Housing Bubble Getting Ready to Pop: Pending Sales Plunge in … – WOLF STREET

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Brick & Mortar
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Companies & Markets
Credit Bubble
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Housing Bubble 2
Inflation & Devaluation
For the last two years, the story was that there’s no inventory for sale, that there was a housing shortage, and that’s why prices were skyrocketing. Then there were other folks like me that pointed out over and over again that people weren’t putting their old homes on the market after they’d bought a new home, and that these people now owned two or three homes and that they were going to ride up the hottest real estate market ever where prices soared 20% or 30% or more per year, and then they’d sell those vacant homes which no one had ever counted as vacant.
And because they already lived in a home, they could sell their vacant homes without having to buy another home. This is the “shadow inventory” that is now coming on the market, just when mortgage rates have spiked, and sales are plunging. And to get things moving, price reductions are spiking.
Active listings jumped in June by 20% from May, and by 19% from a year ago, the second year-over-year increase in a row, after an 8% jump in May, and both were the first year-over-year increases since June 2019. There were about 98,000 more homes listed for sale in June than a year ago, according to data from the National Association of Realtors today (data at realtor.com):

ONE, pending sales in June plunged by 16% year-over-year, after the 12% drop in May, and the 9% drop in April, as potential buyers lost interest in sky-high home prices and holy-moly mortgage rates. These are listings in various stages of the sales process, but before the deal closes. June was the 10th month in a row of year-over-year declines. Back in June, the NAR had reported that “closed” sales in May also dropped for the 10th month in a row. And this doesn’t bode well for closed sales in June:

TWO, new listings rose in June to 562,000 homes, the second highest June in recent years, behind only June 2019. And interestingly, new listings rose in June, when in normal years they peaked in May and dropped in June. I circled the prior Junes (data via realtor.com).

Price reductions spiked by 50% in June from May and about doubled year-over-year, as sellers are trying to get buyers to show up and take a look as foot traffic has dropped and bidding wars have receded into fond memories. This is a sudden reset. But more sellers are coming to grips with a new reality: Prices have to go where the buyers are, and buyers are around somewhere, but they’re a lot lower (data via realtor.com):

Holy-moly mortgage rates – so called because that’s what people utter between their teeth when they first see the mortgage payment for a home they want to buy – are hovering around 6% for a 30-year fixed rate mortgage, roughly double of where they’d been in 2020 (data via realtor.com).

This type of mortgage rate, having doubled from not too long ago, and home prices that have spiked by 40% or more over the same two-year period make for a toxic mix. Something has to give, and it’s not going to be the buyers – because they can’t, they’re boxed in – but the sellers. Or there is no deal.
And buyers who could buy, the infamous cash buyers, they don’t want to buy at those prices either, now that the craziness is hissing out of the market. No one wants to overpay at the insane peak of what was a totally crazy market.
Among the largest 50 metros, the number of active listings in June spiked the most in Austin (+144% year-over-year), Phoenix (+113%), and Raleigh (112%). In 31 other metros, active listings surged by the double-digits. And active listings fell in only a handful of metros, led by Chicago (-13%), Virginia Beach (-14%), and Miami (-16%).
The table is sorted by the year-over-year percent change of active listings (data via realtor.com):
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It sure is beautiful to see active listing and price reduction spiking up this fast, maybe this crash will experience peak to trough faster than last time from 08-12. For now though, the median and asking price is still stubbornly high for most of SoCal, although that usually is the last to go.
The huge amount of cognitive dissonance and the whole house price will only stay flat worse case scenario gospel will take time to roll over while RE agents still busy telling everyone it’s a great time to buy still, mortgage rate came down just slight this week, so better get in now..
They say housing prices will not drop all that much, maybe 15%. Before 2008 they’d say “housing prices never go down”.
We had a Realtor pull up a diagonal line chart dating back from 2000 that showed the market was actually ‘fair’ valued.
I laughed.
most excellent
maybe now we’ll get some flippers going under cause they borrowed big
have cash will wait
The only people who ever say those things are RE sales people, and people who are too young to understand the business cycle.
This bubble is bursting far faster than the last one. I was in San Diego which topped in some areas late 2003-early 2004! There was little social media being used at the time, just massive advertising from real estate agencies in the various media. Telling people you thought it was a bubble would have people think you’re crazy and a fool. Only years later after the entire economy blew up did people acknowledge that I and a few others were correct. Now there’s blogs like this and people on YouTube, Twitter and Reddit documenting every little crack in the facade as things start to fall apart. It’s pretty interesting from a psychological viewpoint.
The good old days of being called a ‘doomer’ on the Zillow forums.
You can walk away from a mortgage in California. All you ever risk is the down payment. In Illinois and some other states, you are liable. So prices don’t go up wildly.
This discourages speculation in real estate. If you have limited down-side risk why not buy into rapidly rising prices? You might get lucky.
Yes, there are 12 states that are “non-recourse” states, such as California. The rest of “recourse” states.
But even in California, it only covers purchase mortgages. If you refi, which a lot of people did, you no longer have a purchase mortgage; now you have a refi mortgage, and it may be full recourse. So people should read the mortgage document VERY carefully before walking away.
here is more on this, including the lest of states:
This is a great point seeing as I would estimate the majority of mortgages are now refi’s as people took advantage of falling rates over the past decade.
That means for a lot of people who are in real trouble, the option to walk away is replaced with the reality of bankruptcy.
I think there’s still a tax liability on the portion of the loan written down as well
Will government forgive those refis like student debt? /s
The last thing this country needs is more moral hazard. Rewarding people for doing the wrong thing is a policy that can only create ever growing problems. In addition, it is creates animosity among different demographics.
“But even in California, it only covers purchase mortgages. If you refi, which a lot of people did, you no longer have a purchase mortgage; now you have a refi mortgage, and it may be full recourse”
This explains why our credit union offered us a no fee refi 6 months after our purchase mortgage back in 2011. They wanted to instantly convert us to full recourse.
They also get paid a fee for each mortgage they write and sell to Fannie Mae.
In the UK a mortgagee is totally liable but that doesn’t stop people borrowing as much as they possibly can as apparently ” you can’t lose on bricks and mortar”
Mortgagee is the lendor and mortgagor is the borrower.
Investor money needs to be removed from all residential resale real estate of 4 units or less so that families and individuals can have an opportunity to buy a house as the prices start to fall.
Don’t worry, it may be a while, but institutional demand will decline or disappear entirely once prices stagnate or decline persistently and when renters can’t pay current ridiculous rents.
To the institutional buyer, it’s all about ROI.
Unlike homeowners (many actually debt slaves), institutional buyers have no attachment to their properties and will not hesitate to dump it.
What is the whole of the situation that will roll back rents?
Well, this headline on the surface counters some of the fear mongering that institutional buyers will own it all. Maybe there’s more context to it but when they do dump, they dump fast.
Mom and Pop investors probably didn’t get the memo yet or still have some emotional attachment mix with cognitive dissonance to HODL until they can’t anymore.
“Sternlicht’s Starwood Capital explores sale of 3,000 homes for $1B”
It may not even take that long. If institutions can make more money from Treasuries than housing there is no way they will stay in housing.
Good points but I am not sure all institutional investors will dump. I thought the same thing as you.
But some of these big investors like Blackrock have bundled the mortgages of the properties they bought into MBS and sold to investors. So how can Blackstone sell if they do not own the mortgage? They only service the loans and the property.
Are you suggesting that the government force investors out of 4 unit or less space or are you saying that once all the investor money is out of the 4 unit or less space then the prices will fall?
My suggestion is that they take away laws that make single family homes attractive to in vestors such as capital gains exclusions, mortgage interest deductions, depreciation, support for GSEs such as Fannie Mae, etc. That would be deregulation, not regulation, so all the free market people can be either happy or hypocrites.
You do realize this would devastate the rental market… right?
Regulating free markets is always the road to disaster.
You mean like SEC regulation on investment vehicles which can swindle regular folks out of their money? I think that some regulation is very good for the public interest. I am not one to think that everything governmental is bad and wasteful.
You know some regulation is a good thing in RE, right? Slum lord laws, fire codes and extortion laws exist for a reason. There are wealthy – bad people looking always to make a quick dollar at the expense of a fool. It is why back in the late 1930’s laws created better living environments. We use to publicly train students in primary school about the rights. Standardized testing did away from important education like rights and financial freedom. There is an old law on the books back from 1939 that forbade large organizations, like the ones technocrats exploit, in which they could not buy land or houses to sublease back to people. It had made purchasing and owning home with self-sufficient land possible. I grew up in a coal mining family that taught for generations fair pay and the right to purchase your own home. Otherwise you lived in company housing and if you got sick, lost your job, your family lost their home. So, yes, we absolutely need fair and balanced regulation to protect The People from rich predators! I digress….
SEC regulations would not be necessary if government did not create corporations to begin with and give them special advantage over real citizens. To say we need regulations to govern what government created in the first place is oxymoronic.
Jdog, without government, do you think corporations would cease to exist?
Historically, I am not sure if not corporations actually predate the rule of law. Not legaly corporations as there was no nation state law regulating them, but still self serving and governing organisations.
“Regulating free markets is always the road to disaster.”
Keeping rates at zero for a decade is “regulating” markets.
Pumping up markets and lowering rates with QE is “regulating” markets. Bailing out banks with taxpayer money is “regulating” markets.
What should have happened in 2008 and what a “free” market would have done, is jack up interest rates and flush out all the bad debt. Instead we got the exact opposite. Think about it, if money is scare (bank failures, markets crashing, property values dropping) then people are going to be more guarded with the money they still have, hence rates should go up. charging a premium for the use of money, instead we get the opposite. At least they don’t blast on the media anymore about free markets and so forth, they aren’t that hypocritical.
Corporations by definition are entities created by government charters. Their primary purpose is to escape criminal legal prosecution for crimes committed by the corporation. At the beginnings of this country, they were not legal except in the cases where they were needed to build infrastructure and then were dissolved. I believe most States had a 5 year limit on their opperations. As time went on, businessmen bribed public officials to allow them.
Our forefathers wrote about the dangers of corporations having seen how they created economic inequality and indentured servitude in Europe.
Today they own our country and our government.
“I hope that we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.”
― Thomas Jefferson,.
Jdog, I will be DAMNED if I can figure out just what in the hell you would like to SEE happen regarding either corporations or government. It’s like some kind of weird “what came first the chicken or the egg” puzzle.
But I do have a hunch……and it doesn’t bode well for this democracy experiment.
Other than that, a good article and I really hope this is the top of the current housing bubble, at least.
Free markets are self regulating. There is no need for governments to interfere, and it is in every case, detrimental. At least to the general public.
When human beings try to control things they do not fully understand or is beyond their control they unleash the law of unintended circumstance which is usually a bad thing.
So far as corporations, they are a tool to dominate and control business using government bribery to change the fiduciary responsibilities of government to represent the interests of the wealthy corporations over the Citizens. How is that in any way beneficial to the average person?
It is not possible to serve 2 masters, and our government has chosen to abandon the welfare of the Citizens in order to give special privilege and advantage to the wealthy as the disparity in wealth clearly shows. The tool they use to redistribute that wealth is the corporate charter.
The phrase “That government is best which governs least.” is as true today as when it was spoken 220 yrs. ago.
Kinda what I expected…..I’ll be the dyslexic one here, ok?
Amazing how Faux News and the GQP have convinced people that unregulated private companies and investors will somehow be better for their interests than common sense regulation.
No… what is amazing is that people believe socialism will ever work when it has been proven not to in every circumstance. Of course it actually does work for the people who control it, and I suppose that is the whole point.
Ah, so you don’t really know the difference between socialism and regulated capitalism. Got it.
Because there is no difference. Socialists favorite deception is the renaming of things in a attempt to redefine them. A trap for fools.
I liked what Trevor Noah (or his writers said);
“On jan 6 the people attacked the Democracy Store and demanded to speak to the manager.”
The rental market is already devastating. Bring it.
Your right, this leaves the rest of use with nothing. I’m not going into a bidding war, I don’t have the money. The banks has paid billions to their shareholders leaving the small people with a high interest rate,now we can’t afford the increase. Who’s going to help us get the home that was promised to us if we save for it.
Great idea. Good luck getting that to pass. Implementing it is unlikely, to say the least.
Via “contributions,” legal and illegal, the banksters and financiers now control enough of both parties in our government as Simon Johnson in “The Quiet Coup” basically said and other commentators also have explained. Even forcing the ultrarich to pay the same percentage of their ginormous incomes in taxes as ordinary Americans is now off the table.
Nevertheless, the banksters-financiers might have to liquidate some of their massive real estate holdings if their stock “investments” in mainland China (purchased to re-sell to the stupid) are not purchased by enough gullible, American investors
Just a reminder that in the US, housing units per capita are at all time highs.
There has *never* been more housing. Obviously much has been secreted away, only to show up when prices are decreasing.
I’d like to see the per capita stats over time, honestly. Might be possible, there are a lot of vacant properties…apparently…despite high carrying costs.
Since everything comes down to supply and demand, those per capita figures over time would be very telling. Population growth has slowed markedly, but IDK if also slow new homes additions have paralleled it exactly.
Econimica blogspot has the per capita housing charts over time.
Dale – please provide data reference; my data has shown otherwise.
Census.gov – for July 2021: 142M housing units, 332M population.
So, 43 housing units per 100 population.
And for April 2010: 132M housing units, 309M population, so… 43 housing units per 100 population.
No change in housing/population ratio over 11 years.
Looks like one would have to look elsewhere to explain all the increasing homelessness, living with parents or several roommates, or multigenerational households, then….eh?
If you’re saying we should build more housing, you’re correct. But the issues you’re talking about are more complex than just housing alone.
Homelessness also has a lot to do with the rise of narcotics like Fentanyl, decriminalization of drug use, shuttering of mental hospitals, increased limitations on policing, perverse welfare incentives, fatherless homes, the list goes on. People vote for what feels good, rather than what is good.
Roommates and multigenerational households are definitely interesting though, and probably more closely relate to housing supply and cost of living. One observation is that young people seem to be more materialistic and focused on instant gratification, choosing to prioritize luxury goods and cars today over housing and independence tomorrow. They blow their cash Balenciaga and Off White. The question is, which came first? Is this a result of high housing costs? A generation demoralized by a feeling that they can’t get ahead, so they focus on the now? Or is it a cultural shift, a result of impatience and a shortened attention span in the digital age? Maybe it’s both.
@ George –
It is a result of high housing costs.
Now you get to explain why housing costs are high.
I do agree with Dale’s other comment – When there’s a bubble in prices and extreme wealth inequality, you get hoarding, supply that has been “secreted away”, only to show up when the bubble pops.
That’s how “All time high housing per capita” CAN be consistent with both “extremely high prices” AND “increasing homelessness, living with parents, roommates & multi-gen households”.
The idea that markets are “efficient” and generally in “equilibrium” seems very suspect…
Then how about TOTALLY INSANE wealth distribution due to years of extremely effective unilateral class warfare since the oligarchs decided to install the Reagan puppet as a more general cause of all of the above? Just throw in the cost of the Vietnam war and here we are, picking through the rubble for partial answers.
According to Lendingtree, we currently have 16 million empty houses in the US… That is about a 15 yr supply at an average 10yr build rate of a little over a million units per yr. It appears the housing “shortage” is being somewhat misrepresented….
My offer still stands. First to pay my Zestimate wins!
I’ll pay your zestimate…. from 2013…
Pick any month, I don’t care…
Did I win? … 🙂
If that offer still stands in 2024/2025 he might take it lol.
It is such a slow train wreck to watch. The housing-driven stocks have largely figured it out but it will take the buyers a bit longer it seems.
It is generally about 4 years from the time prices begin to drop to when they reach their low point. The reason for this is that many of the first properties to hit the market are the ones most leveraged. People operating from a weak financial position will put off a loss as long as possible especially if that loss will trigger a bankruptcy.
Lenders are equally hesitant to begin foreclosures because in a falling market it is always a losing proposition for the lender to foreclose.
Bank executives are concerned with the reports and statistics that reflect their own performance and will do whatever they can to make things look as good as possible for as long as possible.
With foreclosures, I also suspect that politics is a factor with unnamed demographic groups but not going to be more specific than that.
I have one friend who told me she is headed into foreclosure; I think next Friday. To my knowledge, she hasn’t paid her mortgage in over a year.
It could also be what you state, the property is “underwater” but not sure about that.
Jdog and AF together have more than enlightened me a bit.
I agree with you. Our elected fleecers have set precedent that whether you are a SFH owner or SFH investor with a loan of any kind, the terms of said loan contract can be modified by emergency legislation.
Check a box on a form and paying your mortgage becomes optional. Foreclosure might be one of those words that gets removed from Webster’s within the next few years.
Home construction stocks like DR Horton have been rising in value recently.
I was expecting a 10-20% rent increase but was hit with a 33% one today. It was either sign or hit the road.
It is a deteriorating wooden apartment building, complete with dry rot, sagging floors, no thermostats in the individual apartments, etc, etc. My apartment was rough when I moved in, and hasn’t improved any.
My neighbor got hit with a $525 increase, 68%, because their rent hadn’t been increased for several years. New owner wants every penny while spending as little as possible.
A month or so ago I was talking with an older gentleman who had built his home years ago. He said he listed it the very week mortgage rates spiked, for $6000,000, as that HAD been the going rate the week before. Now it was just sitting there.
He had already moved out, downsizing, and doesn’t need the money, and doesn’t want to leave it to the kids.
In San Fransisco I’m seeing asking rents are lower than when the pandemic just started. And brck then rents tanked by 1K/month. Now it’s about $1200 down (from the top).
What’s it cost to live in that leaning tower?
Pricey, but the incline helps with my snoring.
I’m inclined to think it’s a good deal.
Now that’s a good example of the type greedy landlord I absolutely loathe. It’s one thing to make a little money from your tenant, it’s another to see them as suckers and ring every dollar out of them. These types of landlords are just asking for tenants that will eventually burn them.
When rent finally crash and these type take it in the chin, I got plenty of schadenfreude reserved just for them
As the major bear market (which I assume has started) progresses, I expect rental vacancies to soar.
It’s contingent upon the labor market and the economy, but once both weaken noticeably, large numbers of renters will be “doubling up” or moving back into their parent’s basement.
There is a lot more potential housing supply than the optimists believe. It’s been there all along.
You have had strong insights of late…but how to reconcile 20%-25% yoy rent hikes in most metros around the country with the “hidden supply” you suggest exists…why hasn’t that supply moved to market, taking advantage of historically high rental inflation?
Even if you just mean doubling up…why hasn’t enough occurred since early 2021 to put a leash on these very, very high rent increases?
You might be right (I hope you are) but rents have been soaring already for 12 to 18 months (following a million death pandemic, amazingly).
Unbalanced markets are not caused by landlords, not even greedy ones. Unbalanced markets are the result of corporate and governmental manipulation of free markets. The unfairness of economic disparity is caused primarily by government and governmental policy. The elected government officials work for who pays them. It is a corrupt system and you vote to maintain it.
@ Jdog-
and the alternative vote is?
I don’t believe I saw that option on the ballot ………..
What city is this?
It is a small resort town that has had it’s own housing bubble for decades. Think Vail light; no movie stars. Add Housing Bubble 2.0 on top of a resort town’s normal bubble.
If memory serves me correctly, over a year ago a realtor was saying there was no homes for sale for under $400,000. Even they were commenting on how insane it is.
Tons of homes being built, but not visible, as they are hidden away in gated communities or forested areas. I don’t know if they will have buyers for them all.
It is a slice of California outside California. Voters routinely vote to increase the cost of living, trying to address the high cost of living. A sit down breakfast is $15-20 per person before tip. That may be cheap for people living in CA. I hear people questioning their bill at the register. When I hear the bill for a family of four I cringe.
Local paper applied a “temporary” gas surcharge to all subscriptions, to compensate delivery drivers and offset their own increasing costs.
Notices and articles in the paper mention numerous proposed or pending tax increases. Increased property taxes on top of inflated home prices.
On a side note, the nearby used car dealer has lots of empty space on their lot. They seem to move a lot of inventory, retail or wholesale I don’t know. They are parking cars sideways to fill the voids.
My option in regard to rent is pay or move to the street. A tenant moved out of the apartment building next door in the middle of the night a couple months back. There is a rent sign up, which is unusual. They have built hundreds of apartments the past couple of years.
Rodger Dodger—
Sounds like Couer D’Alene, Idaho or maybe one of the resort towns in Northern Michigan to me!
“It is a slice of California outside California. Voters routinely vote to increase the cost of living, trying to address the high cost of living.”
“Local paper applied a “temporary” gas surcharge to all subscriptions, to compensate delivery drivers and offset their own increasing costs.”
Yes, your speaking our language. This is happening down in Texas now too (an esp bitter irony since a lot of Californians left California in big part to escape these prices spirals). It’s another reason why the Fed has to be even more aggressive with interest rate hikes and QT now to fight this inflation, it feeds on itself for exactly this reason. The buying power and value of the US dollar keeps plunging, forcing up costs and then all stake-holders just push up prices more because everyone’s costs are going up. Nasty vicious cycle. Has to be full Paul Volcker for the Federal Reserve, it’s only way to break inflation like this.
…the costs of herding an increasing number of two-legged cats is not inconsiderable, as y’all have noted…
may we all find a better day.
Time to go live somewhere else.
Channeling Yogi…in all of the nice places “It’s too crowded, nobody wants to live there any more.”
That’s messed up. Sounds like half a dozen other boomers I’ve conversed with about their homes. “I’m not leaving my home to my kids or grandkids, why would I? I did it on my own, they can too.”
Having the system for your entire life in favor of you (pensions, social security, your portfolio, RE) and then taking it all with you into the grave is selfish in my eyes. When it’s my time, I’m leaving everything I have left to my kids so they can have a leg up on their life than I did.
I have news for you: Not even the hated and maligned boomers can take their wealth (if any) with them. They too have to leave everything behind. That’s the deal down here.
I expect a lot of boomers will take out reverse mortgages to fund their lifestyles and then the banks get their house upon their death. The pretty much cuts off their heirs.
Read a book back in my youth about the difference in physiology between between uber wealthy dynasties and regular people. Dynasties tend to teach their children from an early age that the money they will inherit is the “families money” and not theirs personally. Their duty is to grow it and pass it on to their heirs.
Kind of seems like financial common sense for any family.
Re Tony, the idea to be well underwater ecomical when going in the grave is a rational thing to do in a debt based society. No one taket anything with them, nor are charged afterwards.
With some planing it is even possible to transfer wealth to children and granchildren and leave the debt to the bank.
With a declining population the bank might then be in a bad position.
wow. that’s a lot of hate for me and my gen, and you don’t even know me. I’m not rich and have my millennial kids either living with me or I’m sending money. I would tell you to stop your fixation on hate and create some positivity…or you will pass your hate down to your kids.
Collectively, the Boomers made it easy for their kids to hate them – those they didn’t abort…they indentured.
And, more than a little, abandoned (huge increase in divorce and unpaid child support).
The Boomers inherited the richest country on the planet…and are leaving a steaming pile of debt.
New owner, eh?
“He had already moved out, downsizing, and doesn’t need the money, and doesn’t want to leave it to the kids.”
Then sell it for lower if you don’t need the money. Or he can’t because of the “principle”?
Don’t know all the details. I believe it is paid for, as he built it himself, and home values ballooned later.
I believe he is likely emotionally attached to it, but also doesn’t like to visit it, perhaps because of the emotional aspect. I believe he lived in it with two wives who both passed away, and then likely also the kids.
You are exactly correct IMHO Kmf:
Told the wonder woman in my life to ”instruct” in her will for our little cottage to be offered to the fire department for practice.
Then, let the children sort it out to either build new, or just sell into the ”dirt” market so someone else can build new.
This house, built 1950, truly a ”tearer downer” I used to HOPE,,, might end up being just a ”fixer upper” the way it’s going these days.
I am rehabbing a 3bd rental. I will raise the rent 35% from $650 (prior to rehab) to $1000 when I finish the rehab (renter destroyed the place. $25k to rehab it) . Wiped out 4 years of profit. But I could charge 1100 to 1200.
I also have a 4 bedroom rental I am going to raise rent about 20% from 1600 to 2000. I could easily charge 2200.
Now before any hate comments. I typically charge 20% under market value to long term….good renters and if they are willing to do some of the handyman fixes.
But the rise in property tax, insurance, maintenance supplies, and handyman wages leave me no choice.
You’re raising the rent closer to 54% on the 3bd. You’re raising the rent 25% on the 4 bedroom. You shouldn’t have any qualms about charging the market rate, but it does illustrate inflation in housing costs.
What are are you in?
Just sorry to hear you and your neighbor having to deal with this, may not be much comfort but it’s cases like yours that make a lot of us very, very mad, and it shows the real cost of the USA’s insane Everything Bubble and why it’s so damaging–it’s not just a bubble in dumb frivolous things or vaporware like crypto or tulips. Our institutions stupidly allowed the bubble to extend to absolute survival necessities like shelter, healthcare and education needed to get employed, This is a reason why extreme ZIRP and QE can be argued to be not just damaging to a country, but a kind of criminal level negligence. We can roll our eyes when asset bubbles hit things like crypto or NFT’s, but housing is something everybody needs and so a housing bubble is grossly damaging and painful to Americans already struggling to stretch their incomes for basics–on top of the general inflation. One of co-workers has even gone so far to argue that landlords who do such awful profiteering should be prosecuted, she’s a landlord herself but sympathetic to how the renters in her overheated market are suffering.
Just here to remind everyone that QE and ZIRP are just response of the elites to maintain the status quo while consumption capitalism is collapsing. Good riddance, it was never that great to begin with, it almost destroyed the planet. Time to focus our energies on what comes next, a more peaceful way of coexistence with nature.
We all just need that magical candle to make it happen!
Roger, sometimes landlords jack up the rents to intentionally get people to move out so they can renovate and demand higher rents going forward.
All those I asked about mortgage rate who bought recently got adjustable rate morgage at 4.5-4.75% range. Many plan to refinance later.
They won’t be able to refinance if they go underwater.
They must all be true believers that FED will pivot and eventually start buying MBS again if they believe rate will adjust lower and they won’t be upside down by then..hopium do go a long way
Oh, so that’s how they’re fleecing the suckers now. I’m sure they’re running “teaser rates,” too, right? Banker scvm have a trick for every market to try to prop up prices.
Yeah it’s just sickening to hear this. There’s so much confusing information out there that even highly educated professionals get confused by all these financial instruments, or how dangerous these ARM’s are now. This sort of fleecing of vulnerable Americans should be criminal imho.
Our banker told me we would be fools to go with anything but a 7/1 arm.
Only “suckers” are getting 30 years these days.
Mind blowing.
why no recession in 7y or Fed won’t lower rate in recession to refi? Doing ARM in low rate period is risky.
Man, that’s dangerous.
Almost everyone I know that purchased a home in California since 2005 used a ARM. Everyone I know in Texas go a 30 year fixed.
I fell for that trick in 2006. Never again!
Same in 2005. We bought as much house as we could afford, stretched all the way out. It worked out OK (mostly for my ex who kept the house in the divorce) but now I see what a crazy risk I took. 30 yr @ 3% now, I may not ever sell this place.
What you’re calling “holy moly” is just a blip in the long term chart of mortgage rates. Before 2000, 10% or higher was common. This could just be the start.
The one thing you’re ignoring is the price. Interest rate repression has inflated home prices. So that $200k shack in 2000 is now the $800k shack. And that’s not the same thing anymore, in terms of mortgage payments. The impact of 6% mortgage rates today is huge. My first mortgage was 8%, but I didn’t buy a $800k shack with it.
Absolutly true. However, on the lower end where I exist the price of a house as in monthly total cost to own correlates very close to the rental prices. The fact that large companies are in the market controlling close to 30% of rentals does determine the housing prices when the number of houses I’d less then the number of buyers. I have sold most of my rentals and have evaluated the price reductions on the rest already. At a 20-25% reduction in value and increasing rents I still win if I collect income for another 5 years and that is the worst senerio. Also when prices go down 25% I may start buying again as I have cash from the last run up. It’s like planting and harvesting to long term investors, we simply don’t care what happens.
I would guess that the Feds might let housing prices drop until all the owner’s equity is gone and the lenders start taking hits. Then they step in to “stabilize” the market before they have to bailout the banks again.
Most of the mbs is held by government.
This time I don’t see any threat to banks unlike 2008.
The Fed is owned by the banks.
Most mortgages now are created by non-banks, competitors to the banks.
All securitize the loans and sell them off ASAP to bag holders.
The Fed will feel little need to buy up MBS to bail out the banks this time around. It would do it only to stimulate the economy in general, which would directly conflict with its goal of quashing inflation.
Fed owns about 25% while pension funds own about 11%.
Fed owns around 2.7 trillion of MBSs…
in 2006 they owned none
Will the Feds have to bailout Fannie and Freddie again? I guess I meant to lump them in with “banks”.
Wolf I appreciate your restraint in not blasting Harrold with both barrels. Your must have been sleepy. How he made that comment without factoring in the new holy-moly house prices is beyond me.
As always thank you for this site.
I keep my trusty old side-by-side 10-gauge goose gun right next to my desk, just in case. But Harold didn’t say anything that required that kind of racket. He just looked at one component of a two-component issue.
What Harrold said was correct. Interest rates will be raised to whatever level is necessary to get inflation under control, and if that devastates the housing markets, and the people who over paid for homes, then so be it.
The Fed cares a lot more about correcting inflation, than it does you losing money on your RE or stock investments.
this for Wolf:
”Goose Gun” is always long barreled, at least 30 inches and preferably 36”… 8, 10, or 12 gauge makes no matter if aim is good…
IOWs, not double barreled, as would be way too heavy…
What you mean is your ”Mossburg 500” or equal, designed and made to lie quietly next to the bed without one in the chamber,,,,
According to many reports, the only thing needed these days is the noise of ”chambering a load” to deter many bad folks who apparently are well acquainted with that sound.
Similar to the old model 1911 .45 whose ”snick snick” was very well known ”back in the day.”
Nah. Nothing better than a 36′ 10 gauge side-by-side to shoot down high-flying comments with. That’s the only thing I use it for.
“Mortgage rates are still low by historical standards” is one of the cutest cope statements ever, uttered by people who do not understand the very basics of economics.
It’s an incomplete statement. It should be followed up by “Home prices are STILL high by historical standards.”
Except for the rich/wealthy, monthly payments matter to people. Rates go up, prices must come down to match. Demand and supply, very basic.
Vehicles should get there soon. I’ve never seen so many used cars with temp dealer tags in my life.
That’s what I was thinking, too. On one hand yeah, home prices are ridiculously high and that’s the bottom line here. Sure, one way to look at it is that higher rates would make those high prices even more unsustainable. But it doesn’t follow then, that “this limits interest rates from going as high as before”–that just means that housing prices have gotten even stupidly higher than we thought, and this real estate bubble is even more beyond anything that should have been allowed to happen. The ultimate determiner of what housing prices should be, like with other assets, is US incomes. And American incomes haven’t kept up anywhere near enough to tolerate real estate prices and general costs of other basics. So if home prices have to fall even farther as yields go up even more, so be it. Like i said there are a lot of US markets where home prices and rents would have to fall something like 60 to 80 percent to get closer to actually salaries and earnings for the people there.
“Mortgage rates are still low by historical standards” is one of the cutest cope statements ever, uttered by people who do not understand the very basics of economics.
Mortgage rates are low, but mortgage payments are high!
Mortgage rates are low by historical standards
People who lived thru sharply higher rates know this
People with charts know this
People who measure 30yr rates vs inflation know this
Reality will intervene into the Fed circus which has been going on for the past 16 + years. Suppression of the interest rate function has been the fools economics, writ large. That is what we have, QE.
Prices are too high for the median citizen too afford so they will decline gradually or violently. We will see.
“Prices are too high for the median citizen too afford so they will decline gradually or violently. We will see.”
Yep, this is what matters. This is the pain that QE caused. It was fine maybe as a very short term intervention when COVID19 was causing its most damage, but it’s one of those things that has to be withdrawn aggressively as soon as even a hint of inflation starts showing up (including asset inflation in homes). Continuing QE for years even after the housing bubble was showing up was totally irresponsible. A bubble is simply when prices go beyond what incomes can afford, simple as that. It should have been a red-flag when asset prices kept soaring beyond incomes, that’s always going to lead to inflation in general goods and services.
Notice the Fed does not speak of price rollbacks but only slower rates increases on top of the recent price hikes
THUS 12 months from now, theses current prices plus X% is a Fed victory
People cant handle that
Remarkable the Fed does not press for zero inflation
City of San Diego politics has driven a speculator frenzy of buying. Things have cooled here but the developers are swooping in with suit cases full of cash in areas they see as the best for multiple units. I’m curious what that chart looks like for the city of SD only. Some stuff is sitting longer, some pulled and put back on, but some stuff is still selling for ridiculous amounts, again, if the multi units numbers pencil out. The entire city is zoned for multifamily now with San Diego’s generous ADU program, especially anywhere within the TPA (transit priority area).
Don’t worry.
San diego prices would also come down to ground to sane levels.
I am seeing multiple proce reductions.
Although my friends think San Diego is special and this time is different so come what may home prices in San Diego would never go down ,
> come what may home prices in San Diego would never go down
In ’08 my place fell to half its price. The nearby multi-unit project was delayed about 8 years. So these “friends” are blowing smoke. If they are staking their money on it, it is their problem. Beware these “friends” may be hitting you up soon for cash.
Has a one GREAT zoo if you don’t mind a lot of up and downhill walking. Really wanted to see the Tasmanian Devil (was inspired by the cartoons) but it was all dark in there and it just was sleeping in a cuddly little ball…could have been a rock I saw, too…..was ONLY letdown, though.
My wife and I took a Baltic cruise out of Copenhagen at the end of May. We had a day in Copenhagen after the cruise before we flew out — and fortunately had great weather that day. We went to the zoo. One of the exhibits that really stuck in my mind was the Tasmanian devils. They were outside only about 8 feet from the railing feasting on a carcass. I’m guessing some kind of antelope judging from the legs and hooves. We commented that you’d not likely see something like that in an American zoo! Even if they were being fed I don’t think it would be on something so recognizable as a part of an animal.
We had zero fun last time we visited the SD zoo because it was so very crowded and that was on a weekday. Now the Safari Park is another story. It’s hard to find a parking spot but the park itself is so spread out that it’s easy to see the dang animals.
I think the entire state of CA is now zoned for 2 units after SB9 was enacted in 2021.
The entire state is zoned for two from the state adu law, three is you toss in a JADU. Sb9 takes it to a minimum of 4 (lot split with a Dulles on each lot) . San Diego is unlimited within the TPA. This isn’t anecdotal, the term unlimited is actually spelled out in the city code. Outside the TPA we’ve calculated that 5 units is the limit. Both these caps are by using the “bonus” units which are allowed by creating “adfordable” units. Ironically, affordable units, per the code, are anything up to 110% AMI. It’s a density ploy, nothing to do with affordability.
That’s insane. What’s wrong with high rise condo complexes? I’d rather cars be parked underground in a garage than lining the streets of every suburban neighborhood.
SD is the last delivery location for imported water from the Colorado River which isn’t doing all that well, and there isn’t really any well water possibilities in SD either.
Yet still the fools are building big residential blocks like there is no tomorrow. They have the aesthetics of Stalinist architecture. At least they lack lawns.
So bye bye golf courses and swimming pools (there is an ocean, ya know?) and all AZ type landscaping?….ahh, the sheer agony of it all, but then it really IS all a desert down there. We gotta get them to pass a law on what North CA water can be used for down there…..maybe that “density ploy” will help.
But the ocean has pee and poo in it right now, for a good portion of the county. Plus where the heck are people going to park? It’s truly amazing prices are so high in SD.
Desalt plants in the future? What other options are there.
That is the only option for the future. Add it to all the other costs and watch quality of life decrease even more.
But if you listen to the leaders in SD today, they sound absolutely confident that their water supply is secured for decades because of some deal with Imperial. They made a deal with the desert… for water, from the Colorado. Okay, good luck; still last in line for a water source that’s diminishing.
The inhabitants of San Diego are suffering from mass psychosis. They still believe that it is a wonderful place to live despite being hit in the face every day with the reality that it is not. Overcrowding killed SD living standard a long time ago, and it is only the illusion that keeps it going.
My life here in SD is incredible. And affordable. Go look for a straw man somewhere else.
Lived in SD for 37 years. Used to be wonderful. Hate it now. I can afford it, but it’s way too crowded, too many homeless, too much traffic, too much tension in the air, probably from all the people who can’t afford it. Have great job, but not great enough to keep me here much longer.
Lived in SD from 1960 to 2018, it used to be nice, but now it is neither affordable or does it have a decent standard of living. That is unless you enjoy putting up with all the problems overpopulation creates, and spending a large portion of your life stuck on a slow moving freeway with people who will risk your life to get one car space ahead. The desperation that comes with overpopulation makes people act uncivilized and depresses the hell out of me.
Had a beautiful estate 1.5 ac. in a great area, and still could not wait to leave. Best decision I have made in a long time. Only problem now is too many idiots from CA are moving here with their poor manners and self centered attitudes. They are still a small minority though, and will not be able to totally screw this area up until after I am gone.
You must not live south of the harbor, where the pollution has closed the beaches all the way to the border. This includes the very tony Coronado. And as others have noted, the rest of the county is really crowded with tons of building and traffic from the north every weekend. Left 15 years ago and so happy I did!
I think he meant “mass physiology”. See comment above concerning his reading background.
Are you being facetious?
I left 15 years ago after living in SD for 20+ years. Funny things is now I can afford to live there (right, in a $1,000,000 box of mediocrity) but have no desire to. The traffic alone is enough to make it not worthwhile.
@Iona Thanks for mentioning that! Was nearly about to book that fancy pants hotel on the shore of Imperial Beach. Nearly $600/night for freaking sewage? What a joke. And the only reason for IB was to not spend half my vacation stuck in traffic. Good grief, can’t wait till my fam builds a hotel or two in their backyard.
“Overcrowding killed SD living standard a long time ago, and it is only the illusion that keeps it going.”
This sounds like Phoenix too, and more and more cities throughout Texas and esp Florida. Arizona and Texas esp are running out of water in many places and Florida has its own infrastructure and sustainability issues. Absolute insanity for prices to have gone up that high there. At the very least there are cheaper options in much of FL, AZ and Texas for now (which is why so many Californians are moving there), just so long as they can keep the plague of speculators and institutional buyers away. They were the ones behind a lot of those outrageous rent hikes in ex. Tampa a few months ago. Really need to be limits on that sort of thing.
FL is literally owned by the developers/speculators, and has been for decades Miller.
There used to be a ”square” of doubled double wide trailers set up in Tally, every minute the legislature was in action, in which any of our elected representatives could get anything they wanted to eat or drink or otherwise…
That was in the sixties to my certain knowledge.
I suppose they use more sophisticated methods of blackmailing the legislators these days, eh???
The clear results of Hurricane Andrew and subsequent storms may have put a hitch in that giddy up???
When I was a kid, San Diegans prided themselves on not being LA, and then they turned into it.
XC-true dat…(all the way back to ’77 when i departed…).
may we all find a beter day
California pols want this for the entire state. There’s not enough water, but they demand towns create more housing even if it means destroying the character that drew people there to begin with. Not to mention the sanctuary state b.s. Density will ruin quality of life up and down the coast as amenities, services and infrastructure don’t increase with the population. I foresee more homeless, crime, trash along freeway, requests to cut back water use, while politicians here increase the racial division with their identity politics and calls for equity which are veiled wealth redistribution schemes. Happy 4th!
If a buyer can barely afford a $500,000 house with a 3% rate 30 year mortgage (i.e., housing cost of mortgage/tax/insurance/hoa fee is 38% of monthly income), then they can’t afford the same house at a 6% rate.
The price would have to decrease from $500,000 about 10% for every 1% increase in the mortgage rate.
That means the house price would have to drop to $350,000.
Imagine how fun this will be when 30 year rates go up to 9% or so!
No worries. You just buy with a zero down super teaser 2% ARM sheeple special, with a side of super PMI. Buy now and get priced in forever.
If the progression of auto loans are an example, won’t we see 50 year mortgages soon?
Why has the 10-yr yield fallen by an entire 50 basis points since the June Fed meeting (from 3.3% to 2.8%)? If the Fed plans to continue hiking later this month, even if it’s a ‘light’ 50 bp hike, the 10-yr yield free-fall seems to defy reality.
Not sure if this aberration provides a temporary reprieve from ‘holy moly’ mortgage rates enough to bring in a final decent gaggle of buyers or not.
Why has the 10-year yield doubled to over 3% when the Fed just start started hiking rates?
There is a lot of demand for Treasury securities — which keeps the yield down — because at least you get your money back if you buy at auction and hold to maturity. People rather make 3% when inflation is 8% than lose 50% when inflation is 8%.
There is no signal from the bond market on a day to day basis. Look at the long term chart, and you’ll maybe see a signal.

Wolf, thanks for your reply and, yes I acutely understood the overall parabolic leap from the 2020/2021 yields. I was more interested in the driving force behind the 50 bp drop over the past few weeks only. Seemed overbought to me given the likely circumstances ahead.
CNBC explains it as recession fear driving safe haven investing.
High demand for the bonds is driving the price up and the yield down.
Yea. I saw a couple of charts on odds of recession and both charts are spiking up to where that is becoming most likely outcome. Long dated treasuries is normally the go to for recessions.
I picked up one of my favorite dividend payers yesterday with a 3.2% spread over 10 year Treasuries. Doesn’t happen very often.
@ Old School who said: “I picked up one of my favorite dividend payers yesterday with a 3.2% spread over 10 year Treasuries. Doesn’t happen very often.”
Name and ticker?
How confident are you of the continued dividend?
Wolf doesn’t like stock pumping, but if you want to figure it out it’s the biggest pet pharmacy. No debt, dividend $1.20. $5.00 plus cash on the books so that is 4 years of dividends. Stock price has a $19 handle. Company is not growing and has completion so it’s not a slam dunk. I have bought and sold it for about 14 years depending on price.
If someone asks, feel free to tell.
….oops. has competition.
Acute tap dancing is kinda like “fast comeback” in HS which I never bothered to learn…..really stupid game. I just said FU and took the loss, and if the victory was pushed I said it again but in the fighting words way. So they all left me alone.
Ticker symbol is PETS. World’s best balance sheet for a small public company, but the business is competitive. Might be more down side, but buying with dividend 3% higher than Treasury seems acceptable, but you can hold out for lower price higher dividend if you want to have more safety. Good luck.
“There is a lot of demand for Treasury securities — which keeps the yield down — because at least you get your money back if you buy at auction and hold to maturity. People rather make 3% when inflation is 8% than lose 50% when inflation is 8%.”
Clear as a bell. That’s why I like this site. I might have to crack open my wallet and send in a donation.
Hey Wolf, what do you make of the massive volume yesterday in the 10 year etf, ief? Looks like 2 whales made moves but I can’t help but think it was selling into strength. Based on your view of bond funds, for them to be buys would mean serious idiocy.
Two and five year yields are above 3% (which also means the Fed has lost control over the short end of the curve which is the only thing they could still pretend to control). Even 7 years are at 3%.
That means an inversion of the yield curve.
It is called “pricing in a recession”.
Cannot really understand having much interest in the 10-30 yr. when the short terms are paying more, and make access to cash less risky. You can always sell long term, but if rates go up you will lose. Can’t complain though, it plays to my personal advantage.
Yeah, 26 week T-Bill is around 2.5%
Not bad!
I don’t play beyond 5 year bonds, but there is a reason to own long dated securities if history is a guide when you get to a certain point in cycle near recession. It’s similar to shorting stock market.
They are bought to ride out the Fed cutting cycle and you can make a big capital gain if you buy and sell right. Not for me though, because you can be screwed if you get the timing wrong. I don’t like investments where you have to be right on timing.
With CPI at near 10%, and likely to stay at nosebleed rates for at least a year, possibly two, I don’t get it either.
My impression is that the fed can do whatever they want to the yield curve because of the content of there balance sheet. But instead they choose to do what they do for reasons I do not understand. They could sell longer term debt to to push up those yields if they wanted. I think they don’t do that in a reactionary manner because they prefer to sell according to a well telegraphed plan. That is my understanding of QT as it currently exists. Maybe someone can provide more insight. So, bond market trading still affects yields like the good old days, but there is an enormous bias courtesy of the Fed, and that bias exists far beyond the low end.
Not really, you must understand that the Feds primary concern are its member banks, and their profits, they are the Feds shareholders. That is why it is so concerned with keeping low stable interest rates.
Run away inflation is the worst case scenario for banks because it dictates that the money they loaned out already is paid back in substantially depreciated dollars, which they did not factor when they originally made the loans. This can create huge losses over a relatively short time.
When it comes down to choosing between the economy, and the health of their member banks, the Fed is always going to do what is in their shareholders interests.
The Fed controls the entire yield curve.
They didnt when the balance sheet was $800 billion…now over 9 trillion they have plenty of ammo.
Thus to look at inversions and then make a prediction is faulty IMO
The yield curve is just what the Fed wants it to be.
I saw an article on a MSM today talking to a 80 year old from north of Seattle complaining that two months a go zillmate had her house at 1.1M but right now she and husband can’t even sell it for 900K. She (and many other hone owners ) truly believe their house worth over a million just because zillmate said so and feels she is been screwed selling it for less!
Meanwhile in Boston (and DC) new inventory still being priced even higher than couple of months ago, it’s like no one has gotten the memo yet.
Did anybody ask that old skinbag if she could afford to buy her house at today’s prices without having the money from the current house? In other words, STFU, greedheadgranny.
I like Charlie Munger’s saying when you see financial problems which is basically invert the situation and try to come up with a solution. The world’s biggest asset bubble is probably one of the biggest opportunities if we can think of the correct financial decisions to make.
Does your response have to be filled w sexist, ageist digs? Lots of younger people who are male are thinking the same way she is. Nasty isn’t necessary.
Hate-speech is very fashionable these days. The most unfortunate part is that those who have an abundance of it want to spread it around.
People that still list higher than market price now and refuse to reduce price it’s so oblivious or stubborn, kind of reminds me that one guy in school that thinks he has the hottest girlfriend meanwhile everyone around knows she is about as ugly as sin.
I also hear stories of people arguing and offended at their RE agent why aren’t they listing well above market asking or getting offer at slightly or at asking. Some comedy gold right there..
Correct. I just dealt with that last year. Offered on a house in the Minneapolis / St. Paul Metro (Edina) on a fixer upper. House had good bones, owner demanded listing it at 575 (way over comps). 3 price reductions later, I offered 450, countered at 465 and the owner wouldn’t budge said his realtor. He fired his realtor and relisted in the winter with a newly staged house and much better photos (polishing the turd mind you). However… 1 key difference on one of these photos – Snow now on the exterior and roof. Why is this important? Whoever the owner was, put a brand new roof on 1 year prior and chose the hideous green contrasting with the home exterior. So you can only guess how the rest of the house looked… yes, Christmas lights in the basement bathroom – Horrid. House sold for 525 Feb 2022. Can’t wait till the new owner finds out they have a sweet new green roof. Ha ha. Only one choice now… paint the house white.
not ANY kind of good analogy pi…
if any other venue, i would tell you to ”get a life”
and stop picking on girls from your apparently unhappy childhood
in reality, there are NO ”ugly” people except when any people make themselves ugly by choice
Behavioral finance, a really simple name, endowment effect. People value what they have, highly. People are averse to risks of locking in losses, perceived ones along with actual. This is as natural to a dog as a human. They will lag at lowering prices. Most folks do it to some extent. But it is also natural for people to try to be insulting and snarky about absolutely anything, trying to sound “smart.”
If a guy values his girlfriend, that is his business and his freedom and meaning. Only if he is trying to pimp her out, does the analogy hold up, and only for idiots who rate women like cars. And that’s not a world I traffic in.
This is right. Is the guy happy? Nothing else matters.
“…danger, Will Robinson! i’m detecting an outbreak of basic decency!!!”.
may we all find a better day.
He’s trying to make a point, probably with a made up analogy, not something you are supposed to take seriously, any more than the Geico gecko. People have forgotten how conversation works. Waiting for people to over react and cancel me now…
In fairness the Zestimates are presumably based on comps so houses around her were probably selling at those inflated prices. I’ve created basic spreadsheets to model house prices based on square footage, number of bedrooms, bathrooms etc. and they worked fairly well. You can do even more advanced stuff with Machine Learning. I’m sure the models Zillow created did a fairly good job with modeling current trends. We’re I think they fell apart was not factoring macro economic conditions like interest rates, stock market, etc.
How does zillow factor in a green roof, mold, bad landscaping, a shot water heater?
They don’t. You have to factor in those details yourself. I find Zillow, or similar pricing sources, very useful.Be it cars, RVs or houses, intelligent end user input is critical to arriving at a realistic number.
That’s where zillow took some big losses, making offers on houses based on their algorithms, not the actual details. In the last “tech boom,” there was a big hype and then breakdown of many algo models in many areas, including insurance, etc. There is a lot of data lost by making gross assumptions about something being traded, that is not truly fungible (like grades of wheat).
This sort of thing happens in waves by region.
Boston’s inventory is so restricted that prices may never go down. The local governments restrict new builds so well that there will never be a large increase in inventory.
I have noticed that many people get REALLY emotionally attached to the perceived value of their home.
While there are rational folks that understand that the value of a home is what a buyer will pay for it, there are many who will stubbornly insist on their price.
I you have a property on the market for 6 months (really 90 days would be better) and have no buyer, your asking price is too high.
Pure schadenfreude 😀
I counted up the homes for sale with price reductions just now in and around 20+ miles of one town in rural far northern Ca. 50% of the homes had price reductions. Also about half of the newest homes for sale had lower relative prices. The other half are seriously overpriced and in denial about their lack of maintenance- even on the higher priced homes.. I see homes with ruined flooring, questionable septic and peeling decks at the same relative price as very good quality homes with pools and very well maintained structures and landscaping.
Also saw more homes go pending this month then back on the market without closing.
I think, in my greater area at least, prices will be coming down much faster than in 2008.
I love the smell of barbecued speculators.
Yeah, and put a LOT of salt on those fresh wounds baby!
I think also the Chinese are pulling out of the US a bit. Seattle, LA, I think Portland have been propped up by them as well as some towns in between. And of course the Russians are spending less here. I read one small report that they are digging into all RE owned by them, not just the mansions, and freezing all sanctioned ones they can find. Good. About time. I’d like to see the mansions in particular turned into low income and below market rate workers’ housing.
Love me some kung pow speculators…Those Chinese “investors” I hope they take their money out now whatever they can get and go ruin some other countries or take it back home to cover whatever debt and RE bubble blowing up over there. Before 2020, couple of years back, all I hear in SoCal is how these Chinese investors are buying areas like Arcadia cash, the tend to gravitate towards SGV.
Don’t know how many have to pull out now because of all the turmoil from Evergrande..etc but if they do…good riddance.
” I read one small report that they are digging into all RE owned by them, not just the mansions, and freezing all sanctioned ones they can find. Good. About time.”
Private citizens loosing assets due to something their country did is NOT a good thing. Also illegal and unprecedented.
Personally, I hope they sell every last piece of their property and put the money into Ukraine’s war account for long range missiles.
At some point it should be illegal for foreign investors to own any residential property in the US unless they live in it full time. In peacetime as well as war. Both China and I’m pretty sure Russia have extreme limits on foreigners owning land in their countries.
Yep been hearing the Chinese have been pulling out of West Coast real estate A LOT, esp out of Seattle, LA, SGV, Bay Area and of course Vancouver. That may be doing more than anything else to moderate home prices there a bit. The Chinese will be leaving with good profits but so be it, whatever gets them to stop this speculative frenzy will help make prices more reasonable. The odd thing is the dumb bagholders buying up the homes from them more and more seem to be institutional investors from what I was seeing as of late last year (and plenty of FOMO first time buyers), but whatever it takes. As for the Russian oligarch real estate investors, if they had anything to do with starting or profiting from the Ukraine War, I say seize away, that’s the price you pay for starting a war of invasion. (And in case it comes up, I didn’t like it when the US did the invasion of Iraq on false pretences either so wouldn’t mind if our own American oligarchs get some assets seized for that too.)
I read an article a while ago that stated that in general Chinese investors were more highly leveraged than American investors. I suspect a lot of them will be taken to the cleaners so to speak.
I suspect a lot of bulk RE buyers are also funded by Chinese money.
Yeah it smells like sweet and sour, depending on which side you’re on.
I wonder how much of the declines of new sales are due to the higher interest rates, lower stock market portfolios and ridiculously higher prices vs. some of the more psychological factors such as a concern that everyone is suddenly talking about a recession (e.g
Mark Zuckerberg “worst downturns that we’ve seen in recent history”) and layoffs (while there have been some high profile layoffs the numbers are still small), concern over the drought in the West (Lake Mead and Lake Powell have declined to their lowest levels since they were filled and everyone remembers the day the sky was orange due to the wildfires). If the market is currently only starting to price in the first 3 factors and not the others ones we have an even larger drop ahead of us.
I’m friends with several realtors and the sales pipelines has really slowed. Yeah, they still have good sales action but not like when rates were low. Rates are a huge thing for buyers. Huge. Throw in war, gas prices, groceries, rising taxes, political instability, monkey pox, drought, stock market (big one), etc… yeah, I’m curious myself about the psychological effects as well. Stock market seems to be a big one for a lot of people. I know my dad always seems to use it as a barometer that the country is doing well. His logic is flawed though, as he still doesn’t seem to grasp the logic behind a currency printed on nothing and backed by nothing. Will be interesting to see how the US Dollar ends. If I’m not mistaken, every single fiat currency has failed with the average fiat currency lasting 27 years. Grab the popcorn, a beer (poured in a Wolf Street mug) and your 3D glasses for this ride.
The stock market is often wrong as an indicator. And pumped up asset prices reduce liquidity in the productive sectors. The money literally gets ‘trapped’ in these assets, never getting back into the economy as productive assets.
money never gets trapped in assets. money is exchanged for an asset, so both the asset and the money have a new owner. the money stays in the system.
That average 27 year lifespan should alarm people. Our current FIAT system is then overdue to fail.
Averages are meaningless.
Well, I do not know of a FIAT monetary system that have lasted longer than today system either;)
The whole USA wealth phenomenon has lasted a lot longer than many folks expected. I thought it would go under in 1979. Each situation is different.
England’s gold-based pound sterling didn’t last very long, at a stretch. England and France and everybody suspended convertibility to gold several times in several hundred years meaning they went in and out of fiat. Then they went broke over a very long period, the Romans even longer as they diluted their currency. It is ridiculous to generalize with something like this 27 year alleged “average.”
A river on average 3 feet deep might in one place be 1000 feet deep. So what?
British pound sterling has been around since 1694.
Even the various “gold standards” (and yes, they were plural) were fiat insofar as the sovereign set the convertibility.
And convertibility, as other posters note, goes “on holiday” at the whim of the sovereign.
So — it’s fiats all the way down …
Monkey pox will burn out. You need to worry about the Sloth Pox. It’s a slow but certain killer. Lies dormant for ten years then you need to spend your last dime on chemo.
I was looking for a home in the Chattanooga area five years ago, and got a cold call from a realtor there last week asking if I was still interested in buying. If that was not an abberation but rather an indication, then heaven help us.
“ wonder how much of the declines of new sales are due to the higher interest rates, lower stock market portfolios and ridiculously higher prices vs. some of the more psychological factors such as a concern that everyone is suddenly talking about a recession “
Not discounting what you’re saying but it could also be as simple as a shortage of greater fools…
Remember as short ago as 2019, housing was pretty darn affordable until the Great Panic of 2020…
Manias, by definition, don’t need to be defined or overthought because typically they are a psychological vs a rational event…
Best to avoid them, as many, many people will soon find out…
i’m sure you meant to say, ”irrational” as opposed to rational cowg!
Nothing goes to heck in a straight line is one of the few,,, very few IMHO ”adages” upon which WE, in this case the very cautious WE, can rely.
Most of the rest of the news might be best considered as advertising AKA propaganda.
Wolf does a really great job of making clear what WE, in this case WE the PEONs, need to know to be able to actually ”invest”…
As opposed to ”gamble” of course…
I did, Vet…
Housing was only affordable because of artificially low rates and fake “growth”, even in 2019. By affordable, I’m referring to the monthly carrying cost, not the price. Prices in many markets were already absurd.
If the bond bull market really ended in 2020 which I think it did, rates are ultimately destined to “blow out”, past the 1981 high. It won’t happen immediately but will be a headwind for real estate for a long time.
Housing got affordable for the masses in what, the New Deal? The government’s finger pressing on the scales has been propping up the middle class housing market and manipulating the prices, ever since. Take that away, and you get real price discovery, something I’m sure almost no one is psychologically ready for.
But now, are we reaching an end game on all that? Is Japan? Might it finally actually be different this time? I suspect some other ‘facilities” will be dreamed up and implemented, and the typical person like you or me here, will be grousing about it.
The financialization of everything due to interest rate repression led to people buying a payment, not a price, with reliance on the greater fool theory, which I’d argue is the most accurate economic theory.
So, let’s say you pulled money out of the stock market before it tanked, where do you put it? Bonds for short term, real estate for long term. Here in the Seattle area we have tech employment supporting re prices with continuing price growth. Some additional supply from perception of a price peak, but still general price growth. Do not delude yourself I to thinking it is safe to rent lifelong, retire.ent will be way more e pensive then..
I will take the counter to that.
There is an opportunity cost to buying a home. It’s true for the very long term that the SP500 has out performed residential real estate. If you choose to lever up your residence 4:1 or 10:1 sure residential real estate can outperform stocks, but you are taking a risk on a non liquid asset. So to be fair you have to try to compare apples and oranges or in this case a non liquid, leveraged asset to a liquid, non leveraged asset.
I always say if you know real estate you can make money in real estate and if you know business and stocks you can make money in stocks.
It just depends on where the price point is. There are a lot of markets in the US that have never recovered from previous housing bubbles popping, even now. There’s no guarantee that “housing prices will keep going up”, anywhere in the country. Agree Seattle is in better shape than most with Amazon and other tech companies providing high-salaried employment, but even there, when home prices and other asset prices out-strip incomes, it’s a bubble that has come to down. If home prices eventually rise due to dollar losing value (inflation) that’s of course a different story since it means the homes aren’t really gaining value at all, the dollar’s losing. And the USD losing value means the erosion of US power and the dollar’s reserve status as store of value, which the Fed can’t allow.
But but but – there were 11 million unfilled job offerings and the tightest labor market ever about a month ago.
I never believed that labor data.
I’m in a smaller/mid sized city in MN. One of my good friends had a house go up for sale across the street 2009-2011 on the market from 320-250. No takers. Fast forward to 5/2019 – listed for 350, price reduced to 335. I offered 300 and said call me if you need a buyer. Sold 5/2020 for 335. It was just relisted on 6/2022 for 460 (they did really nothing to the house besides better photos). Lowered the price 20k and it went contingent in 2 weeks. Definitely less foot traffic from what I’m hearing in my local market, more price reductions, longer days on the market but things are still selling. I have friends that are realtors in different markets but they don’t feed me a line of fluff (hence why I’m friends with them). It’s interesting to watch different local areas and these case studies.
I love stories about gambling.
Wolf and other Cali residents… what effects are these horrific drought forecasts having on sales? What happens to all those lovely manicured lawns when there is no water available or it is rationed?
* On March 28, 2022, California Governor Newsom directed the State Water Board to consider adopting an emergency regulation for urban water conservation. On May 24, 2022, the Board adopted an emergency regulation, which went into effect on June 10, 2022. The ​​Emergency Regulation Requirements include no watering for commercial, industrial, and institutional decorative grass and urban water suppliers implementing all Level 2 demand reduction actions.
* In Southern California, water-saving restrictions began on June 1 and impact dozens of cities and communities in Los Angeles, Ventura, and San Bernardino counties—home to about 6 million people. Restrictions vary by city, but largely consist of limiting outdoor watering to one or two days a week or implementing water budgets for residents. Further, the Metropolitan Water District of Southern California stated that “if use doesn’t drop enough in the coming months, or if conditions worsen, a complete ban on outdoor watering could be implemented in September.”
From https://www.drought.gov/drought-status-updates/california-nevada-drought-status-update-6-23-22:
What effects do hurricanes and hurricane risks have on sales along the Gulf and the Atlantic? What effects do earthquake risks have on sales? What effects do tornado risks have on sales? What effects do the risks of firestorms have on sales? None. America is not some kind of mild, gentle paradisaical place. Nature is tough here. It destroys what we build. We also like to build where nature likes to destroy our stuff.
Water restrictions in California are essentially the norm, much of the time. But it’s agriculture that consumes most of the water. About 80% of the water in California is used by agriculture. But these products feed the nation.
Drought has not destroyed neighborhoods. Fires and earthquakes and hurricanes and tornadoes have.
Drought is a much different issue in N Cal than in So Cal. N Cal is not really dependent on Colorado river water where So Cal is. Have you seen a picture of Lake Mead lately? Development in CA, and NV has pushed the river past its capacity.
Drought will not destroy neighborhoods as you say, but it is going to make the cost of water much higher going forward, as desalinization plants and other methods must be built. When I left San Diego I was already paying $200 mo. in the summer.
Driving back from our recent vacation (Lassen and Crater Lake) on I-5, we saw Lake Shasta, the largest reservoir in California, on which NorCal depends. And it looked nearly empty. Looked dreadful!
Yes, the cost of water for city use is going up, no doubt. There’s already a desal plant in Southern California. That’s very expensive water. But that’s what cities will have to do.
Lawns will go away. I think people will get used to it quickly. I have seen yards here in SD that are soil, quite nice actually.
LOL until it rains, and you have a mud yard… Nice.. But that is what living in CA is all about now days, sacrifice, to live in paradise.
Some rich men came and raped the land
Nobody caught ’em
Put up a bunch of ugly boxes
And, Jesus, people bought ’em
And they called it paradise
The place to be
They watched the hazy sun
Sinking in the sea
Desalination plants are indeed crazy expensive, obviously they can be part of a solution but their capacity to help sustain a population in a water-starved area is limited, that in turn helps to give ideas on the limits of what the population can be. For much of the US Southwest it’s already almost certainly way too high, including much of California. The cost of desal is also part of the issue of why Australia really can’t get much beyond its current population without running into serious supply and infrastructure issues, and potential society threatening natural disasters–some old Aussie co-workers say Australia is like earth deciding to experiment by creating a desert in the middle of the ocean. They’ve tried some desal but it’s extremely expensive, and Aussie cost of living is already painfully high as it is.
What would benefit the country greatly would a national water grid that was capable of providing relief from flood waters in areas like river valleys in the middle of the country, and pumping that flood water to reservoirs in the west where water shortages are issues. A well designed system including building new reservoirs, could benefit both problems and provide some great jobs for the public. Unfortunately the government would rather waste or steal money in numerous other ways.
But how do you pump that extra water westward? It has to go over some rather high mountains in order for it to reach the parched southwest USA.
Jdog-SoCal also relies on NorCal water, has before the Colorado River tap (Owens Valley, courtesy of Bill Mulholland-hard to imagine it as the verdant farmland it was prior to it’s water’s diversion). Not to forget the California Aqueduct, and SoCal and South Valley Ag’s constant demand for more water from the San Joaquin/Sacramento River delta (problem being that drought is not only rainfall shortage, but even more important, available annual snowpacks that are the core feedstocks of the West’s water supply-snowpacks in the Sierra and Rockies that are in undeniable decline yet subject to ever-increasing demand…).
(skipping the problems of transport, would like to see some numbers of actually available water reserves from the areas that many think can offset Western water shortfalls, as well as an understanding that robbing too much freshwater outflow from anywhere to the seas is devastating to already overpressured fisheries and coastal ecosystems).
may we all find a better day.
91B20 1stCav (AUS)
CA water history is really interesting if you get into it. It has been a mafia like bunch of criminals from the beginning.
The goal of the people who control the water, has for the past 50 years is to maintain the shortages, as that is the road to profit.
So far as the ecology question, every drop of water that has ever existed on this planet is still here, and it all finds its way back to the ocean one way or another. It is a closed loop system, and moving a little from one place to another is not going to have any major detrimental effects, we are not talking about draining the Mississippi here, we are talking about draining off flood waters from deluged areas that cause hundreds of millions of dollars of property damage and ruin the lives of countless people. It really does not make any difference though, we will never do it because it would require diverting money from other uses, like the mass murder of millions of people in other countries that never harmed us.
Solar concentrating desalination plants? The maintenence would be wiping mirrors and some sensors aiming the sunlight. Water pumps…
The sun is strong. Yo
The DOE had a Solar Desalination Prize in 2019. Lots of grants given to academic eggheads.
That is a sensible solution. Probable use nukes instead. This is merica after all where stupidity crowds out sensibility.
Jdog-actual freshwater reserve numbers, desertification and phase change, my friend, and the vanished numbers of millions of innocent sealife, while we’re at it. ecosystems and planetary weather are nothing more or less than checkbooks-we continue to overdraw what they provide our species while assuming they need no deposits to maintain healthy balances (many seem to have realized this on some level and appear to be leaning full-nihilist or blindered looking forward…).
Sierra/Rockies snowpack history vs. ’50 years of maintaining shortages’??? Closed loops have little to do with location/guarantees of annual/decadal precip distributions-ANYWHERE. if the rain/snow (and how ‘wet’ that snow is) isn’t where you need it, the water won’t be there either, however much we want to believe it is while continuing to add population demand…
must also question, costs or not, the assumption that folks living in the areas eyed for Western water expansion will blithely agree to the acquisition of their reserves, ‘surplus’ or not. it wasn’t so many years ago that projects to tap the Columbia and B.C. water were being proposed-blowback from the denizens of those areas was most impressive! (we have already had similar exchanges here at Wolf’s most-excellent establishment between some of our SoCal and Great Lakes-area correspondents…).
Sam Clemens’ old saw of: “…whiskey’s for drinkin’, water’s for fightin’ over…” is as true as ever.
may we all find a better day.
I’ve seen Shasta chock full, 10 year wait list for houseboat slips, 70s, even having to release too much, (Thats what that causeway on I-80 is/was for, to protect Sacramento area)……but last times, ’08 and since, low.
Every single one of our so called environmental issues, are in fact overpopulation issues. They have nothing whatsoever to do with the environment.
Of course we will not ever confront the actual problem because the religion of “growth” funds the ever growing wealth of the oligarch corporate masters.
We are quickly reaching the limits in terms of population of what this planet can sustain, even if the oligarchs get their way and have us all eating bugs, and drinking our own sewage, while we toil in their servitude.
We already have routes built by railroads which traverse mountains keeping 1.5% or less grades. Most people can ride up a 1.5% grade sitting down on a bicycle without much trouble. With modern methods, for electrical generation, pumping stations would really not be an issue either. It would also be possible to construct additional hydro generation on the western slopes of the mountain ranges providing surplus clean energy. The bottom line is, there is no incentive for the water companies to provide abundant cheap water when they can exploit shortages and make fortunes in the process.
Jdog-i’m trying to parse your apparent viewpoint that human population is not part of the environment-sounds kinda like saying consumers are not part of the human market economy…
may we all find a better day.
If so many people really can afford to treat their house like a stock or bond investment, just letting it sit there empty and wait for higher prices, all the efforts of the Fed to bring down demand with monetary policy are hopeless. They’d have to raise rates to double digits which is impossible. Of course all these financial geniuses will realize that house is a sunk investment with no bidder soon. If the housing market in the U.S. is a casino like the stock market now, “never catch a falling knife” equally applies.
The Fed and the current mortgage rates are ALREADY bringing down demand — by a lot. That’s what the entire article is about. The success of those higher mortgage rates is now undeniable.
I’m not talking about demand in real estate. I’m talking about general demand in the economy. If you have two or three houses sitting somewhere that have gone up fourfold in price over the last, say, ten years that you still believe you can liquidate at any time, 8% inflation is a non-issue.
Of course the fun starts when these people realize they hold a huge bag of plastic chips and the casino is about to shut down.
Houses still move USA has 300 million plus population and amazing how many times that I hear of parents and grandparents finance homes for their children and grandchildren. Many of these also represent the 25 percent cash buyers. Overall trend is set by payment and interest rate with the WOLF coined phrase “Most reckless FED ever” generational damaged young generation saddled with inflation and suppressed rates at the same time. An outcome that I believe is hard to predict expect that the outcome will leave many with large losses financially.
One area that I for sure don’t comprehend is the impact of foreign ownership in areas such as Miami and the west coast other than the rich middle class in Argentina and Venezuela would try and shelter their salaries and savings in real estate in USA.
I believe that the vast majority of inter-generational help is made possible by cash out refinancing of mommy and daddy’s house. As rates rise, refis are drying up.
The Japanese used to buy Hawaiian property. Canadians bought winter homes in the sunbelt. The Chinese tried to send their children to Ivy League schools. Chinese professionals work in the Boston area. Korean professionals moved to the DC suburbs.
Listings have increased in SW Florida, but the prices are still high. The building has not stopped. New homes are more expensive than in 2019. Real estate speculators subdivided more land into quarter acre lots than could be sold in decades.
I hear Rotunda West is finally fully occupied, 50 years after cutting the canals and draining the swamp.
“the rich middle class in Argentina and Venezuela would try and shelter their salaries and savings in real estate in USA.”
They’ve actually been parking most of their savings in Spain and other EU real estate and assets, plus a lot of Cubans, as many Brazilians have done in Portugal, that’s in fact been a contributor to many of Europe’s own asset bubble problems. Spain has seen a huge influx of wealthy and middle class immigrants from Venezuela, Cuba and (lesser but still there) Argentina and they’ve indeed been driving up home prices in some of the ritzier areas around Madrid.
As for all those cash payments for homes in the US–a lot of that also seems to be HELOC’s, “crypto collateral”, investor borrowings and other questionable arrangements. So it’s not really cash on hand in some cases (as in savings the buyer actually has) but just another form of credit and leverage that’s just gone through more steps than a straight-out loan.
How long have you been saying this, Wolf?
My thesis remains: housing won’t pop as long as rent increases outpace interest rates. As long as renting a property can pay off the mortgage, and the “investor” can be arbitraging the difference, while accruing property, the formula is simple.
Home price inflation might plateau, and volume might droop, and it might wobble regionally, but as long as property owners don’t need the principal to increase in value to pay off their mortgages, those with access to credit will keep piling into the asset class.
The only mitigations to this will either damage the economy at large to the point there are riots, or involve such precise federal intervention that democratically conditional politicians can’t possibly clearly explain it to their constituency, and then get decimated at the polls.
“How long have you been saying this, Wolf?”
Since May 18, 2022: My first article in this series:
There was a prior interview with this title, which I published on May 15, 2022:
So that’s when this series started — about 7 weeks ago.
A different series — “The Most Splendid Housing Bubbles in America” — was started in 2017 to document to crazy SURGE in home prices.
You will have to actually READ the articles to know what’s in them. You cannot just imagine what’s in them and believe that you know.
The rest of your comment is copy-and-paste from early 2006, including this line, verbatim: “Home price inflation might plateau, and volume might droop…” hahahaha, that was funny, that someone is resurrecting that infamous line and now takes it seriously.
Here is the exact “high plateau” quote that went down into history as one of the biggest idiocies ever, from Dec 2005 (WSJ — you can google it), just before the housing market totally collapsed:
“Home sales are coming down from a mountain peak, but they will level out at a high plateaua plateau that is higher than previous peaks in the housing cycle,” NAR Chief Economist David Lereah said. “This transition to a more normal and balanced market is a good thing.”
After which the housing totally collapsed, triggering the financial crisis.
Isn’t “plateau” a rather ubiquitous word on wall street?
The stock market has reached “a permanently high plateau.” — Irving Fisher, October 1929
“High plateau” might be a phrase for these geniuses to avoid!
Phleep, that quote from Fisher came to mind when the word “plateau” first appeared here. For those who don’t know who he was, this may help. He was far from being a foolish guy; just didn’t see the hammer coming down.
From Wikipedia:
“Fisher was born in Saugerties, New York. His father was a teacher and a Congregational minister, who raised his son to believe he must be a useful member of society. Despite being raised in religious family, he later on became an atheist.[14] As a child, he had remarkable mathematical ability and a flair for invention. A week after he was admitted to Yale College his father died, at age 53. Irving then supported his mother, brother, and himself, mainly by tutoring. He graduated first in his class with a B.A degree in 1888, having also been elected as a member of the Skull and Bones society.[15]: 14 
Should’ve included: he was the chair of the FED at the time of the crash of ’29.
Your so called thesis ignores the reality of the business cycle. When things go the heck as Wolf puts it, it happens across all sectors of the economy. Anyone who has not witnessed the monetary destruction that occurs when a recession begins its feedback loop cannot fully understand it.
What happened in 2008 was just a mini recession, as the Fed started up the presses and intervened which turned things around at the cost of blowing an even bigger bubble. That is clearly not going to happen this time. Inflation is tying the Feds hands, and the markets are going to have to find their own equilibrium this time around. The fear and panic has not hit the markets yet, but when it does it is going to get ugly, very ugly.
Yeah dude, what your “so called comment” ignores is that the rental market isn’t really corollary to the “business cycle.”
In the bad times, housing isn’t a discretionary expenditure for most people, and without an increase in supply, the rent increases will continue as they have to to pay off the mortgages made in the good times.
So if this is the good times, where a few middle class people can actually afford to make their first home purchase, what happens, when they start to lose their white collar jobs?
If you believe the rental market is not joined at the hip to the business cycle then you do not understand economies. Everything is linked, everything is supply and demand. As the business cycle goes south unemployment and underemployment effects peoples ability to pay rent. Landlords are faced with the reality that you cannot squeeze blood from a rock. RE prices drop, and new landlords pick up rentals at a lower cost basis allowing them to offer lower rents. High inflation kills the existing business cycle due to costs rising faster than incomes, which reduces consumption. Every action has and equal and opposite reaction.
Yeah Jdog, you’re living in a dogmatic moralistic world that *really* doesn’t understand economics, especially with comments like: Every action has and equal and opposite reaction.
Please riddle me this, even if landlords pick up property at lower prices (disregarding the lag of converting them to rentals, and being off the market), what’s the incentive to offer them at a much lower price? The goodness of their heart?
In a market with restricted supply (as I mentioned before), the market incentive is for these landlords to ask as much as they can to get a single reliable tenet in the spot, even if that’s over market rate.
If anything, in a broad market downturn, where unemployment goes up, more and more middle class workers are going to find they don’t qualify for a mortgage anymore, and stay in the rental market longer.
Please come back to reality.
Ever heard of people doubling up? Moving in with relatives?
No one has to live in their own housing unit and no one has a birthright to do so.
When the economy starts “sucking wind” where it is headed now, many renters won’t be able to afford current rents. Like all other prices, rents are set at the margin. It only takes a relatively low vacancy rate to have a disproportionate impact on any price.
Necessity is irrelevant to anyone’s ability to afford current rents.
Chris, you have obviously never been a landlord or really have even a elementary understanding the rental market.
The vast majority of landlords are working class people who are struggling to get ahead just like everyone else.
They work their asses off to get a down payment to buy a piece of income property, work on it themselves nights and weekends, and hope they do not get a shitbum renter who refuses to pay rent and does thousands of dollars damage to the house.
They operate on a very thin margin, and could not afford to go without the rental income for very long if something went wrong. Many enter the market during downturns when prices are lower and they are willing to take a little less rent if they feel secure about the tenant.
I have owned, sold, and rented properties for over 40 yrs, so do not begin to tell me about reality. I know exactly what the reality is.
Your own comment undermines the tired “this time it’s different” reasoning you trot out for why housing prices must always supposedly go up,
“housing isn’t a discretionary expenditure”
Which is why the housing bubble is by far the worst of the current asset bubbles in the US Everything Bubble, and also why officials are esp aggressive in attacking it. Creating bubbles for such essentials (like healthcare and education) is esp damaging for a society and leads to long term disaster and social unrest, which puts greater pressure on officials to act quickly or lose their heads (sometimes in history, literally). Asset bubbles in tulips or African slaves in Americas (Britain’s South Sea Bubble in 1700’s) are terrible but limit damage to dumb speculators. Bubbles in housing and food prices lead to riots and the fall of countries. Rents can’t exceed people’s incomes or you get massive homelessness, tent-cities, Americans emigrating, people moving in with relatives, couch surfing or RV communities and if they still don’t adjust, American cities will burn and be looted.
Very high construction costs is different this time
Replacement costs
IMO this is a price supporting factor
@ Chris –
List some places where rents will pay of a mortgage (a mortgage at 80% loan to value).
It’s funny I bought my first apartment 20 years ago because it was cheaper to pay the mortgage+fees than the rent. I’m now in the Bay Area paying 1/3 in rent compared to the monthly payment if I bought the overpriced crap shack I’m renting now. I can’t think of too many areas where rent will currently pay the mortgage.
Rent may not pay the mortgage on the day you buy the house, but seven years out it most certainly will even for the worst investment case, and the profit grows massively after that. “Poor little me” stories from landlords are disingenuous.
That math doesn’t work with cap rates on rentals half the rate of inflation without figuring in asset price appreciation, meaning, it only pens out if you insert Greater Fool Theory into your algorithm.
I love the term “artificial intelligence.” Such an ironic oxymoron.
Probably closer to 1/4 the rate of inflation.
The Whimsical policies of the Fed have “whipsawed” the real estate market.
Remember when real estate was stable?
IMO we would all be better off if Fed Funds had stayed at 2% and the 30yr mortgages circa 6%.
The Fed seems to create the gyrations.
Adherence to more of a formula driven monetary policy, guard rails, is called for.
Predictability and stability go hand in hand.
Fed Funds rates a function of inflation.
Money supply growth a function of GDP.
The risk of getting caught in the middle of a real estate transaction with rates bouncing around deters market activity and thus liquidity.
in spite of my respect for you POV and comments,,
In fact, after being involved in RE mkt since 1956, I do NOT remember when RE was ”stable” any where and any when.
Care to give some examples please.
thank you
I think the Fed “broke” the real estate market. There used to be a better balance between homes for sale vs buyers
Now its like musical chairs…
sell a house 6 months ago and you might not find another
Now … it is the seller worried.
That quick switch is remarkable. Never happened so quick in my memory.
The 1990s seemed stable in comparison.
> Remember when real estate was stable?
What time period and planet was that?
Good lord. Just look at a long term plot of the case Shiller metric to see what he is saying. There is greater variation in the past few decades.
Those charts represent a very short time period. Economic cycles come in many time frames from short to long. It is often the long term cycles that represent the major changes.
1990s as I recall…
by stable I refer to a balance between buyers and sellers.
These past two years have been quite the opposite.
I dont ever recall a situation where almost nothing was for sale, like in recent times….then a complete flip to hard to sell.
Have mortgage rates EVER moved this quick?
Supply and demand is always skewed as soon a speculation enters the equation. In real estate this is especially true due to the fact that everyone from the local government to the utilities to the speculators see it as a fat calf to exploit.
The actual material costs to build an “average” 1400sq ft. home is about $60-70K. Labor is about equal. In a real free market, the prices for homes would be about a third of what they are now.
The reason home costs are as high as they are is because of ridiculously high costs of permits, which in some places exceed $100K along with speculation pressures.
With proper political pressure, this could change, but there is no real reason it is going to because the banks, lenders, RE sale industry, and local governments are making way too much money exploiting the situation.
Not to mention that the grossly higher property taxes which government has become addicted to.
Politics is the art of taking money from Bill to give it to Tom, and you are Bill.
I listened to two good interviews today that is good information about anyone having to make financial or real estate investments. One was by Steve Hanke and one by David Rosenberg. They both voiced that the Federal Reserve is such a broken agency for different reasons.
Steve Hanke basically said the Fed suffers from group think and that’s why he could accurately predict inflation a year out and they couldn’t. Plus the Fed staff generally believes in big government and has thrown out all knowledge by Milton Friedman who thought government should be no bigger than 15% of the economy.
David Rosenberg was critical that the Fed staff has never seen a recession in advance. He is basically saying stock market and commodity market is telling you we are heading into recession and Fed is raising rates right into that which is going to get ugly fast.
I thought David had a pretty good bit of advice. The bottom for stocks will not be in til the dividend yield on stocks exceeds dividend yield on 10 year Treasury.
I posted this correspondence I got from an old associate who I communicate with in the DFW area who is trying to sell his house in an earlier article that Wolf published. But here it is in the RE article.
“………….I bought at the high just 6 weeks ago. Paid cash and $50 K above asking. I wasn’t the highest offer but they accepted since it was a cash offer. Closed mid June.
I put my current house up for sale June 16th. Traffic has been slow although still a good number of buyers are looking. But buyers not buying. We’ve gone from buyers buying in a day, multiple offers above asking, sight unseen, as is, writing appeal letters, etc, to a market where buyers suddenly find any reason to talk themselves out of buying.
I’m stuck for now. The classic buy high sell low situation. Guess I deserve it. Doesn’t feel good. I just didn’t know it could change this fast. It literally changed in a week. The week of June 12th. At least here in the Dallas area.
Now I own 2 homes. We were trying to downsize and be closer to the grandies on the other side of town. Not sure how I’ll proceed. But the bubble has definitely burst.”
The crap is hitting the fan here in Texas also. So quick!
I sold in the teeth of the housing downturn in my area in ‘08 I believe. My house had a tax value of a bit over $500k. I slashed my price to $350k and sold it to a developer (oversized lot in an area popular with the McMansion crowd). My next door neighbor who had a much nicer house told me I was nuts to sell at that price. A year later he ended up selling at the same price. I wasn’t particularly real estate savvy I just wanted to get on with my life. In hindsight it was a smart move. The developer ended up being underwater for a couple of years before He could tear down and rebuild. All I can say is if you wanna sell get ahead of the market.
It is better to sell into a rising market, leaving some chips on the table.
This is exactly how I got in the rental business 45 years ago. Everything happens for a reason. Rent it out. During a recession when people cant or aren’t buying, rents can keep going up.
It’s a different way of buying houses in the US…buy your new house first and complete the purchase and then sell your original house. Most houses in the UK are sold in a chain, where I sell my house, buy a new one(but not complete the sale), they buy a house and so on and we all complete the sales on the same day as you work up the chain….sounds complicated but it does work…
That’s how it used to work in the US as well and I’ve done this a couple times. However the “problem” is that you have to make the purchase of the new house contingent on the selling of your old house and in a seller’s market no seller accepts that contingency. Heck many offers would also waive inspections…
We are in DFW. I believe you are correct. Had a nice newly redone house hit the market near us. Back in Mar/Apr, it would’ve sold in a few days if listed at $450k. It listed at an even $400k. Reduced to $385 after a week, not pending yet.
Talked to an investor who tied up 3 not yet built houses back in April. He’s probably not as enthusiastic about things now! Granted, maybe all he will lose is the deposits, but a big 180 from expecting a nice return on his investment.
i am certainly seeing more homes sitting on the MLS listing looking for a buyer. I have seen a few price cuts too but not a lot yet.
We need to see some layoffs and foreclosures to get this bubble to pop and get the price ball to start rolling downhill and gain momentum.
Its not just RE. 30+yrs as a business owner, most of my friends are business owners as well. This slow down is much more rapid than 08.
Energy is the economy. The science is real crew currently in DC & EU
will be chanting Putin Putin all winter as the peasants freeze.
I just learned they have found the guilty parties……gas station owners.
I’m sure they are Putin plants.
Fed says their blunt tool is interest rates. I heard that on average duration of a housing bust is five years. That is quiet the consequence for making an interest rate mistake.
Wall street whales sent SPX 24% down, JP hiked, fear of recession and margin calls force people to put their houses in the market, at peak prices,
before the plunge.
If wall street stopping action is over SPX will rise.
There will be no RE plunge, but we got the first warning shot..
More people get hurt in housing correction than in SPX corrections. Most stocks market corrections don’t end up in recessions.
Penson funds didn’t buy as expected at end of quarter. Major red flag since they are pressured to do that buying, yet still decided they couldn’t.
Who is saying “gee I refinanced my mortgage at 2.5% so I’m paying old prices at historically low interest rates, but I think it’s time to move!”
These aren’t all second houses. A similar house as mine on my street is for sale. We both bought 3 years ago for the same price. If I sold my house and bought theirs I’d more than double my monthly payment.
Where are these people going?!
Yeah, same situation. We refid into a 15yr@ 2.5 last summer. Considered moving to get a better school for our 6 yo, but everything was too expensive, and that was when rates were low. Luckily, our 6 yo got into a really good magnet.
Outskirts of metro NYC here, which is its own beast and barely indicative of the grander picture certainly. Know of 5 families in my kids’ school still trying to get out of NYS and head south (TN, NC, SC) with plans to sell this summer, think they may have timed it a bit too late personally. Losing a good local friend this month to retirement in a lovely, relatively affordable ranch property in Alabama, but they had a hell of a time unloading their house, it took 3 price reductions.
The biggest driver seems to be the tax increases. The local taxes shot up this year despite the town having relatively few community services compared to proper suburban towns. Where the money is going is beyond me.
This neck of the woods is still very weird. NYC offices are opening back up but the bananas crime is keeping commuters away. Tons more tourism in town this summer than I’ve seen in 20 years, so the AirBnb’s must be doing good. Local lovely townhome community got overtaken by the ‘passive income’ tribe during the RE peak, lazy landlords have moved sketchy renters in and crime has become an issue.
Been watching an early 00’s suburban palace down the road–3BR, 4 bath, 3400sq ft. Nothing special, Home Depot stock kitchen, screams overboard early 00’s HGTV Mediterranean decor. Zillow says it was bought for 300k in the early ’00’s, seeking $636k. Watched 2 heavily advertised open houses come and go, didn’t see a car pull in the driveway. They’ve dropped it a whopping $7k. Probably gonna keep sitting. Lots of local $400k-750k listings still sitting for 2 months now. Still, if they’re doubling their money, why not try to cash out and get the heck out of Dodge to a cheaper state? Higher interest still isn’t a loss.
Endless cycle, people screw up the place they live, then run away to somewhere else to screw that up too. All the time they never admit what the real problem is to begin with….
Welcome to the human species. In the running (alongside various diseases) for most invasive species in history.
And an alarming number of them are from NYC Finance.
40-50% at minimum, declines/ drawdowns forthcoming.
I wish, people will feel the pain but my generation needs a fighting chance to get in.
You need simple wealth re-distribution, like a Constitution max net worth, say $10-15 M, and a militarized “bounty hunter” style IRS to enforce it. But it does bother me you said “fighting” chance, instead of just “chance”. You surely don’t want to continue to play the same sick no boundaries game that has locked you out, do you? Us hippies tried to get that point across, but failed, so did Carter, the ONLY president we ever had with a science background…he understood, spoke about it and was totally crushed and replaced by the oligarchs puppet, Regan.
People don’t need a whole lot of “stuff” to live a good life, the real joys come from using your body more. And it’s really all you have or ever will have. Like any other animal.
LOL basically what you are saying is we need to increase feudalism.
Why do people tout socialism as being fair to the poor when in fact is promotes the most repressive form of government ever created? At the point where any person assumes the power to tell another what to do you begin down the road to feudalism and serfdom for the masses.
The big question is this…if it comes out that the US is in a recession, will Powell and the FED have the guts to do the right thing and continue with their rate hikes to “battle” inflation?…I highly doubt it.
To the FED, the “right thing” is whatever benefits the private banks that own them.
I find myself wondering: The derivatives market is said to be over $1 quadrillion dollars in notional value on the high end, but some analysts say the market is grossly overestimated, and only around $12 Trillion.
How might a panic in the derivatives market impact real estate ?
You are correct. The Fed is not the government agency people believe it is. It is a corporation. Corporations have one duty and one duty only and that is to do whatever is most profitable and is in the best interests of their stockholders.
The Feds stockholders are their member banks. They work in there interests, not the US citizens. As far as a panic in the derivatives market goes, who knows? It is such a complicated market few really even begin to understand it. All I know is some people who do, have said it has the capacity to reek mass destruction, what ever that means. I visualize it to mean a chain reaction in which money is destroyed on a scale never seen before.
“The Fed is not the government agency people believe it is.”
Nope. That’s BS.
The Federal Reserve Board of Governors is a government agency, and all its employees are federal government employees with a government salary and a government pension, including the seven members of the Board, including Powell and Brainard. These seven members of the Board of Governors are appointed by the President and confirmed by the Senate. The Board of Governors has lots of employees, and they’re all employees of the Federal Government. They’re working in the Eccles Federal Reserve Board Building, the main office of the Board of Governors of the Federal Reserve System. This is a federally owned building on 20th St. and Constitution Avenue in Washington, DC.
The 12 regional Federal Reserve Banks are private organizations that are owned by the largest financial institutions in their districts. They include the New York Fed, the San Francisco Fed, the Dallas Fed, etc. All their employees are private-sector employees.
The FOMC – the policy-setting committee – consists of the 7 members of the Board of Governors who are federal employees and have permanent votes on the FOMC. The New York Fed governor also has a permanent vote. The other 11 regional FRBs rotate into and out of 5 voting slots annually.
The FOMC is designed to give the 7 government employees a voting majority over the 6 presidents of the regional FRBs
Yes, Wolf you are correct. the board is appointed by the government, but that in no way means they act in the interests of the Nation above the interests of the member banks.
Name a single time when the board, and the regional banks were ever at odds with each other.
The President and Senate may appoint the BOG, but who makes the campaign contributions and funds the PAC’s who’s money elect the politicians. The entire system is and always has been corrupt to the bone, and I am sure you know that.
And Federal Reserve Banks are not private organizations, they are corporations, and corporations have legal obligations. Those obligations are not to the Nation, they are to the stockholders. A corporate officer can actually be personally prosecuted for not placing the interest of the stockholders above all other concerns.
Corporate board members can possibly be sued for breach of fiduciary duty towards shareholders, though generally the business judgment rule will protect their decisions. They can’t be “prosecuted” in the sense of being criminally liable for their decisions regarding corporate governance unless the action breaks a specific criminal statute. Their duties to shareholders are not governed by criminal law.
past tense: prosecuted; past participle: prosecuted
1; institute legal proceedings against (a person or organization).
“they were prosecuted for obstructing the highway”
Prosecution does not need to be criminal, it can also be civil.
“Prosecute” in the context you used it seemed to imply, at least to me, some type of criminal proceeding. Otherwise, it’s much clearer to just say a board member can be sued by shareholders, which most people probably already know and understand. Thank you for clarifying what you meant.
Jdog IS right about mass destruction reeking. I’m still not too sure about his “physiology of rich people” notion, though.
Prosecution, is the act of legally charging someone with doing harm. It can be criminal or civil. If you do not understand the definition that is not my fault. The fact remains, that any corporate officer that does not act primarily in the interest of its shareholders, is negligent in their duty.
Federal Reserve Regional Banks are corporations and its member banks are their shareholders. That means if there is a conflict in the financial interests of the general public an the shareholders, the Federal Reserve Banks are obliged to do what is in the interest of the banks. You saw this in action with the taxpayer bail outs of the banks in 2008. Why people still believe the Federal Reserve is working in the best interests of the American people truly puzzles me…
I practiced law for many years and understand the definition of prosecution perfectly well. If you don’t understand that in common usage “prosecution” is generally applied to criminal activity, that’s not my fault. The reality is that class action shareholder lawsuits against corporations and their boards are a dime-a-dozen and nearly everyone with a clue knows this. It’s the entire reason Directors and Officers insurance exists. So when you write “A corporate officer can actually be personally prosecuted…” you are either stating the obvious as if it’s some major insight, or you are misleading people by implying there may be a criminal element to the duties of board members to shareholders. That is the point I was clarifying.
The notional doesn’t matter as much as the scary numbers sound. It is not actually money that can be lost. It is only a reference number for formulas of much smaller amounts. Nobody can lose a quadrillion dollars on derivatives.
Can derivatives affect housing? well, here is exhibit A, the GFC. Derivatives were a transmitter and amplifier of risk. But the financial system as we know it (with lots of benefits for regular people) could not exist without them.
Yes, but this time, if the Fed caves, they have huge risk of falling into runaway inflation. And they run into serious questions of the US dollar’s future. They are truly between a rock and a hard place.
The St. Louis Fed’s Fred FEDFUNDS series shows the fed funds rate since 1954 and the chart shows recessions in gray. It details 10 recessions in the last 7 decades and in every one, the fed funds rate was much lower at the end of each recession than it was prior to the recession. So 100% of recessions since 1954 have resulted in the fed slashing rates. That is regardless of the economic environment at the time. Post war, war time, peace time, high inflation, low inflation, high national debt, low national debt. Recession has been met with lower rates every single time. Even the Volcker Fed dropped rates hard in between double dip recessions .
Is it going to be different this time? I’m a saver so I hope the Fed holds their ground and blows up the current asset mania, but I’m really suspicious that they won’t. They’ll probably hold strong until a recession is called and/or they see instability in credit markets. The fed is bothered by inflation, but they’re more scared of deflation, and they’re properly terrified by credit crunches. They will target disinflation, but they’ll never ever risk deflation on purpose. And they’ll do anything to avoid frozen credit markets at all costs. There’s also another wildcard… What hand-out/bail-out programs will politicians cook up when times get tough and they need to buy votes?
“They will target disinflation, but they’ll never ever risk deflation on purpose.”
Doesn’t mean it won’t happen anyway. They can’t stop it. Only close the barn door after the horses have bolted, again. That’s what the government and FRB did in every prior instance, including the GFC.
“And they’ll do anything to avoid frozen credit markets at all costs.”
I am very confident the public, markets, and economy will all be thrown under the bus to preserve USD global reserve currency status and the Empire. Look at Ukraine policy as an example.
Government has told everyone they are willing for everyone to become poorer when it’s irrelevant to 99%+ of the population. USD is also the basis of FRB’s institutional power. They can let the credit markets “freeze” and save the banks.
“What hand-out/bail-out programs will politicians cook up when times get tough and they need to buy votes?”
There will be something, no doubt about it. If the credit cycle turned in 2020, it won’t keep most everyone from becoming poorer anyway.
On deflation: Sure, the Fed is not as deeply in-control as many people think. They could be plunging us into a deflationary period. But since the great depression, the period of time the USD spent in deflationary conditions has been negligible. Really just one significant blip of deflation a little over a decade ago, and the Fed did everything the could to reverse ir as quickly as possible. The dollar has spent the vast majority of its time inflating. The mostly likely scenario is that it will continue to inflate.
On credit markets: Our economy is built upon a foundation of debt. If credit markets freeze, buildings and houses can’t be purchased, construction can’t be financed, american debt slaves can’t buy consumer goods or even food, commerce grinds to a halt, businesses can’t make payroll, and banks will lose the lion’s share of their revenue. The Fed will do anything to avoid a GFC-style credit crunch. Anything. If the credit spigot closes, there is no empire and there is no USD, which is mostly credit money anyway.
On most Americans becoming poorer in real terms: You mention this a lot, and you’re absolutely right. Almost regardless of what the Fed does, it won’t be able to prevent most Americans from having an increasingly lower standard of living over time.
Not Sure…
Who has ever seen deflation?
And we could use some after an 8% spike, right?
Price roll backs are warranted and SHOULD BE cheered by the Fed, but I havent heard that. Roll backs would come under the title of “disinflation” rather than “deflation”.
Powell seems to draw a picture of decreasing increases in prices…so 12 months from now, this 8% is baked in, and the topping will be X% more. THAT will lead to Recession….people can’t handle the prices.
And the notion that 2% or 3% Fed funds will crush the economy comes in a distant second place in recession causing arguments. IMO
It strikes me there is no reason we won’t see inflation and deflation simultaneously – inflation in “needs” and deflation in “wants”. Ya gotta eat, but nobody really “needs” a new iPhone or Denver Broncos sweatshirt.
We’ve lived happily in a 1000 sq. ft. house built in the 1920’s. Don’t “need” or want anything more. As the cost of holding – utilities, maintenance, etc. continue to increase a lot of trophy properties and mcmansions are going to look increasingly like white elephants. We see a lot of former mansions cut up into rental cubes.
Keep watching as a lot of “assets” start looking more and more like liabilities.
I’m pretty sure I read several weeks ago that someone in the FED stated they were consciously targeting asset (RE) deflation. Take that FWIW, as I didn’t bookmark that article and can’t point you to it. But I remember it as it was very surprising to hear it said.
During the GFC most credit was crunched except for large corporations. They were the only ones with access to credit, more or less. I think that part will be different this time..
“And they’ll do anything to avoid frozen credit markets at all costs.”
Rates will have to rise to “unfreeze” the credit markets. Big deal. The poor little rich, investment savvy speculators lose some money they gambled by personal choice.
IMO and I think yours, Inflation is causing the recession, not any high rates. Rates are still low historically.
The talking heads on cable are constantly pointing to the yield curve inversions, but I am of the opinion that the Fed puts the yield curve where they want. So, one might suspect the Fed wishes to create their own excuse for halting rate hikes….”look, the curve predicts a recession and we cant raise during that!”
I think inflation is the result of years of loose monetary and fiscal policy where pandemic stimulus and restrictions (including ppp, ridiculous unemployment benefits, moratoria, etc.) along with war acted as catalysts to wake the CPI inflation beast. Rate hikes and QT have been a slow reaction to that inflation.
The Fed has had control of the bond market and its yields for a while. It’s undeniable that low rates and QE had the Fed’s desired effect of re-inflating asset prices. I’m not so sure they’ll be able to keep control of it in the next crises.
I don’t at all agree with the Fed’s policies since the GFC, but I was making a simple observation. Looking at the history of the fed funds rate, one should immediately recognize that the Fed has responded to recessions with lower interest rates 100% of the time (at least since the St. Louis Fed chart begins in 1954). My point is that in order to continue with rate hikes into a what appears to be a coming or already established recession, the Fed would have to disconnect from a history of unchanged behavior that has been in place for basically the entire history of the fed funds rate. It would truly have to be different this time, and I can’t help but question the claim that the Fed will hold rates high to crush inflation no matter what. To do so in a recession would go completely against the long established character of the institution. The real difference now is that the Fed has not had QT in its toolbox before. It now has a $9T sized anti-dollar canon to use, but nobody really knows where that leads yet. That might be the factor that could make the Fed’s response different this time. We’ll see, but they sure have a long and consistent history of tucking tail in recessions.
There wasnt a recession in the late 70s early 80s when Volcker was tightening?
The Volcker Fed saw the fed funds rate peak at 17.6% going into the 1980 recession. Half way through that recession, the fed changed course and aggressively dropped the fed funds rate all the way down to 9% by July of 1980. Rates danced around higher well into 1981 as rates were hiked to break inflation. The 2nd dip of the double-dip recessions began with the fed funds rate at at nosebleed 19% and the Volcker Fed again dropped the fed funds rate throughout the recession down to 9.2% by the end of the 1981/1982 recession. Volcker dropped rates in both recessions. The fed funds rate has been trending downward since the mid 80s.
The Fed has always dropped rates in recessions. Every time. Do a google search on “Fred federal funds rate” and click on the link to the St. Louis Fed’s FRED tool. See for yourself.
Comte de Vergennes, Comte de Rochambeay and Comte de Grasse
celebrate the 4th of July in heaven.
“Housing Bubble Getting Ready to Pop”
I read this as ‘US economy ready to pop’.
I thought it very interesting that no one in the North East seems to be moving and California is still modest in increased listings.
I assume many speculators moved into Raleigh NC to take advantage of Apple’s announced facility there.
“…California is still modest in increased listings…”??
By metro — doesn’t seem all that “modest”:
Riverside-San Bernardino-Ontario, CA: +72%
Sacramento–Roseville–Arden-Arcade, CA: +65%
San Francisco-Oakland-Hayward, CA: +46%
San Jose-Sunnyvale-Santa Clara, CA: +34%
San Diego-Carlsbad, CA: +25%
Los Angeles-Long Beach-Anaheim, CA: +20%
AirBnB et al didn’t exist in the last housing bubble crash, and it isn’t as if the owners of such 3 room ‘hotels’ live there.
How many if these new AirB&B’s can ride out a loss of customers? If a recession hits or if inflation continues to bite the customers will dry up.
There were articles in 2018 of new Airb&bs crying that they can’t find enough customers.
Hotels are full and you don’t even get maid service any more.
For the week of Aug. 1–7, hotel occupancy reached 68 percent, down 8.3 percent from the comparable week in 2019.
August? Are you a time traveler?
Help us out. What will the DOW be on August 1st?
That was actually a 2021 stat, therecent number is around 73%.
JDog, thanks for the info on hotels. It’s interesting.
Many of the cheaper motels and hotels have become full time residences for many of their customers.
Exactly, AB&B’s are a business, and all businesses have overhead that has to be exceeded by income to survive. The $1500 many people would be spending on a vacation rental this summer, is instead being spent on gasoline and groceries.
Vacation rentals are just like any other rentals, they are fine so long as you are making a decent return. At the point where your returns diminish, it becomes a PIA instead of an investment.
IMO a lot of both AB&B’s and regular rentals are going to soon be hitting the markets as the recession makes them much less profitable and their owners watch their equity begin to disappear.
Back in 2011 between jobs, I thought about buying a bunch of cheap condos as rentals in ATL when the market was really depressed.
One reason I didn’t is because I concluded it would be much easier to buy then far more reasonably priced higher dividend yielding stocks and just clip coupons requiring no effort at all.
Since then, the units have about tripled but the free cash flow wouldn’t be that compelling until more recently with much higher rents. I never redid the math but don’t think the rentals would have been that much if any better. Maybe worse.
Since real estate is in a massive bubble and stocks are definitely in a mania, both are headed much lower.
Still, at lower or much lower prices for both, chances are I will reach the same conclusion.
Rentals are always a crap shoot. You can get lucky and get good tenants, or your tenants may make your life hell.
Instant housing liquidity, LoL.
Going to be a ton of former Arbnb houses hitting the house market as travel drops.
I was in the motel biz for decades along with family. It was cruelly cycling over debt costs and gas prices. Now comes another crop of amateur money suckered by the .con bros
It is funny to see the same damage done to newbies time and time again.
Anecdotal but meaningful: we’re in a ski resort in the NC mountains; our house could (they say) sell for almost 3x what we paid in ’19.
Many homes have been sold in the last couple of years based on rental income from the last couple of years. It is d-e-d dead up here this summer, and they just pushed through a double-plus property tax increase. It’s gonna be a bloodbath when the leveraged VRBO owners start to bail. If we don’t have a really good ski season this winter, we may be the only ones left.
The best part of the AirB&B mania is the local governments looking to cash in too, and why shouldn’t they try? AirB&B is just a skirt around local regulations for hotels, and services need to be paid for.
Actually, Kurtis, the town levies an occupancy tax (about 7%) on STR’s too. They’re cashing in in multiple channels.
Airbnbs in the part of Utah I just left are crashing and burning fast. They depend entirely on rock climbers and a few tourists on their way elsewhere. The entire area is saturated with Airbnbs that are typically cheap in price and also in amenities and construction (old mining houses). I’ve stayed in number of them and consider them pretty substandard lipstick on a pig type places. I hope they all crash and burn as they’ve ruined the rental market for locals.
Are the Airbnb run by Wall Street types? Where I live (near Raleigh NC) Wall Street is in the normal rental business. I would think the Airbnb would require too much hands on work. The places I have stayed at seem to be run by outfits that are a lot like the Beach Condo Rental outfits: with sufficient boots on the ground to accomplish small fixes quickly.
Best comment section on the interwebs! Thank you Wolf et al.
Stay classy San Diego!
From SD as well. Love the SD representation on the comments board! Stay classy!
Is Blackrock still the largest landlord in the US and will they go on another buying spree?
Is Zillow gonna declare uncle???
Nope, they are going to continue to pump out propaganda, last I read they are still forecasting growth next year.. What a joke.
If they didn’t cry uncle after losing $400m on trying to be the biggest player in quick house flipping then I don’t think anything will. Zillow should just rebrand and call themselves Zero
Zillow wasn’t even the largest player in the startup world. They were just the first to throw in the towel on “flipping”. Actual flippers at least attempt to add value.
Oddly enough, you can’t find how many houses they bought anymore.
Z was at about 7k, redfin, open door, we’re in that range then compass had like 15k.
Wolf I’m sure has the stats somewhere.
Each company discloses at least part of the data in their quarterly 10-Q filings on how many homes they bought, are holding, and sold in their quarterly 10-Q filings — either expressed in number of homes or in dollars, or in both. But it’s time-consuming to pick out this data for each company for each quarter, and it may only be partial info. I did that with Zillow a while back.
Great analysis! It’s seems that the shadow supply suddenly showed up when the Fed started reducing their MBS buying and the mortgage rates increased at the same time. Coincidence?
It’s not a coincidence; it’s how it works. During QE, the Fed repressed mortgage rates by buying MBS, which created demand for MBS and pushed down their yields, which had the indirect effect of pushing down mortgage rates over time, which inflated home prices. It is very solidly documented over decades that lower mortgage rates inflate home prices. The Fed knew that, and it chose to do that.
Now the process is reversing during QT (and all year so far in anticipation of QT), and MBS yields have been rising, and this indirectly pushed up mortgage rates to around 6%, which is now putting downward pressure on the housing market. This is part of the design of the Fed’s policies – not a coincidence.
“Some 80 percent of bank loans are real estate mortgages, and most of the remainder loans are collateralized by stocks and bonds” Michael Hudson
That means tightening serves as a double whammy.
Spencer Bradley Hall,
That’s total BS. If Hudson actually said this, he doesn’t know what he is talking about. If he really said it, he is a clueless ignorant idiot. You can just look it up. The Fed publishes this data on a weekly and monthly basis. Link below:
All banks in the US combined have a total of $11.4 trillion in loans on their books, of which:
Residential mortgages: $2.3 trillion = 20%
– Commercial & Industrial Loans: $2.8 trillion = 25%
– Commercial loans secured by construction projects, farmland, multifamily properties, non-residential properties, such as offices, etc.: $2.6 trillion = 23%
– Consumer loans (credit card, auto, other): $1.7 trillion = 15%
– All other loans and leases: $1.9 trillion = 17%
So I looked through all the data and got halfway through the footnotes. Mostly all unclear terminology, to me. So, Thanks again for what you do that I sure never could….or honestly, like I’ve said before, would even try very hard to learn to do so.
I finally deleted the double entry bookkeeping tutorial from my desktop, facing the fact I would never use it, but the WS folder is full of stuff I reference. Good show.
I see where he said that. It was reposted at Naked Capitalism.
But I don’t see where he is coming up with that.
I look at page 6 of here (pdf),
and that (in addition to what Wolfe noted) seems to contradict his point.
If I had to take a crack at why home ownership rates are down, I would take a guess that the squeeze on blue collar wages since ~1974 (or ~1980 if you want to blame Reagan) would go a long way. We aren’t in a Post WW2 boom anymore.
What is the chance of, once hitting a recession, Fed using that as an excuse to reverse the QT. The Feds maybe wont drop the feds funds rate as they want to keep fighting inflation, but to stimulate the housing sector from the zombie-like state it’s currently in, they actually start buying more MBS? That sounds plausible, and something that might prop up the housing market for quite a few more years to come.
Would Feds reversing and buying more MBS be able to re-energize the housing market such that there arent significant price drops coming?
The Fed will NOT do QE before its interest rates hit 0%. QE is the last option after everything else has already been done.
They’re planning to raise rates quickly so they have room to cut rates without doing QE, if inflation subsides and the economy goes into a recession.
If inflation doesn’t subside, the Fed will keep tightening, or maintain policy rates at the higher levels, even if there’s a recession.
Even if inflation subsides, and the Fed cuts rates some, it will still keep doing QT. It’s going to unwind a big part of the balance sheet on automatic pilot.
I just read an article on Bezos home investing startup Arrived Homes is having a hard time finding homes to buy for rentals. Just more competition for the startup home I guess. Crazy. They have 123 homes on their site but 120 have already sold out and there is only 3 currently open to investors to buy shares in. Most of the homes listed seem to be in the Southeast like Tennessee, Georgia, Alabama.
“Buy shares of properties, earn rental income and appreciation — let Arrived take care of the rest.”
I guess this company lets mom and pop investors buy shares of rental properties. Minimum investment is $100 and they speculate a 9% to 13% return.
Key word speculate…
And it is an economically toxic activity that has excessive inflationary effects on things people need to live.
Not the fault of the speculators, rational economic creatures that they are.
The fault lies in that city on the Eastern Seaboard that is named for a very successful and lucky slave owner — whose name cannot be mentioned!
😬 😜
I guess we will have to see if all these proxy home investing companies can last through a downturn.
Just a few. Add a .com to the end
For Commercial Real Estate:
A builder in my previous area panicked and just listed all his properties – 14 houses, which is huge for that little Utah town. He says all can be finished in 3 weeks or less.
Nearly all builders work on borrowed money. Their enemy is time. If it takes longer to sell their properties than they planned, and their capitol is getting eaten up by interest payments, they are in a bad situation. 6 mos. can often make the difference between profit and bankruptcy.
I have seen whole projects bulldozed because the market turned and builders ran out of time.
A new take on helping sellers sell their home to a cash light borrower who also may want to make their mortgage payments lower by buying points.
She’s also been advising clients to ask for seller credits — a cash payment the seller gives the buyer at closing — to help them buy down their mortgage rates.
Buying down your mortgage rate means making an upfront payment to your lender to reduce your long-term interest costs, and seller credits can help cash-light buyers take advantage of the option.
“I plan to deploy this strategy myself on a listing I have coming up next week and provide some rate buydown information to just proactively address concerns about interest rates,” Rockwell said. “It’s crazy how quickly the tables have turned!”
People forget that Bernanke bankrupt half the home builders, drastically curtailing future supply.
Look what caused the fall in housing prices, the GFC. M1 NSA money stock peaked on 12/2004 @ 1467.7. It didn’t exceed that # until 4/2008 @ 1514.2.
Dec. 2004’s money #s weren’t exceeded for 4 years. That is the most contractive money policy since the Great Depression.
What matters is access to credit, not some arbitrary money supply measure.
Credit sure didn’t decrease during the period you cited.
So no, that’s not what caused the GFC or the housing crash.
Classic battle between have and have-nots.
Except now the “haves” are those who have homes and locked their mortgages at 2.xx- 3%, and perhaps also have car payments at 0-1%.
Maybe instead of the have and have-nots, people should be divided into the “before” and “after”.
Life is an accumulation of decisions. Make good decisions and you will prosper, make bad decisions and you probably will not. We all have plenty of opportunity in our lives, as hindsight witnesses. It is what you do with those opportunities that determines where you end up.
Never understood the people who want to blame their lack of success on people who made better decisions.
VERY good comment IMHO Jpup!
Been there and done that on BOTH sides of what your comment describes so clearly.
”DECISIONS decisions decisions” are, in fact the exact reason so many of our ”great spirits” emphasize how many angels it takes to fill up a pin head…
Thank you.
OK amused, over to you!!!
Define “success”.
For me or for you? Success level is for the individual to decide, but I definitely know what it is not. If you are bitter over the success of others and convinced their success in some why stole the opportunity from you, then you are absolutely not successful.
Hmm, what group does that describe?
Right. And the government made a bad decision, a very bad decision, which is why a before and after exists. It’s not like someone randomly throwing you in jail for no reason is something you can plan for.
Effective June 15, 2022
“An RRP is a liability on the Federal Reserve’s balance sheet, like reserves, currency in circulation and the Treasury’s General Account. When RRP transactions are settled, the New York Fed’s triparty agent transfers the cash proceeds received from RRP counterparties to the New York Fed. This movement of funds from the clearing bank to the New York Fed reduces bank reserve liabilities on the Federal Reserve’s balance sheet,”
“The bond underlying the repo transaction is still recorded on the Fed balance sheet”
“Of course, if the buyer of a reverse repo or a security sold by the Fed is a nonbank and pays for the purchase using its bank account, the money supply is directly affected.” And 90% are purchased by nonbanks.
I.e., the FED has been tightening credit for a long time – 2,466,420.
So in theory, if inflation goes down, my dollars have more relative purchasing power. If house prices go down and I sell mine, I get fewer dollars but with more relative purchasing power. Then, I have to think about the next move, to preserve that value. But the mere drop in nominal price is not as bad as it sounds, in a relatively deflating economy, because other prices are falling too. So it is a psychological adjustment, but economically it still pencils out. Right?
There is a difference between deflation and disinflation.
The FRB isn’t interested in increasing the purchasing power of anyone’s savings, only going back to stealing no more than 2% annually, forever.
Remarkable, after an unforeseen by the Fed of 8% in one year, the Fed does not adjust, but sticks to a 2%. So, Powell is saying this 8% in 12 months, with a few more %pts tacked on is okay with him. What?!
There is no talk of rolling off some of this spike? If the Fed was rational, they would say we must get to zero inflation for a few years, even some disinflation, to compensate for this spike.
It is telling there is no such discussion….very telling.
Only if your income also rises at the rate of inflation. Otherwise you are worse off.
In theory this is correct. Like assets tend to go up and down together with economic cycles. The variable that really changes is often cash flow, which effects staying power.
Cash flow tends to be reduced during economic downturns, which creates problems for speculative investments.
During economic downturns, many people are forced into making “scared money decisions”. When people are put in the position of making a scared money decision, they are at the mercy of the market, which usually has none.
I just want to thank you for all of your wisdom on Wolf Richter’s site.
On April 6th, Austin had 1,900 home listings on Realtor, as of today there’s 4,003. Over a 100% uptick in less than 60 days.
Oops. My bad. Less than 90 days. Still quite a surge.
That the real estate market is cratering is obvious by now. And it’s ok. Winners, losers, life etc… But no economy as a whole can do well when the largest wealth component of a nation (by very far) is declining. And when it declines fast, the consequences are devastating on global spending, especially the non mandatory one.
Lots of people are about to lose their jobs. And that’s always associated with personal tragedies and a negative feedback loop.
A rapid rise in rates is also the worst thing for financial markets, at a time where boomers need the retirement money.
The sad thing is that even cash is losing value rapidly with inflation.
Buckle up America and the world. Ain’t gonna be pretty.
If “normality” is ever to be restored to the economy and financial system, the end of the asset mania and credit bubble is both a good and necessary thing. That most people are going to become poorer or a lot poorer with lower living standards is reality, since there is never something for nothing.
It’s also a** backwards for savers to be perpetually cheated with negative real interest rates and unsustainable for home buyers. It’s the “natural order” for thrift, savings, and work to be rewarded, not borrowing, speculation, and doing nothing.
Look at the crypto “industry”. Hundreds of thousands have “jobs” associated with literally nothing while maybe several million supplement their income and build “wealth” speculating with nothing. It’s totally insane.
Current housing prices and rents are also unsustainable in anything close to a normal economy.
“It’s also a** backwards for savers to be perpetually cheated with negative real interest rates and unsustainable for home buyers. It’s the “natural order” for thrift, savings, and work to be rewarded, not borrowing, speculation, and doing nothing.”
Well said. I agree 100%.
Yes, I’ll second that too. Pure idiocy with long term damage to punish savers and thrifty behavior with ZIRP and QE. The mistake was to inflate this dumb bubble in the first place, especially the housing bubble and other bubbles in essentials that hit Americans in general hard.
AF, you have these dogmatic declarations about things good, bad and ugly. Your point about work in the “crypto” sphere – I agree that it’s total b.s. – but there are massive jobs in the entertainment industry where “artists” are making something out of nothing on a regular, and very lucrative basis. Would it be too great a stretch to call crypto trading, etc. as just a form of entertainment, as perverse as that may really be?? And when’s an economy “normal”? It’s usually manic or depressive, aka: abnormal. Your comment that only “work” should be rewarded, not “borrowing, speculation and doing nothing,” yet in an earlier comment you talked about how you were able to sit back and “clip coupons”.
I really like the moralistic tilt, but it needs to be anchored on something more than your belief about the way it “should” be. I think it should be “normal”, but jeez, it’s always in a calamity and naive people are routinely being fleeced. If their genes or their parents couldn’t get their act together, the government and public education can only do so much to minimize the pain and suffering.
Let me help you out with some insight.
AF writes as though he is the reincarnation of John Calvin.
That is the long and short of it.
Would you like me to write a book every time to explain myself?
Here is a start for you in reply to your comments. i worked for you. I worked for the savings I have. No one gave it to me. Should I lend it to someone else for nothing? For less than nothing?
As for your crypto comment, see no analogy between it and your example. In a “normal” economy, there is always demand for some form of “traditional” entertainment.
Crypto doesn’t fit that description. Someone could say the same thing about other types of speculation but the other instruments mostly (there are exceptions) have a “legitimate” economic purpose.
Would you like me to say the economic environment is really much better?
It’s not going to be terrible for everyone but yes, I do believe it’s going to be worse or a lot worse for the vast majority. I’ve explained why in some of my other comments.
Can’t repeat all of it every single time.
Outside the Box,
You have no clue what you are talking about, but thanks for telling me my comments are contrary to your personal preference.
Thanks for the response.
It is a prime example of what the headshrinkers call a significant reaction.
Thank you for saying this.
Coupon clippers love to whine around here the system ain’t working the way it supposed to. But it us under their voting that this happened.
“but there are massive jobs in the entertainment industry where “artists” are making something out of nothing on a regular, and very lucrative basis.”
From “Amusing Ourselves to Death” by Neil Postman …
“Today, we must look to the city of Las Vegas, Nevada, as a metaphor of our national character and aspiration, its symbol a thirty-foot-high cardboard picture of a slot machine and a chorus girl. For Las Vegas is a city entirely devoted to the idea of entertainment, and as such proclaims the spirit of a culture in which all public discourse increasingly takes the form of entertainment. Our politics, religion, news, athletics, education and commerce have been transformed into congenial adjuncts of show business, largely without protest or even much popular notice. the result is that we are a people on the verge of amusing ourselves to death.”
I like that thought about Crypto as being some form of entertainment. I view it as going to the online horse race and betting on imaginary horses in imaginary races.
A new estimate of 2021 real median household income went vertically up
to $77,000, up $10K from $67,000 in 2020.
Price/income might look better. If we aren’t in recession, or in a technical one, and inflation will be under control, 2022 might not be bad at all.
That’s NOT what the updated data are showing, not even close. The latest data from the serious sources are showing around $68,000 for US media household income in 2021, in fact even a bit lower ($67,463)–which is down from 2019, by a lot in fact. Not sure we can post links in the comments here but it’s from one of the respected sources that Reuters and other major orgs cite. Problem is the household income estimates are all over the place for the US, and a lot of them are pure garbage, mixing up median and mean or not specifying what stat they used. (The mean household income is distorted by the US billionaires leading to a number that’s way off from what Americans actually make.) And also remember, this is median household income, NOT individuals (another mistake we hear all the time). Esp down in Texas, Arizona and California, it’s not unusual to have multiple earners including the kids and cousins (10 or more) under one roof. Ironically, kids moving in with parents increases the number, another distortion of the housing bubble here. And inflation is not under control.
Source: U. S. Department of Housing and Urban Development
NOTICE PDR-2021-01
Subject: Estimated Median Family Incomes for Fiscal Year (FY) 2021
The national median family income for the United States for FY 2021 is $79,900, an increase over the national median family income in FY 2020 of $78,500.
There is a difference between median household income and median family income.
Saw a homeless guy with a cardboard sign inbetween traffic, which said ‘Will work for a median income’, which was worthy of a few buck donation on my part.
Xavier, I saw one that said, “hire the morally handicapped.”
According to Political Calculations, that’s the only data I can find on ‘Median Household Income” for 2022, it’s only marginally higher ~$74k for 2022 vs ~$72k for 2021 and ~$73k for 2020.
If $67k->$77k from 2021->2022 is a real thing in some context, it would be more convincing and useful to site the source.
FRED shows real median household income as of 2020 at $67,520. I thought this was 2019 but it was reported at $69, 560 that year.
There is no way real median household income increased by $10,000 or 15% in one year, whatever the actual number.
It’s complete nonsense.
Augustus Frost,
There are four different measures getting compared here that cannot be compared:
– median “household” income is NOT median “family” income. Household = people living at an address, and if 4 roommates live there, it’s a household. But family income = family-based measure, and roommates are not a family. And I think they define family as at least two people in a family-type relationship, not single person living alone (not sure about the definition, just a guess, and if it’s important, you can check it out).
– each of these two measures comes in two forms: 1., measured in “current dollars,” meaning the actual dollar amounts not adjusted for inflation; and 2., “real,” meaning adjusted for inflation and expressed in something like 2012 dollars or many be 2020 dollars.
The mystery will go away if you compare apples to apples.
Also, the data for 2021 has not come out yet. And in 2020, incomes dropped due to the huge unemployment.
I thought incomes rose, because they only measure income for people who have one, and the pandemic disproportionately affected those at the lower end? Also, many lower income people made more in unemployment benefits than when working!
I can’t find a definitive answers as to whether people out of the labor force are considered in in come statistics since the census defines in come as “income received on a regular basis”.
“I thought incomes rose, because they only measure income for people who have one,”
No, that’s not “household income.” What you may be referring to are other measures such as average hourly/weekly wages, etc., which did go up because the lower end of the wage scale got laid off while the higher end worked from home, which skewed the averages higher. But that’s not “household income.”
Household income is income from all sources by everyone living at that address, and if it’s $0 it is counted as $0. But it’s never $0 because this income includes income from ALL SOURCES, including wages and salaries and tips, dividend and interest income, income from rentals, side gigs, unemployment compensation, welfare benefits, Social Security benefits, pension benefits, disability benefits, etc.
Crazy. Now i just read WSZJ article saying in some cities there is a bidding war to rent in nice areas. In some cases it is people who do not want to buy a house at these high prices and are worried about a downturn.
Large rental landlords also report having more business than they can handle. “In any given week, we get over 13,000 leads for only 200 homes available,” said Gary Berman, chief executive of Tricon Residential, during a May earnings call.
Many renters don’t stop at offering a higher rental price. Some are following other parts of the home-buyer playbook, such as drafting “pick me” love letters that introduce themselves to a landlord and make an emotional appeal. Others are asking previous landlords to write them recommendations, as if applying for a job.
In Chicago, the website Brixbid.com facilitates an influx of people bidding on rent. Landlords start the bidding with a suggested price. Renters then have the choice to lowball them or bid even higher. Some apartments now go 10% to 15% over ask on Brixbid
They say, “They never ring a bell at the top”, but there’s this ringing I’m hearing…
I’m fixing messed up electrical work in a Airbnb slab-on-grade 3-2 next door to my mom’s house. It was built to replace the pier-and-beam house that floated away during Katrina. The next three houses towards the beach are all new, slab on grade Airbnb’s. Cheaper than the beach hotels which are all full anyway. A New Orleans lady is building some river plantation-style houses across the street that are for sale, but will end up in the rental market because they’re too expensively built and look wrong for the street. My customers are a very nice young Memphis couple with four children and some rudimentary skills, his father is old-time capable when he can make the trip here, her folks are gold miners in the Yukon. A bunch of new construction on the beach now. Between those getting into the short term rental thing and local people who are exasperated trying to get anybody to show up, a tradesman who can fix anything in a house could stay busy indefinitely here. The climate is tough on houses. And there’s always another storm in the future. A few savvy grifters get rich out of every hurricane. An average seaside community in the Gulf South, in other words. Reading about the population and traffic in Austin makes it sound like a different town than the one I left some thirty years ago. Topographically I don’t know where they all fit, only the east is flat cow pasture. The kind of people I knew in Manor and Lockhart and Bastrop and Elgin in those days weren’t the sort to put up with much from Austin “hippies”. Edwards Plateau is environmentally fragile and a difficult place to build anyway. I’ll bet lake Travis and Buchanan and LBJ are jammed now every weekend. Comal and Guadalupe rivers too. And their 45 toll road is empty, so they are talking about de-tolling it and tolling ih35. Literally nothing has been done about mass transit in the one Texas city that really needs it worse than the others. I went to lots of the City council meetings (activist girlfriend) in the day, and they rarely approved of new building if it was anywhere close to downtown and not UT or state government over which they had little control. Even Motorola in Oak Hill took forever to permit fab expansion plans, because of water availability and potential groundwater contamination. Only one interstate highway. Other Texas cities have dedicated ring roads and expressways. Austin has 183, which spawned the bumper sticker “Pray for me, I drive 183″. One of the ten most dangerous roads in the country then, and it wasn’t even very crowded. In 1980. When there were open fields around Texas Instruments, Tracor Aerospace, IBM. Under half a million people in the Georgetown to San Marcos corridor. Where do all the people live now? Even then, Austin was not physically uncrowded. Houston is flat, and for decades could have legally annexed the IH-45 corridor up to the Dallas city limits. Dallas is flat, you could build subdivisions from LBJ expressway to Oklahoma if you really wanted to. They stopped after Richardson and Plano last time, fifty years back. And the house my parents bought in Melshire Estates off of Preston Road sold in 1961 for the equivalent of two years present day property taxes and it’s unimproved since 1976 when the neighbors next door bought it to stop the midnight skinny-dipping parties. They still live there. Supposed to be worth just under $1m now. Bull.
Texas can be wonderful, but it’s a hard dollar when the work dries up. And it does, every so often. Natives in any area know how to scrape by between the high spots. Newcomers don’t, and rely on their transferred capital to see them through. It lasts longer in cheap places, and Texas is not cheap anymore.
Buy on the cannons, sell on the trumpets. Or per Will Rogers, ” buy a stock and wait for it to go up. And if it doesn’t go up, don’t buy it”.
I live in The Woodlands, Texas, a community of roughly 130,000 people that was developed by George Mitchell, who founded Mitchell Energy. We are west of I-45, and north of Houston bordering on Spring, TX, a city gobbled up by Houston (annexed) years ago.
We are a high cost of living , planned community that is a TOWNSHIP and will remain one unless we incorporate (beat down by voters in the last election), or Houston annexes us, which it can’t until 2053 due to us buying that privilege for $18,000,000 a couple of years ago.
I don’t typically see any California plates on cars around town here (yet). Maybe the township form of government doesn’t attract any?
I bought my house January 2020 paying 352k including closing. No mortgage. Made roughly 20k worth of improvements but nothing even that major (kitchen hasn’t been updated at all, and it needs it). If I sell next year to break even (including property tax payed) I need to list at $404k and doesn’t look like I will get it. A similar house sat on the market for 70 days listed at 429k and sold last month for 397k. For some reason many of the properties here are overpriced and go through several price reductions–really obvious they are emotionally over-invested in their home’s worth. I don’t know if they are getting bad advice from realtors or what. When we sold out townhouse in San Mateo our realtor insisted we list it way under market and when we balked he wouldn’t budge and he was right. I wish I could find his counterpart here in the north central valley.
I’m not sure why I’m offering this anecdote and if it adds anything to the discussion. I never looked at my house as an ATM or even a “great investment” and now it looks like it wasn’t as great as everyone said anyway (but still better than paying 1800/mo in rent with no pool).
I hope you are finally right!
I’ve been short like you since mid-2020 and have lost so much money.
You made a ton of money YTD. If you were short $1,000 at the beginning of the year, you now have $1,200, while those who were long $1,000 at the beginning of this year now have $800. You’re 50% ahead of them YTD :-]
In terms of real estate:
I started this series here — “Housing Bubble Getting Ready to Pop” — about 7 weeks ago on May 18, 2022 with my first article in this series:
I started a different series — “The Most Splendid Housing Bubbles in America” — in 2017 to document to crazy SURGE in home prices.
I’m curious about what may happen with multifamily/apartment new construction. I live in a condo in an older blue collar Detroit suburb. Median household income about $69,000/yr. A developer wants to build a four story, luxury building with the usual “luxury” features, pool, gym, roof top pit on the vacant space across the street from me. Units to have large units supposedly to attract remote at home workers. I heard this is a trend. Does this type of investment make sense in view of rising construction costs and interest rates?
The Federal Reserve has no business owning MBS. It is way outside their charter. Someone should sue them on that point and bring back sanity to real estate prices.
Remember the Savings and Loan debacle?
Prior, the S&L industry was restricted to lending locally. Then that was dropped….and S&L started financing housing developments out in the middle of nowhere.
There is a wisdom to locally financed real estate. The lender who lives in the community has a better handle on the values and risks.
But when the lender has “his eye off the ball”, lots of antics become possible.
The reckless securitization of mortgages did great damage in 2008. And now we go a step further…..the Fed holds the paper. ($2.7 Trillion)
It is their way of controlling the long end of the yield curve, IMO, which in the past they usually left alone.
As Fed Gov Fisher said, they pounded the long end to FORCE investors into greater risk. Worked for a while.
Prices started falling in Florida late 2005. 2006 was flooded with owners taking refinance cashouts. In 2007 foreclosures came in like a hurricane and continued through 2010. Then people lived in their foreclosing house for free for years, as many planned with their ‘strategic defaults’ beginning late 2006. Watch for the rising numbers of refinance at a higher rate to get out cash mortgages.
Awesome article, great content.
All types of investors (big, small, institutional, ibuyer, mom and pop) are still buying like crazy. First time buyers are priced out harshly. I wonder where will this trend go.
Pure wisdom dispensed daily. Wolf Richter has created, overseen, stewarded and directed this site which is the only place I get all of my financial advice. The breadth of experience, wisdom and knowledge from humans active here is astounding.
Bought a slew of single family homes in Florida, many needing extensive work, in 2009-2010, repaired with ‘out of work’ humans, rented then sold 2015-2016 on mortgages. 73% of mortgages recently paid off as prices enabled good profits. Sitting on a mountain of cash (no, I am not worried about holding cash in a high inflation environment… housing prices will crash far more than the inflation rate.) My advice is be careful in trying to catch a falling knife… it might take quite a while for real estate to hit bottom.
In the meantime, we are profiting by buying SRTY and SQQQ on rallies, selling when the account balance hits new highs. With discipline, it is actually quite easy and stressless. Currently 100% in cash.
My wife is happy, and that is all that matters.
Good for you Harry, I am sure your knowledge of the business cycles will serve you well in the future, just as it has in the past.
Very interesting! Regarding this “shadow inventory” any stats/data on it?
Though I feel like the behavior of these wealthy people that can afford to have shadow inventory laying around would be to sell only while there was considerable profits to take. If the profits become too small, there will be no need for most of them to sell. So the inventory would not increase that much once a small housing price correction has been made.
Comments are closed.

We’re not even getting peanuts? EU regulators came out and said, no, no, no, that’s just in Switzerland, not in the EU.

What we saw on Friday was large-scale fear of taking big uninsured deposits into a potentially gruesome FDIC weekend.

Year-over-year, home prices plunged by the most on record as the seasonal uptick in prices was far smaller than a year ago.

At around 4.75%, plus collateral, these are expensive loans for banks.

A hugely important concept: “There is no trade-off between price stability and financial stability.”

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