> as the stimulus packages have been targeted towards basic infrastructure and assistance programs for lower income groups.
This made me chuckle. If anyone is curious, this is where the money went [0]. To say that the money was focused on lower income groups is laughable. 2.9 out of 12 trillion allocated went to asset purchases, basically buying treasuries and mortgage backed securities. How many lower income groups hold treasuries?
[EDIT] If anyone is curious about an alternative view, I've been kind of obsessed on this topic over the last few weeks are wrote about it extensively [1] and tried documenting the ridiculous rise in asset price levels to levels much higher than even that of pre-covid [2]. To say that there's nothing going on when nearly all asset prices are 30+% past their pre-covid peaks is ridiculous.
You have to think indirect effects though. Staving off a bond market crash probably is a good thing even if it does not directly help poor people. Ill-liquidity in the corporate bond market makes it hard to raise capital, which means less hiring, and hurts workers of all incomes. A bond market crisis is bad for everyone.
I agree to an extent. But that amounts to basically "trickle down economics" that protects the incumbents (large banks, many of which are foreign, mortgage issuers, etc). Notice how you don't really see any new banks being created? Why are bank stocks up 30% from pre-pandemic levels?
Put this into context. The 12 trillion in new spending/money allocation due to covid results in $36,000 for every man, woman and child in the United States. The government could have cut a 5 figure check to every person in America to deal w/ the fallout, or a fraction of the people most affected. Instead we decided to give it to large institutions. And we're arguing over 1,200 vs 1,600 stimulus checks.
Market corrections are natural and useful. Every time we print huge sums of money to rescue equities and make debt cheaper, who benefits?
Those with a high ratio of assets/credit to living expenses.
While market corrections create a higher degree of short term pain, allowing them for the last five decades would have gone a long way in preventing the increase in wealth inequality.
It doesn't make sense that investing in SPX is a guaranteed long term 10%/annum investment while nominal GDP growth is under 3%. It's an engineered phenomenon and benefits those who already have a lot of assets.
Correct. My assertion is that the Fed overshot this by increasing the money supply by ~24% in a single year, causing all asset prices to skyrocket (see link in original post). All the money sloshing around the market is exactly what makes it a bubble. Nearly all assets and industries are considerably higher in valuation despite having a much grimmer outlook with everything that has happened over the last year
Is it reasonable to conflate the actions taken by the Federal Reserve and the phrase "stimulus package"?
I tend to default to not doing it, as "package" has some implication of legislative action, and the Fed is somewhat separated from the rest of government.
Like in your comment, Congress didn't allocate the money the Fed used for asset purchases, the Fed did.
First of all, when did $12 trillion did allocated?
You can either choose to count spending or liquidity injection. Otherwise, you are double counting. If the government spends $3 trillion in stimulus financed entirely by debt, that dries up the liquidity for businesses, which creates a liquidity trap that sends us into another Great Depression. To think of it another way, the treasury could have just printed $3 trillion to pay for the stimulus without issuing bonds, which would have a similar effect.
Whether or not we are in a bubble is increasingly the wrong question to be asking in an age where failure for sufficiently-large institutions is no longer permitted.
The question used to be pretty simple: "has a sufficient portion of the market been priced out to the extent that demand collapses"?
As we've seen in equities / derivatives (and increasingly, commodity) markets - the answer to that question is now perpetually "lol, number go up" because large investment banks have essentially infinite access to free money and will be bailed out if they get in trouble.
On a long enough timeline the end result of this is that more and more Americans write their rent checks to institutional investors. [1]
Sure, many Americans own their homes now (or have a nice cushion of equity). But what happens as wage growth continues to stay relatively flat while cost of living rises dramatically and folks need money for medical bills or their kid's college tuition (or w/e)? They sell and become renters.
There's a pretty bleak future for American housing absent regulation in this space.
> more and more Americans write their rent checks to institutional investors
Homes as a wealth vehicle has been the standing wisdom for a while. That being less and less true (by virtue of requiring a higher and higher degree of wealth to even play) is scary in that there isn't an immediately obvious alternative with nearly the same odds. Also scary in that a lot (a lot a lot) of rules have been written and enshrined with the assumption of that fading wisdom.
At what point does it cross a type of pandemic level where fighting it isn't the best strategy but mitigating it and finding alternatives is the only route forward?
I mean, regulation is why the housing market is so bad (SFZ environmental review etc), so really what we need is forced deregulation.
Edit:
Some people might have misunderstood what I said so here's what I mean:
What we really want is states to force localities to reduce zoning restrictions on new construction
Based on your subsequent comments, it seems like what you specifically mean is "reduce (probably zoning-based) restrictions on the construction of new residential buildings".
Phrasing this as "forced deregulation" is...not going to get people to recognize what you actually mean, because 95% of the time, when people say they want "deregulation," what they mean is they want big businesses to be allowed to exploit the middle and lower classes however the hell they want with no consequences.
If you do, in fact, mean specifically "reduce zoning restrictions on new construction", I suggest using phrasing like that, because it'll communicate your intention much more clearly. (If you don't, then I have misunderstood you, and apologize for the confusion.)
>The securities that were so instrumental in triggering the financial crisis of 2007-2008, asset-backed securities, including collateralized debt obligations (CDOs) were practically non-existent in 1978. By 2007, they comprised $4.5 trillion in assets, equivalent to 32% of U.S. GDP.
Ownership of single-family residential properties by large financial institutions should be limited to their traditional role - i.e. custodial ownership of a home for the duration of a mortgage.
As anyone recently or currently going through the house shopping process this is nothing like 2007. Buyers are competing against other buyers with seemingly unlimited cash offers. Which is nothing like the subprime, stated income loans prior to the financial crash. You have to be in great financial shape to even qualify to buy a home. And then you have to do it timely enough to beat other offers. There is more cash moving around these days and not a lot of places to put it. Conservative banks, investors, and pensions are placing them in the few sure things left on the market, bonds and property.
Also, inventory is drying up because construction has been heavily affected by the pandemic. Now that the warehouses have been exhausted it's just starting to ripple through supply chains. While the millions of lives lost were felt immediately the long tail of JIT supply chains means we'll be feeling the effects a hell of a lot longer.
"Buyers are competing against other buyers with seemingly unlimited cash offers. "
So this should be the alarm bell that contradicts the argument.
In 2008 the Fed took what was then seen as a 'generational' bump in assets on it's balance sheet, namely bad real estate, effectively bailing out banks and home-owners, and arguably exasperating inequality.
But the money printing going due to COVID has dwarfed everything, to the point of multi-generational consequence, and what we might argue is a 'New Financial World Order'.
The Central Bank realignment due to COVID may be as significant as the start/end of Bretto-Woods etc. because the degree of social intervention is on an unimaginable scale. Aside from the 'raw numbers' it means social intervention and governmental direction of the economy like we have not seen since WW2 but this time without the obvious and easy infrastructural and educational adjustments to make: in the 1950's there were no highways - so they got build, and nobody had College degrees so getting former Officers/NCO's into College was a no-brainer.
Interest rates have been going down, and historically lower since the end of Bretton Woods, and they are now in the range of where it's causing considerable strain with massive leveraging, negative central bank overnight rates etc..
The result of this is a 'primary driver' of the Housing Boom, and it's the same thing happening in almost all asset class.
Or in other words: we are playing flirting dangerously with real, scary inflation, it's just happening in our homes so we think it's all good.
COVID has caused us to 'look the other way' with regards to financial reality, which is understandable, but that can't go on forever.
I am not a supporter of Crypto, BTC or any of the like, and I generally loathe the anti-fiat fanaticism etc. because I don't think these arguments are data driven or made in good faith, however, COVID has brought a lot of credibility to the fiat debauching concerns.
> Or in other words: we are playing flirting dangerously with real, scary inflation, it's just happening in our homes so we think it's all good.
Home prices have gone up way more than incomes over the last 10 years. Economists don't seem to want to call it inflation until incomes are rising. I'm glad I bought a house for $180K in 2011 that's worth $360K now 10 years later, but I really wonder how folks who are entering the market now are able to deal with the much higher monthly payment. That's going to divert spending away from other parts of the economy for quite a while.
> And then you have to do it timely enough to beat other offers.
This is an understatement. My mother's neighbor sold their house within 2 hours of it going on the market and for $20k over the asking price just last week. There are realtors asking around my neighborhood if anyone is getting ready to sell because there are buyers looking to purchase in here. This is even with developments going up like crazy. This is in a northern state away from the big cities.
> Also, inventory is drying up because construction has been heavily affected by the pandemic.
My two-layers out suburb of an attractive city had a coworker sell their starter-esque home purchased a few years ago for $350k sell for $620k-ish in the matter of three days. Meanwhile, I'm languishing hoping to buy my first home before I'm too old. About to permanently give up.
If the builders haven't locked in their supply chain yet you'll see it in the coming months. At the moment there is very little slack in the supply chain.
> My mother's neighbor sold their house within 2 hours of it going on the market
I have to wonder, though - where are the people who are selling their homes moving to? They're stuck in the same insane buying spiral everybody else is.
I'm currently in the market and I can affirm that it is super-bananas.
With Covid rules, you get ~15 minutes to view a property. You basically have to decide to put an offer down as you are walking out the door. My SO and I saw a place we liked and were considering an offer. Before we could even drive home, the place had gone under contract. Our location has homes on sale for ~36 hours, starting Thursday at noon (it seems that's the time most have settled on). You cannot sleep on this decision, there just isn't the time to do so.
Sellers will get ~14 offers, all very much over asking. A property listed for ~$450k go for ~$550k now. ~$650k go for ~$800k. Three years ago, that same house was ~$400k.
To be competitive, you must waive inspections outright. Health and safety objections used to be a thing, but it's so competitive that you just can't anymore. Inspectors are booked for showings as a result, with ~15 min to check on things.
All cash offers are ~1/3 offers, per what my RE friends say. If you are doing a mortgage, the new time to close is ~20 days, not 30. Banks/credit unions are not having a fun time with such a crunch, as buyers are walking away for higher rates due to the time crunch and the very low rates to begin with.
Appraisal gaps are ~18% or so. Meaning that the bank will appraise the house for about the listed price still, but buyers must state they will cover the gap in price. That is ~18% more than what the bank will give out. Thus the 20% downpayment becomes the appraisal gap coverage. A lot of people are going to 5% down-payments or less.
Open-ended escalation clauses are a thing to. You just put in the contract that you'll automatically bid ~$5k over the next person, no ending, no need to contact. As such, things are getting pretty wild when more than one party has that in their contract.
They really cannot build houses fast enough, and those that are come with special taxes that are ~2x the normal ones, forever. This is due to the need for materials that Coivd has affected and the speed needed just to lay the pipes and roads. Again, inspections are waived to stay competitive.
I don't know. There are many reasons people may not sell or move. Literally the only reason my wife and I are not selling our home in Mountain View is that I have a vesting event in the early spring and I need to be physically present until then. Otherwise we would absolutely be selling now.
Cash offer doesn’t necessarily mean the buyer has cash. There are services like https://www.flyhomes.com/ that will make a man all cash offer then help you refinance it.
In addition, if you waive all financing and appraisal contingencies that’s often called a cash offer as you’re obligated to close even if you can’t get financing.
I'm confused about this point. Why does the seller care about cash offers? Even if the offer requires a mortgage, the seller gets the cash from the lending bank, do they not?
Aren't flush institutional investors just gobbling up real estate and inflating the prices for "normal" homeowners?
Something will have to give eventually. We're going to get to the point that only hedge funds and millionaires can afford to own houses in mid tier cities and just compete against themselves. This is no way to build a community anybody actually wants to live in.
I'd really like to see the breakdown between investors and bona fide homebuyers. The main reasons supply is low is that a) people don't want to move in the middle of a pandemic, and b) construction was slowed. This should mean that the proportion of investors and first-time buyers is higher now than pre-pandemic, and who is more likely to win the resulting bidding war: investors, or the young people trying to buy their first home? I believe that the lions share of the housing spike is being driven by speculation, and eventually, the market will run out of "the greater fool" and you'll be left with mostly real home buyers, and prices will fall back to earth.
With all the newly inflated home values, I don't expect planning and zoning committees to be able to approve anything other than single family housing.
Can you help me understand? My friends in New York tell me that house prices are down more than 20% from 1 year ago. Real estate agents are desperate for sales. Most houses in New York have been taken off the market because prices are too low. My place in Manhattan is down 20%. Where is the bubble???
More cash because everyone with half a brain knows this money printing won't hold the market up forever, and they're terrified of runaway inflation.
The insane market speculation going on is also a symptom of this. It's reasonable to assume USD is losing 8-10% of its value every year from 2020 onwards, thanks to Fed policies. I know about their bullshit CPI numbers, and anyone who is gullible enough to believe "there is no inflation" deserves what's coming.
I do agree the CPI vastly undercounts inflation but we loose credibility when we through out numbers so far off from reality. 8-10% is realistic for real estate over the last year or two. But, we need to look at longer term trends to establish inflation as a huge problem.
Even 4% actual inflation would be very very high, as that would be 2% per year over CPI, which would compound to 80% over the CPI in just 30 years or so.
Let's take a look at some actual values:
- the big mac index shows inflation at about 4% for the last 20 years.
- Cape shiller housing index for US has been showing inflation at about 4% over the last 20 years. This is a real problem that will affect rents as well because the rent to own ratio spread can't continue to increase forever.
- housing of course is now 10%+ over the last year.
And yes, those quality adjustments made by the boys in the labor department are very questionable: I don't know how they sleep at night.
Pundits have been making this argument since 2010 about runaway inflation and about prices being unsustainable. Yet prices keep going up and inflation remains low. Maybe it is best to just ignore those people. There is no evidence either of USD decline either. Foreign currencies, especially currencies of emerging markets, have fallen considerably against the dollar in recent years.
If there is runaway inflation, real estate would be a good hedge. Inflation is not really a concern for Americans because all global wealth tends to be measured in US dollars anyway. It's not like Americans become poorer due to inflation, because all their wealth is denominated in dollars.
> It's reasonable to assume USD is losing 8-10% of its value every year from 2020 onwards, thanks to Fed policies.
Since dollar prices of final goods and services can be tracked, and don’t show that trend, its not reasonable at all; nominal price levels of goods and services haven’t generally increased by about ~2.5× over the past decade.
> I know about their bullshit CPI numbers,
CPI is BLS, not the Fed. And its a whole lot less bullshit than what you’re spreading right here.
> and anyone who is gullible enough to believe "there is no inflation" deserves what's coming.
The idea that inflation might be coming at some indefinite point in the future is, of course, unfalsifiable, and its been a constant refrain from the same segment of society for as long as I've been alive.
The claim that there has been massive inflation since 2010, OTOH, is both falsifiable and false.
If the numbers were really that off in the past wouldn't quality of living be much less than it is for most people in the US? I am skeptical of inflation staying low in the future, and I think they do sometimes make questionable quality adjustments in the inflation data, but if inflation was actually much greater than they've claimed you would see a gradual immiseration of the population.
Your statements are contradictory. If there will be 8-10% inflation then people will park their money in assets like stocks, thus keeping the market up.
It really strikes me that we've basically re-invented old-school landed aristocracy on a small scale in our big American cities.
anyone who was lucky enough to have bought a home 25+ years ago in a city like San Francisco or Seattle or Boston or NYC is a millionaire now, and home ownership is completely out of reach for the average inhabitant of a city. Buying a home is a pretty big reach even for very high earners, like the average audience of HN.
Ultimately, housing cannot be both A) an appreciating, scarce investment and B) equitably and humanely distributed.
It's worth noting that a lot of people continue to borrow on their homes or take out equity.
I bought a home outside NYC in the fall, and the owners got very little cash out of the deal, in spite of having been here for 35 years.
Which means, that many of those that look like millionaires now may be struggling to keep up with property taxes and can't afford to relocate near comparable.
As an advocate of houses as an investment, I've always been against A, except to the extent that the appreciation matches inflation, and even then it should only match inflation because you don't count the investment in keeping it "nice"
Houses are an investment in shelter over your head. They work out well long term if you live in them long term, but you should never look at what they are worth if you sell, except when calculating your net worth. Even then a renter should have a higher net worth because rent is increasing with inflation, while the house payments are not: the renter needs to have more to cover future rent.
> the renter needs to have more to cover future rent.
If you're comparing like for like, then a renter with the same amount of capital as a house owner would work out just as well, because the renter would have invested that capital into the stock market (which, i believe, have out-paced real estate).
If you're comparing a renter who don't own any capital, to somebody who owns a house, then of course the house owner is better off - they have more capital!
Up here in Canada, there is absolutely no doubt that we're in a bubble. By every measure we're in trouble... consumer debt levels, income-to-price and price-to-rent ratios... This infographic has been making the rounds and pretty much sums things up: https://twitter.com/i/status/1377353707478601729
Even the apologists who previously tried to to explain this in terms urbanization, desirability, immigration, etc have capitulated.
It remains to be seen whether we're just an odd case (along with maybe NZ and a few others), or a canary in the coal mine for our neighbours to the south, but the situation here at this point is virtually guaranteed to end badly for everyone involved.
From my understanding, Canada's housing market is largely being influenced by foreign investors. I've read that lots of foreign investors are buying homes in cash, over market rate, and then letting them sit vacant.
If Canada's laws don't discourage this and others see it as a safe way to store their wealth, this could be a possible explanation for the insane rise in home costs compared to other countries.
It's what drives the price increases in the Bay Area in California, as well. When 20% or more of the purchases in a given year are by foreign persons, it is problematic. They don't live here, they buy properties and let them sit vacant or rent them out. We need to basically prohibit ownership of anything but a primary residence by any entity that isn't a citizen or permanent resident (corporate entities would qualify if 100% of their true beneficial owners meet the same standard).
> I've read that lots of foreign investors are buying homes in cash, over market rate, and then letting them sit vacant.
This is used to launder illegally acquired assets that are brought in the country. Then as a bootstrap toward acquiring western passports.
> If Canada's laws don't discourage this
It encourages it. Out of control immigration quotas as well as lax regulations regarding birth tourism and a liberal-party friendly immigrant base has made it a no brainer for the current party to keep the bubble expanding.
Hasn't that been the case in places like NYC for a bit now? I remember reading about like single digit occupancy rates in massive luxury apts. I'd imagine that would have only increased but would love a check on my understanding.
"Not a bubble" is exactly what people think, when there's a bubble. Otherwise there would be no bubble. People find ways to rationalize why 'this time it's different'. Sometimes it is, sometimes it's not.
In my experience, bubbles are made from greed not ignorance.
In 2007-8 there was a lot of acknowledgment of the real estate bubble but there was always somebody to say well real estate isn’t really a national market so it won’t all pop at once. Ha.
Similarly everybody knew it was a bubble in 1999. That’s why you had companies rushing to ipo like lemmings off a cliff.
Personally I don’t think we are in a bubble right now and all the early bubble callers (since 2013 or so) have no credibility left.
Ignorance was a theme of many past bubbles. In the 20's it was the common man not understanding stocks. In the 80s it was "Savings and Loans are just banks, they're safe!". '08 it was "They wouldn't give me a mortgage if it wasn't a good decision". In all bubbles you see a few shrewd hawks and millions of lemmings - that's where all the money comes from.
In this scenario its, "There's nowhere else to put my money", but not having a better alternative doesn't necessarily make it a good investment.
In my opinion, we are in a bubble now. In stocks, P/E ratios are extremely high, and many companies are IPOing, many more than two years ago. All asset pricing is going through the roof, and money is chasing money. Speculative assets have become trendy again with cryptocurrencies, ARK, and memes like dogecoin.
We're all flush with cash and either terrified of inflation or riding a euphoria of asset inflation.
It's not greed. The chair of the Fed sat on national television and said they flooded the system with cash and will not stop until everybody gets it while ignoring any stretched valuations or inflation signals. All bubbles are policy decisions by the Fed to spark risk-taking and optimism, guided by the "less than honest" intermediaries on Wall St.
There is a lot of greed driving home sales right now. Every homeowner I know has at least considered making bank in this market. The only thing stopping them is they'll then need to buy a home cheaper and further out or lose that profit.
Completely off-topic, but I was just watching a YouTube video about lemmings with my 6 yo to answer some questions she was asking.
Lemmings to not commit suicide from cliffs, en masse. This is a myth that came about from a staged incident in a Disney documentary about the arctic wilderness. It's completely made up.
My definition of a bubble is not just prices going up. It's not even people investing based solely on prices going up, rather than on the merits of the investment. To me, it's only a bubble when people are investing solely because the price is going up, using borrowed money.
And that's why bubbles are dangerous. When they pop, they don't just destroy the investors. They can destroy the lenders, which can damage the overall economy.
This is a little like "they thought Gailileo was a crank." Yeah but they thought a lot of other people were cranks and you don't know them because they were.
This isn't 2006 Las Vegas or some shitty 50 year old Florida suburb propped up by tourism, we're talking about every major metropolitan area that has jobs. People are buying because rates are rock-bottom, yes, but also because that's where the jobs are. This is different from last time, and aside from the Fed raising interest rates (and boy do they need to), there's no end in sight to the insanity.
This article did little to convince me we’re not in a bubble. The housing supply argument doesn’t hold up to me, as older people leave their homes newer people should be able to take there place. Base asset prices increasing because interest rates are down? Sure that’s finance 101. All asset classes (houses, stocks, cryptocurrency) only ever increasing in value? That’s too good to be true.
> The housing supply argument doesn’t hold up to me
Strongly disagree with you , I'm in Europe. I'm in the 25% richest of my state , I can't manage to rent a home because every time I contact a landowner for a property to rent there is 30+ person who applied before me within 4 hours...
Covid-19 has created a "remote economy" boom as well as accelerated household project to move to another state and acquire a property or just to invest in real estate.
Thus real estate market is performing just as expected... As long as the supply does not meet the demand the price goes up.
For crypto it's different , 99% of crypto transactions are speculation base. It's by design.
>Strongly disagree with you , I'm in Europe. I'm in the 25% richest of my state , I can't manage to rent a home because every time I contact a landowner for a property to rent there is 30+ person who applied before me within 4 hours...
> The housing supply argument doesn’t hold up to me, as older people leave their homes newer people should be able to take there place.
Not only are populations growing, but there is a net migration toward high demand areas.
Look at real estate listings in many smaller Midwest cities and you’ll see large inventories of very nice, very affordable homes. Older people are moving out but no one is there to buy them.
Meanwhile, many popular cities are fully built out. It’s musical chairs with existing housing inventory, plus a few high density reconstruction projects here and there.
We thought remote work would enable people to move away from expensive cities, but it turns out many people choose to live in popular, high-demand areas once they no longer have to live near their office.
As long as supply is fixed and demand continues to grow, prices will go up.
Look at real estate listings in many smaller Midwest cities and you’ll see large inventories of very nice, very affordable homes.
What? No, it’s the opposite. Suburban and rural homes have seen major price jumps in the past year while the most expensive cities have stagnated or dropped. For example Western MI has seen more price growth than the city of SF in the past year.
> Look at real estate listings in many smaller Midwest cities and you’ll see large inventories of very nice, very affordable homes. Older people are moving out but no one is there to buy them.
Not in my small Midwest city. Many houses are being sold in hours. Most of the time I see a new realtor, it is already sale pending. I have little doubt houses are being sold without being put on the market. There are realtors asking around my neighborhood if anyone is looking to sell because they have buyers interested in the area.
As the others are commenting I half agree with your comment - there is a supply issue in high density areas AND there is a supply issue in low density areas.
I don't know where you're looking. I'm looking in relatively small midwestern towns (Illinois, Michigan, Wisconsin, Minnesota) and I see listing for homes valued 20% greater or more compared with last year. A small four-plex that would have listed at $400k and sold for $380k (or so) last year is likely to have listed over $500k and may sell over-asking this year. It's ridiculous.
But in almost all 1st world countries, the demand is shrinking (negative population growth in all countries). Not to mention the top heavy population in Americas that is approaching EOL (Baby Boomers) which will rapidly shrink the demand in the next 10 years. But it actually appears from sales data that demand is increasing by a great deal. My hypothesis: speculators have been driving this market for quite some time in order to try and escape the inflation they thought "is coming any minute" since 2008.
Here in my city, the rents are decreasing since COVID started and the prices keep skyrocketing. It also supports my hypothesis. Investors are just buying up properties and renting them out, lowering rents everywhere. It may come to a head sooner rather than later, once someone finds the mortgage is way higher than the renter is paying. But even then, I think many owners are willing to take a hair cut on their mortgage because they feel like "the market has performed so well, its worth it". But how long?
...as older people leave their homes newer people should be able to take there place.
Here in the UK, older people have not been leaving their homes because of covid lockdowns which is one of the reasons why there is a shortage of houses to buy. The one exception is retirement apartments.
Some areas in the country experience major population growth because that’s where the jobs are. In those areas not enough older people leave their homes to compensate for the influx of new residents. It’s not even close.
The housing supply argument is completely accurate.
> In those areas not enough older people leave their homes to compensate for the influx of new residents. It’s not even close.
This is true. The question is, why would they? Generally, with a few exceptions like Florida, the places where the jobs are are also the best places to be old.
> The system may be fundamentally broken, but the market is not. This gives me some level of confidence in saying that as of April 2021, I don’t believe that we’re in a housing bubble.
Markets have the remarkable ability to function right until the very moment they crash.
If functioning markets really were to preclude bubbles then, by definition, bubbles would only form in non-functioning (crashed) markets. This is, of course, ridiculous.*
*That is, unless non-functioning markets can somehow be distinguished without the hindsight of a crash.
Readit News
This made me chuckle. If anyone is curious, this is where the money went [0]. To say that the money was focused on lower income groups is laughable. 2.9 out of 12 trillion allocated went to asset purchases, basically buying treasuries and mortgage backed securities. How many lower income groups hold treasuries?
[EDIT] If anyone is curious about an alternative view, I've been kind of obsessed on this topic over the last few weeks are wrote about it extensively [1] and tried documenting the ridiculous rise in asset price levels to levels much higher than even that of pre-covid [2]. To say that there's nothing going on when nearly all asset prices are 30+% past their pre-covid peaks is ridiculous.
[0] https://www.covidmoneytracker.org/
[1] https://mleverything.substack.com/p/where-did-the-12-trillio...
[2] https://mleverything.substack.com/p/where-did-the-12-trillio...
Put this into context. The 12 trillion in new spending/money allocation due to covid results in $36,000 for every man, woman and child in the United States. The government could have cut a 5 figure check to every person in America to deal w/ the fallout, or a fraction of the people most affected. Instead we decided to give it to large institutions. And we're arguing over 1,200 vs 1,600 stimulus checks.
Those with a high ratio of assets/credit to living expenses.
While market corrections create a higher degree of short term pain, allowing them for the last five decades would have gone a long way in preventing the increase in wealth inequality.
It doesn't make sense that investing in SPX is a guaranteed long term 10%/annum investment while nominal GDP growth is under 3%. It's an engineered phenomenon and benefits those who already have a lot of assets.
They also printed money to buy billions $ worth of corporate bonds like General Electric Ford, GM, AT&T, etc: https://www.google.com/search?q=%22federal+reserve%22+buys+c...
Example list: https://www.investopedia.com/the-fed-s-corporate-bond-portfo...
https://www.cnbc.com/2020/12/16/fed-decision-december-2020-f...
I tend to default to not doing it, as "package" has some implication of legislative action, and the Fed is somewhat separated from the rest of government.
Like in your comment, Congress didn't allocate the money the Fed used for asset purchases, the Fed did.
"Two Centuries Of National Debt In One Year: Putting 2020 In Perspective"
http://danielamerman.com/va/ccc/H3TwoCenturies.html
You can either choose to count spending or liquidity injection. Otherwise, you are double counting. If the government spends $3 trillion in stimulus financed entirely by debt, that dries up the liquidity for businesses, which creates a liquidity trap that sends us into another Great Depression. To think of it another way, the treasury could have just printed $3 trillion to pay for the stimulus without issuing bonds, which would have a similar effect.
Stimulus packages are legislation passed by congress vs independent actions taken by the Fed.
The question used to be pretty simple: "has a sufficient portion of the market been priced out to the extent that demand collapses"?
As we've seen in equities / derivatives (and increasingly, commodity) markets - the answer to that question is now perpetually "lol, number go up" because large investment banks have essentially infinite access to free money and will be bailed out if they get in trouble.
On a long enough timeline the end result of this is that more and more Americans write their rent checks to institutional investors. [1]
Sure, many Americans own their homes now (or have a nice cushion of equity). But what happens as wage growth continues to stay relatively flat while cost of living rises dramatically and folks need money for medical bills or their kid's college tuition (or w/e)? They sell and become renters.
There's a pretty bleak future for American housing absent regulation in this space.
[1] - https://www.theatlantic.com/technology/archive/2019/02/singl...
Homes as a wealth vehicle has been the standing wisdom for a while. That being less and less true (by virtue of requiring a higher and higher degree of wealth to even play) is scary in that there isn't an immediately obvious alternative with nearly the same odds. Also scary in that a lot (a lot a lot) of rules have been written and enshrined with the assumption of that fading wisdom.
At what point does it cross a type of pandemic level where fighting it isn't the best strategy but mitigating it and finding alternatives is the only route forward?
Edit: Some people might have misunderstood what I said so here's what I mean: What we really want is states to force localities to reduce zoning restrictions on new construction
Phrasing this as "forced deregulation" is...not going to get people to recognize what you actually mean, because 95% of the time, when people say they want "deregulation," what they mean is they want big businesses to be allowed to exploit the middle and lower classes however the hell they want with no consequences.
If you do, in fact, mean specifically "reduce zoning restrictions on new construction", I suggest using phrasing like that, because it'll communicate your intention much more clearly. (If you don't, then I have misunderstood you, and apologize for the confusion.)
That's a claim you should be substantiating and not making a blanket statement about.
https://en.wikipedia.org/wiki/Financialization#Deregulation_...
>The securities that were so instrumental in triggering the financial crisis of 2007-2008, asset-backed securities, including collateralized debt obligations (CDOs) were practically non-existent in 1978. By 2007, they comprised $4.5 trillion in assets, equivalent to 32% of U.S. GDP.
Also, inventory is drying up because construction has been heavily affected by the pandemic. Now that the warehouses have been exhausted it's just starting to ripple through supply chains. While the millions of lives lost were felt immediately the long tail of JIT supply chains means we'll be feeling the effects a hell of a lot longer.
So this should be the alarm bell that contradicts the argument.
In 2008 the Fed took what was then seen as a 'generational' bump in assets on it's balance sheet, namely bad real estate, effectively bailing out banks and home-owners, and arguably exasperating inequality.
But the money printing going due to COVID has dwarfed everything, to the point of multi-generational consequence, and what we might argue is a 'New Financial World Order'.
The Central Bank realignment due to COVID may be as significant as the start/end of Bretto-Woods etc. because the degree of social intervention is on an unimaginable scale. Aside from the 'raw numbers' it means social intervention and governmental direction of the economy like we have not seen since WW2 but this time without the obvious and easy infrastructural and educational adjustments to make: in the 1950's there were no highways - so they got build, and nobody had College degrees so getting former Officers/NCO's into College was a no-brainer.
Interest rates have been going down, and historically lower since the end of Bretton Woods, and they are now in the range of where it's causing considerable strain with massive leveraging, negative central bank overnight rates etc..
The result of this is a 'primary driver' of the Housing Boom, and it's the same thing happening in almost all asset class.
Or in other words: we are playing flirting dangerously with real, scary inflation, it's just happening in our homes so we think it's all good.
COVID has caused us to 'look the other way' with regards to financial reality, which is understandable, but that can't go on forever.
I am not a supporter of Crypto, BTC or any of the like, and I generally loathe the anti-fiat fanaticism etc. because I don't think these arguments are data driven or made in good faith, however, COVID has brought a lot of credibility to the fiat debauching concerns.
Housing prices are one element of that.
Home prices have gone up way more than incomes over the last 10 years. Economists don't seem to want to call it inflation until incomes are rising. I'm glad I bought a house for $180K in 2011 that's worth $360K now 10 years later, but I really wonder how folks who are entering the market now are able to deal with the much higher monthly payment. That's going to divert spending away from other parts of the economy for quite a while.
This is an understatement. My mother's neighbor sold their house within 2 hours of it going on the market and for $20k over the asking price just last week. There are realtors asking around my neighborhood if anyone is getting ready to sell because there are buyers looking to purchase in here. This is even with developments going up like crazy. This is in a northern state away from the big cities.
> Also, inventory is drying up because construction has been heavily affected by the pandemic.
Not around here.
If the builders haven't locked in their supply chain yet you'll see it in the coming months. At the moment there is very little slack in the supply chain.
I have to wonder, though - where are the people who are selling their homes moving to? They're stuck in the same insane buying spiral everybody else is.
With Covid rules, you get ~15 minutes to view a property. You basically have to decide to put an offer down as you are walking out the door. My SO and I saw a place we liked and were considering an offer. Before we could even drive home, the place had gone under contract. Our location has homes on sale for ~36 hours, starting Thursday at noon (it seems that's the time most have settled on). You cannot sleep on this decision, there just isn't the time to do so.
Sellers will get ~14 offers, all very much over asking. A property listed for ~$450k go for ~$550k now. ~$650k go for ~$800k. Three years ago, that same house was ~$400k.
To be competitive, you must waive inspections outright. Health and safety objections used to be a thing, but it's so competitive that you just can't anymore. Inspectors are booked for showings as a result, with ~15 min to check on things.
All cash offers are ~1/3 offers, per what my RE friends say. If you are doing a mortgage, the new time to close is ~20 days, not 30. Banks/credit unions are not having a fun time with such a crunch, as buyers are walking away for higher rates due to the time crunch and the very low rates to begin with.
Appraisal gaps are ~18% or so. Meaning that the bank will appraise the house for about the listed price still, but buyers must state they will cover the gap in price. That is ~18% more than what the bank will give out. Thus the 20% downpayment becomes the appraisal gap coverage. A lot of people are going to 5% down-payments or less.
Open-ended escalation clauses are a thing to. You just put in the contract that you'll automatically bid ~$5k over the next person, no ending, no need to contact. As such, things are getting pretty wild when more than one party has that in their contract.
They really cannot build houses fast enough, and those that are come with special taxes that are ~2x the normal ones, forever. This is due to the need for materials that Coivd has affected and the speed needed just to lay the pipes and roads. Again, inspections are waived to stay competitive.
Like I said, it is super-bananas.
EDIT: This tiktok is only a tiny bit hyperbolic about the current state of things: https://www.tiktok.com/@johnsonfiles/video/69529306172982919...
Thank you for the insight. It's a fascinating comment. I wonder if it's the same in other countries.
In addition, if you waive all financing and appraisal contingencies that’s often called a cash offer as you’re obligated to close even if you can’t get financing.
How is that a good thing from a seller's perspective?
Something will have to give eventually. We're going to get to the point that only hedge funds and millionaires can afford to own houses in mid tier cities and just compete against themselves. This is no way to build a community anybody actually wants to live in.
The insane market speculation going on is also a symptom of this. It's reasonable to assume USD is losing 8-10% of its value every year from 2020 onwards, thanks to Fed policies. I know about their bullshit CPI numbers, and anyone who is gullible enough to believe "there is no inflation" deserves what's coming.
Even 4% actual inflation would be very very high, as that would be 2% per year over CPI, which would compound to 80% over the CPI in just 30 years or so.
Let's take a look at some actual values: - the big mac index shows inflation at about 4% for the last 20 years. - Cape shiller housing index for US has been showing inflation at about 4% over the last 20 years. This is a real problem that will affect rents as well because the rent to own ratio spread can't continue to increase forever.
- housing of course is now 10%+ over the last year.
And yes, those quality adjustments made by the boys in the labor department are very questionable: I don't know how they sleep at night.
If there is runaway inflation, real estate would be a good hedge. Inflation is not really a concern for Americans because all global wealth tends to be measured in US dollars anyway. It's not like Americans become poorer due to inflation, because all their wealth is denominated in dollars.
Since dollar prices of final goods and services can be tracked, and don’t show that trend, its not reasonable at all; nominal price levels of goods and services haven’t generally increased by about ~2.5× over the past decade.
> I know about their bullshit CPI numbers,
CPI is BLS, not the Fed. And its a whole lot less bullshit than what you’re spreading right here.
> and anyone who is gullible enough to believe "there is no inflation" deserves what's coming.
The idea that inflation might be coming at some indefinite point in the future is, of course, unfalsifiable, and its been a constant refrain from the same segment of society for as long as I've been alive.
The claim that there has been massive inflation since 2010, OTOH, is both falsifiable and false.
Home Values +8%
Money Supply +24%
Stock Market +23%
Oil +80%
Corn +69%
Steel +145%
Wheat +25%
Coffee +34%
Cotton +35%
Copper +50%
Lumber +126%
Soybeans +71%
this is over the past year.
Are you willing to bet money on this claim? Because I will happily take the other side of that wager. It is absurd.
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anyone who was lucky enough to have bought a home 25+ years ago in a city like San Francisco or Seattle or Boston or NYC is a millionaire now, and home ownership is completely out of reach for the average inhabitant of a city. Buying a home is a pretty big reach even for very high earners, like the average audience of HN.
Ultimately, housing cannot be both A) an appreciating, scarce investment and B) equitably and humanely distributed.
I bought a home outside NYC in the fall, and the owners got very little cash out of the deal, in spite of having been here for 35 years.
Which means, that many of those that look like millionaires now may be struggling to keep up with property taxes and can't afford to relocate near comparable.
Houses are an investment in shelter over your head. They work out well long term if you live in them long term, but you should never look at what they are worth if you sell, except when calculating your net worth. Even then a renter should have a higher net worth because rent is increasing with inflation, while the house payments are not: the renter needs to have more to cover future rent.
If you're comparing like for like, then a renter with the same amount of capital as a house owner would work out just as well, because the renter would have invested that capital into the stock market (which, i believe, have out-paced real estate).
If you're comparing a renter who don't own any capital, to somebody who owns a house, then of course the house owner is better off - they have more capital!
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Even the apologists who previously tried to to explain this in terms urbanization, desirability, immigration, etc have capitulated.
It remains to be seen whether we're just an odd case (along with maybe NZ and a few others), or a canary in the coal mine for our neighbours to the south, but the situation here at this point is virtually guaranteed to end badly for everyone involved.
If Canada's laws don't discourage this and others see it as a safe way to store their wealth, this could be a possible explanation for the insane rise in home costs compared to other countries.
This is used to launder illegally acquired assets that are brought in the country. Then as a bootstrap toward acquiring western passports.
> If Canada's laws don't discourage this
It encourages it. Out of control immigration quotas as well as lax regulations regarding birth tourism and a liberal-party friendly immigrant base has made it a no brainer for the current party to keep the bubble expanding.
In 2007-8 there was a lot of acknowledgment of the real estate bubble but there was always somebody to say well real estate isn’t really a national market so it won’t all pop at once. Ha.
Similarly everybody knew it was a bubble in 1999. That’s why you had companies rushing to ipo like lemmings off a cliff.
Personally I don’t think we are in a bubble right now and all the early bubble callers (since 2013 or so) have no credibility left.
In this scenario its, "There's nowhere else to put my money", but not having a better alternative doesn't necessarily make it a good investment.
We're all flush with cash and either terrified of inflation or riding a euphoria of asset inflation.
Lemmings to not commit suicide from cliffs, en masse. This is a myth that came about from a staged incident in a Disney documentary about the arctic wilderness. It's completely made up.
Was an interesting 5 or so minutes: https://www.youtube.com/watch?v=2fHYNMvcAhc
And that's why bubbles are dangerous. When they pop, they don't just destroy the investors. They can destroy the lenders, which can damage the overall economy.
Strongly disagree with you , I'm in Europe. I'm in the 25% richest of my state , I can't manage to rent a home because every time I contact a landowner for a property to rent there is 30+ person who applied before me within 4 hours...
Covid-19 has created a "remote economy" boom as well as accelerated household project to move to another state and acquire a property or just to invest in real estate.
Thus real estate market is performing just as expected... As long as the supply does not meet the demand the price goes up.
For crypto it's different , 99% of crypto transactions are speculation base. It's by design.
Why won't landlords raise prices then?
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Not only are populations growing, but there is a net migration toward high demand areas.
Look at real estate listings in many smaller Midwest cities and you’ll see large inventories of very nice, very affordable homes. Older people are moving out but no one is there to buy them.
Meanwhile, many popular cities are fully built out. It’s musical chairs with existing housing inventory, plus a few high density reconstruction projects here and there.
We thought remote work would enable people to move away from expensive cities, but it turns out many people choose to live in popular, high-demand areas once they no longer have to live near their office.
As long as supply is fixed and demand continues to grow, prices will go up.
What? No, it’s the opposite. Suburban and rural homes have seen major price jumps in the past year while the most expensive cities have stagnated or dropped. For example Western MI has seen more price growth than the city of SF in the past year.
Not in my small Midwest city. Many houses are being sold in hours. Most of the time I see a new realtor, it is already sale pending. I have little doubt houses are being sold without being put on the market. There are realtors asking around my neighborhood if anyone is looking to sell because they have buyers interested in the area.
Here in my city, the rents are decreasing since COVID started and the prices keep skyrocketing. It also supports my hypothesis. Investors are just buying up properties and renting them out, lowering rents everywhere. It may come to a head sooner rather than later, once someone finds the mortgage is way higher than the renter is paying. But even then, I think many owners are willing to take a hair cut on their mortgage because they feel like "the market has performed so well, its worth it". But how long?
Not if the supply of money is increasing. Also, different regions of the US are experiencing very different levels of changes in price.
Here in the UK, older people have not been leaving their homes because of covid lockdowns which is one of the reasons why there is a shortage of houses to buy. The one exception is retirement apartments.
The housing supply argument is completely accurate.
This is true. The question is, why would they? Generally, with a few exceptions like Florida, the places where the jobs are are also the best places to be old.
Markets have the remarkable ability to function right until the very moment they crash.
If functioning markets really were to preclude bubbles then, by definition, bubbles would only form in non-functioning (crashed) markets. This is, of course, ridiculous.*
*That is, unless non-functioning markets can somehow be distinguished without the hindsight of a crash.