coming of age and WFH’ing, neither seem transitory. Consumer balance sheets are stronger than before. Unemployment is high, but I’m not sure that’s true for the home-buying demographic. Don’t forget the many-billion-dollar PE funds ready to snap up foreclosures.
Rates – on $350K 30 yr, +100 bp is $200/mo more. Isn’t that like the gas and lunch money saved by only going to the office 2 days/wk? Might need +200 bp to choke off the demand. Is Fed going to let the 10 year go up +200 bp any time soon?
Financing – banks are flush, they like mortgage lending, and neither party is going to choke off the GSE support for mortgages.
Substitutes – if rents plummet, that could hit house buying demand, and maybe we’ll see that in NYC or SFO, but overall rents are stable and starting to inch up. Indeed, REITs are among the best looking sector charts and I’m wishing I’d bought more. Another substitution scenario would be if condos come back into favor. Right now in my city every semi-affordable SFH is getting 20 bids while condos are sitting unsold. Maybe Covid going away will make condos interesting again, if they suddenly sprout extra “home office” rooms.
Yes, I think that today’s soaring house prices and all-cash bidding wars look very bubbly. And we all know that parabolic charts bode ill, when they represent mere pieces of paper or encrypted bits. But . . .
Sometimes a bubble is actually a repricing.
I don’t want to sound naive.
The elephant in the room is affordability, no?
Just last week I was speaking to a millennial making about $150k per year about housing. Is there any way he can cough up $800,000 for a two bedroom condo or $500k for a “starter” home well outside of town?
Meanwhile, amateurs are back to flipping homes and foreclosure actions are getting packed with newbies, crowding out the regular vultures. Back to 2007 we go.
jyl – I presume you are not recommending retail or office REITS? Warehouse and data-center REITS still may make sense, even apartment REITs at some point, depending upon location.
That said, loving parents are stepping in to fund down-payments for their kids. We’ve seen that almost every week recently and. I’d guess that you have asbwell
XLRE is doing better than other sector ETFs. Within XLRE, some of the best performers have in fact been office and mall REITs. I’ve instead been focused on apartment, medical, NNN and other kinds, that are pretty vanilla and meet specific criteria. With REITs, I don’t really want to take too much risk or get into complicated stuff like when a mall’s leases start to zipper. So I didn’t even bother looking at the mortgage REITs, sadly. I figure the REIT specialists can play with the complicated stuff.