The Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line.
The reason home prices are not on line with fundamentals is - well there is just too much liquidity. Money is looking for places to go and there are not many. Except stocks. And then the next bet is real estate. They printed way too much for too long. Interest rate is at historic low, there is way too much savings, and in this inflationary environment, real estate is an excellent leveraged asset. No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.
Oh yeah, the same Dallas Fed chairman did not see the whole inflation thing coming either.
I still remember Bernanke’s pronouncements before the 2008 crash that everything is just fine. It’s hard to not conclude that they either aren’t very competent or are playing political games.
> remember Bernanke’s pronouncements before the 2008 crash that everything is just fine
The Fed chair saying "we're fucked" is, on its own, enough to cause a credit crisis. (This is why the Fed doesn't tend to make blanket forward-looking statements like "everything is just fine.")
I wonder about these grand conspiracies. I am on the fence as to whether the world is controlled by a global elite of super geniuses stealing from the unwashed masses. Or whether the people in charge actually are just wildy incompetent. I'd say the evidence supports both.
Lying is not the same as incompetent. Also they have to pretend (lie) that they can do something impossible. They are not incompetent. The fed chairs are quite intelligent, but they are not running the show.
People are going to manipulate things in their favor as much as they have the power to do so. Oligarchs in America and elsewhere have the most power, and thus do the most manipulating. Also, it's no secret that the vast majority of wealth is concentrated in the hands of a few oligarchs.
As soon as they ever compete against each other, it's the same as none existing at all.
That's the easiest way to dismantle that particular grand conspiracy.
The most pragmatic approach is to understand that they don't rely on voting to get their way. But they absolutely compete for resource appropriation and their special interest. It is better if they act like gods of their particular domain or sector, so they can exert control over just that and not compete. But it also reinforces that they cannot and do not coordinate much together.
I’m saying there are so many groups like Bilderberg that its the same as none of them existing
When I was in France, there were people super passionate about being sure I knew about the fraternities that control the world and the supporting conspiracy documentaries with ominous music for 2 hours, except these ones were french ones based in Paris
You don't 'need' the fed. The country lasted 150 years without one, and shortly (less than 20 years) after its introduction, a deflationary cycle and great depression ensued. The fed preventing a deflationary cycle has been thoroughly and mercilessly disproven.
Either the fed is powerless to stop the economic crisis we've suffered, or they're too incompetent to manage them. Either way it looks like they need dissolved.
The fed couldn’t possibly stop a deflationary cycle when the currency/population ratio was determined by how many atoms of non-oxidizing noble metals happens to be in the earth’s crust.
The federal reserve themselves disagree with you [1].
Also note [2]:
"In 1913, this problem was addressed by the creation of the Federal Reserve System (Fed).33 The
Fed was to remedy the situation in a two ways. First, it would provide a means by which banks
could borrow in times of stringency to satisfy their customers’ demand for cash. Second, it could
create a new form of money, Federal Reserve notes, which could be expanded or contracted in
quantity to respond to the need for more cash."
"The creation of the Federal Reserve had little if any effect on the gold standard. The dollar was
still defined in terms of gold. Federal Reserve notes were redeemable in lawful money. The Fed
not only operated under the gold standard, but was charged with maintaining it, and kept a
percentage of gold cover for its notes. Gold still dictated the value of the dollar. "
“ Because the international gold standard linked interest rates and monetary policies among participating nations, the Fed’s actions triggered recessions in nations around the globe.”
That’s what I was alluding to, sorry for not being clear :)
There's not been a run on banks since the Fed's existence. The country needed a "Fed" - you can only say that they're unneeded because you have not experienced a time when they didn't exist and bank deposits couldn't be secured.
It's like people who ask why they need to be vaccinated for polio now that there's very few cases of it.
1) The Fed should create the outcomes such that their predictions were wrong
2) While also just having a bad interpretation of data to begin with
3) The Fed is only imagining that its toolkit can cause a specific outcome for economic growth, but it cannot cause humans to transact a certain way or predict what a large group of humans (or large pool of capital) will do. No economist can, and the other economists don't have an infinite balance sheet to try to influence it either.
4) The Fed was never asked to or mandated to do the things it does to stimulus the economy. (Caveat, the stimulus bills in 2020 are a major exception). The Fed just notices that nobody can stop it. Similar to the Supreme Court realizing that and testing it in Marbury v Madison. Congress lacks consensus on it and everyone is afraid of the alternative (Congress having to deal with monetary policy themselves, politically).
I agree. Congress is paralyzed (far more than the usual) when it comes to monetary policy and financial services regulation. It's officially their job but not their wheel house. Unsettling.
the job of the Fed is a proven impossible one. Their job is to nudge the entirety of the economy towards one or two of the Fixed Exchange Rate, Free Capital Flow, and Independent Monetary Policy at any given time, but never all three at once.
There is every reason that macroeconomic conditions would affect the value of land, but relatively silly and incidental reasons that the price of land would be so strongly coupled to the price of a home to live in (itself a depreciating commodity).
You won't get a source because it's misinformation. There are US cities wherein one in every three single-family-home purchases were made by investors last quarter: https://www.redfin.com/news/investor-home-purchases-q4-2021/ so perhaps OP was referring to that.
I think crypto has played a role in educating more people to how bad it is to hold USD, low interest rates, printed money combined with that are a recipe for people to get into bidding wars and fomo. Ironically this is bad for Bitcoin because it is denominated in USD. Maybe Bitcoin does go to 1M, but only after a loaf of bread costs 1k.
I'm not suggesting anyone go out and buy a 2br house for 3 million dollars, but I do think that real estate will hold it's value in general much better than USD.
> Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line
This is hyperbole. The Fed, by and large, held the American economy together through the financial crisis and more remarkably the pandemic. Until now, neither of those produced meaningful levels of inflation. To say "their credibility is on the line" is to disagree with a multi-trillion dollar bond market taking the Fed's every word very much seriously.
> the same Dallas Fed chairman
This is the Dallas Fed's leadership [1]. None of them authored this article, certainly not the (interim) president, Meredith Black. If you want the dry stuff, what the Fed is actually saying versus its individual researchers, consult the beige book [2][3].
I agree. Prominent investors, scores of former and current federal reserve analysts and directors, traders, and many others have been begging congress for financial regulation--before and after meltdowns. Many of those mentioned above have offered direct, specific advice on what to regulate and how to do it. Crickets...for decades.
I wouldn’t call it a sham. I think I’d rather some centralized orchestration of modern finance than none.
Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.
>I wouldn’t call it a sham. I think I’d rather some centralized orchestration of modern finance than none.
>Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.
When that choice is before the American people, we'll be sure to turn to your perspective, but it's entirely irrelevant to the topic at hand, which is that the fed caused a problem they have yet to fix and they're not even now taking the steps necessary to fix it. We have a word now that exemplifies the ridiculous policymaking perspective that led the last year of bad decisionmaking: transitory inflation. That concept was laughable.
"held the American economy together". That's like saying I've kept my personal finances together by maxxing out my credit card. The American economy is insanely deep in debt, spurred on by Fed policy, and as far as what happened during the pandemic, the bill hasn't come in yet, but the inflation that started last year is certainly a preview of not-so-good things to come.
> The Fed has been consistently wrong over last decade in many of their policy, and their credibility is on the line.
Considering that after 2008 and 2020, we did not end up living in a weird Mad-Max blood-covered hellscape, trading bottlecaps for hits of zyme and ammunition (Which would have been the likely ideological outcome of 'just let the whole economy fail'), I think the Fed has weathered the past two decades fairly well.
> bailing out the banks and auto companies that should have collapsed.
'Should' is doing a lot of work in that sentence.
Should a business that's selling $10 bills for $9 collapse? Yes, that's pretty obvious.
Should a business that's consistently selling $10 bills for $10.05, but requires access to short-term liquidity that completely evaporated overnight to function, and is now not functioning, because some other unrelated part of the economy is sick, and all flow of credit has stopped?
Should that latter business fail? Who's going to be better off for it failing? Even if killing that business will create an economic catastrophe, as well as a mountain of geopolitical concerns that are the consequences of de-industrialization? [1]
On a metric of anything but ideological purity, the fed stopping the economic collapse where it did was a bargain at twice the price.
[1] Just ask Russia in 2022 how well de-industrializing all of its inherited Soviet economy has worked out for it. It's now in the unenviable situation where its domestic production can't even sustain a Soviet-era standard of living, without relying on now-sanctioned foreign trade.
All because it hyper-optimized on growing the 'productive' parts of its economy (Oil, oil, gas, oil, and gas), and let the unproductive parts (all that old, crappy, internationally uncompetitive Soviet industry) rot away.
Sorry, my mistake I meant to say would instead of should.
I don't think that the janitor at GM "should" have lost his job. It would have been nice if everyone lying about the real quality of the MBS products lost all the money they made though
> #1. Way too many people were rich on paper and with margin.
Isn’t this the housing market today? A huge portion of household wealth is the house itself and thanks to massive increases everyone feels rich because on paper it looks good, but it is all financed with ever increasing levels of debt.
This is a dumb question but... does housing have fundamentals?
There's a demand curve of renters willing to rent housing at different price points and I can see how this would put a lower-bound on housing prices, but why should there be any upper bound? When you buy a house you intend to live in there is no associated revenue stream, and the only return you can hope for is your expectation that someone else will buy the house from you for more in the future.
Maybe you can quantify that return, by modeling a rising population and municipalities which are slow to add housing? It still feels like housing is worth what other people are willing to pay for it, that's the fundamental.
I think it does have fundamental value. A stock's fundamental value is in its expected lifetime returns. For a home, it's the value of having shelter. Some areas are better to have shelter than others (favorable climate, access to a job center, etc).
Rental vacancy rates remain near all time lows, construction is still expensive, the population is growing, and most cities are doing little zoning-wise to improve their housing supply. This bubble has a ways to go.
Not to be intentionally contrarian, but do you have a data source for the vacancy rate?
My understanding is that some states have been losing people net and have still had rents and home values skyrocket. I think an increase in Airbnb would be one possible contributor.
C'mon folks, I know it's fun to slap, "Source?" on every comment, but it took me ~15 seconds to find a number of places where this data exists and is readily available. [0]
'xnx did the same thing as a sibling comment, but I just wanted to add that we can do better! This info is super readily available.
While I agree people have the ability to look up others’ claims for themselves, it’s a lazy way to go about it — I make an argument and then say “you look it up!”
It's more a growth of the home-buying demographics. If you look at it, millenials are a larger demographic boom than the baby boomers. They are basically at or entering their years of top demand for buying homes. If you compare the potential demand to supply, you'll see a mismatch that will likely go on for the next 10 years.
I don’t think that COVID significantly affect population demographics in non-elderly cohorts.
Same point in a different context: I would be skeptical of someone arguing that the reason for the Great Resignation is opportunities opening up in the workforce due to COVID casualties. The numbers just aren’t high enough.
I wonder how much of this has to do with flippers buying up rental properties to 'rehab', put a few coats of paint, change the tiles, flush out undesirables on and sell onward. Higher real estate turnover could put a damper on vacancy rates.
I see. This measures only properties that are currently on the rental market; not empty homes. As corporate ownership increases, which is happening at a startling degree, this makes sense.
This comment can be deleted if it’s out of scope, but I have a question:
Did you even try to find this source on your own? If not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
Or if you’re trying to educate yourself or simply asking out of interest, there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’.
>Did you even try to find this source on your own?
This would be impossible to do without knowing what the poster meant by vacant rentals. Some would interpret any empty rental unit as vacant, whereas others would interpret it as a rental that is actually available for rent as being vacant. Without a source or other clarification, it can be impossible to know by which definition someone is using.
>if not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
The burden on proof is always on the one making the assertion.
> there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’
It saves everyone from reading a long sentence when in the end all they are asking is for the person making the assertion to supply proof.
They use price to rent ratio for determining if there is a bubble. This seems like a flawed metric - both home prices and rents are increasing. What is not increasing is the income. So shouldn’t they be tracking median income to median home prices and rents in local areas? I feel this will show a different picture and we might already be in bubble territory - especially if the interest rates co tongue to spike.
I personally know of two parties currently trying to buy a house. The first is a young couple in New Jersey. The other is a retired couple in the Tampa Bay area in Florida. Both of them are extremely well-qualified.
Both of them have put in at least 3 bids on houses in the last year or so and every time they got out-bid by a lot. Imagine a listed house at $600,000. You offer $620,000. You lose and find out later the house sold for $720,000.
This is freaking New Jersey and Tampa, Florida. None of this is realistic. Why is it like this?
At the same time Zillow managed to lose a billion dollars last year buying and selling homes (the so-called “iBuy” program that they were forced to terminate).
Something doesn’t add up? But maybe it’s just a question of most homes on the market actually not being desirable enough to get these high bids.
The bidding up is exactly why Zillow lost money. Algorithmic house buying suffers from the winners curse. When Zillow thinks they are getting a good deal, there are usually extenuating circumstances that are apparent to local buyers which cause them to not bid up the price. That and the iBuy program was expanded way beyond the original scope.
I like Chicago, was it in north suburbs? Looking at two flats/three flats, everything there is quite affordable, but am worried about IL itself and cook county taxes.
The current governor has done an outstanding job getting the state's fiscal house in order, and neither Republicans nor Democrats are happy about it. But you can look at the numbers yourself and see that the state is doing very well.
Cook County... Well, that's a different story. The current assessor is following through on his campaign promise to clean up the assessors office and make property assessments modern and fair. And everyone hates him. If his reforms survive, the next step is to start a fight over how much everything costs. And then Cook County will be well on its way to fiscal health. If the reforms do not survive...
But you should also note that property taxes as a percentage of property value are significantly lower in the city of Chicago than suburban Cook County. Like a house in Chicago could be paying half the property tax compared to a similarly-priced house in Glenview.
It has been quite a while but that's good to hear, that was worrying back a few years for the state!
But that's also interesting to note that city of Chicago is quite cheap then unincorporated? suburban cook county, the thing of course is all the historical reasons why city of Chicago is empty, though as of late, Bronzeville and more south has not been so bad.
So many beautiful houses there that were/are still quite cheap, relatively and good property.
I'm not sure there is such a thing as unincorporated territory in Cook County. But consider that each skyscraper downtown is paying millions of dollars a year in taxes. There are a lot of large industrial sites in the city - for example, the factory that makes the Ford Explorer and the supplier park surrounding it - is inside the city of Chicago. It's a huge tax base; not to say that the city is better run than the suburbs or anything. Consider also that there is only 1 fire chief (and his salary and pension) for 2.7 million people, etc. The suburbs aren't sharing their administration staff with other suburbs ;)
You can't look at the asking price and assume it aligns with the current market. Often they will put low-ball askings to get more eyeballs on their listing. Their agent should of informed them of realistic offers.
It's like it because the house isn't actually worth $620,000. It's worth closer to $700,000, but if the seller underprices it, they are hoping that emotionally attached people with more money than sense enter into a bidding war, that drives the sale price way past its real value.
The best way to drive up the sale price for your house is to offer it for a bargain.
When looking at housing cost trends, don't look at listing prices, look at sale prices. Sale prices in that area didn't go up by 20% over the span of a week. If they did, those houses would be selling for trillions of dollars by the end of next year.
I saw a 2200 square foot house in Mill Valley, CA on Twitter this morning. It was listed for about $3M and went for $1.6M over asking. Over $2000 per square foot. On the other hand, the pictures seem to suggest it has the perfect Pottery Barn look that buyers want. One thing that the Fed report fails to consider is the cost, time and hassle of renovations. To get to that Pottery Barn look on a non renovated house would require at least a year and be very, very expensive (probably $1000 square foot just for renovations). Also, it doesn't seem like anyone in the most desirable neighborhoods is selling, as it is basically insane to sell when the houses are appreciating at 20% like clockwork. So you have a desperate buyer that has to pay $1.6M on the single perfect house to come on the market this year.
I bought a house last year. I wanted to build, but after investigating all my options, building even a 900 square foot hut was going to cost more than buying a 1500 square foot house, I couldn't justify it.
Isn't this, in some sense, a good thing? I prefer a world where the current insane prices are indicative of a bubble and eventually come crashing down to a world where high prices are just the new normal.
Finally! I'm relieved to hear that "Real-time market monitoring" has caught up to what my common sense has been predicting for the last 8 months. I wonder if this "monitoring" whiz has any future outlook on food shortages?
Let me preface this by saying I'm so far out of my lane on this, however I have some thoughts on the paper.
- One thing that I've picked up from a number of sources that isn't mentioned in the article, is that millennials entering the home buying phase of their lives as being a big reason why housing was primed to pop between 2020-2024. Basically demographics have played a huge part in this boom.
- Most mortgages are actually in good shape from a paper perspective [1]
- Most mortgages are 30-yr compared to the crazy ARM instruments [2]
My theory is that home prices will NOT drop, like in 2008, but rather will stabilize. Three reasons why:
1. Milliennials will keep overall demand up
2. Homebuilders will slow down on producing new inventory, and we're already at all time lows for inventory
3. Existing homeowners will be hesitant to sell because most are locked into a 30-yr with most likely a sub 2-3% mortgate
All of that, in theory, will result in less overall supply which will keep prices stable
1. We have a demographic trend towards lower demand as GenZ population is smaller than Millenial, and Baby boomers will mostly die off over the next 10 years (Japan problem). Yes this considers immigration
2. We are close to all time highs in home construction pipeline, and the rate of starts is at 2000s bubble levels and increasing. We will likely eclipse the 70s building peak sometime this year.
3. If they aren't selling they also aren't buying (generally). Somebody choosing not to move due to low rate has no net effect on inventory
These narratives have been powerful in shaping the FOMO psychology though, despite data showing the exact opposite is true.
What's driving housing now is pure psychology, and low active listings (not low structural supply). The Fed will likely start selling MBS, driving rates to 6% or above to solve both of these.
Though the fact they even bought MBS for so long to begin with somewhat implies they don't care about creating a bubble in housing. Maybe they do nothing and let it ride
a large premise here is that housing is in a bubble because of house price to income ratio is very high. This by itself is not indicative of a housing bubble! It's indicative of lower and lower standards of living as shelter becomes increasingly expensive.
Really really high housing prices are sustainable if the supply is low enough. Imagine a city of 100K with only 10 houses for sale, it doesn't matter if 99K can't afford houses. all that matters is that 10 or more people can afford the remaining houses. as long as that's the case, prices can and will continue to climb higher and higher. this is an incredibly distopian future where fewer and fewer can afford shelter.
Now ask yourself where supply is going. that's the key to understanding the next moves in the housing markets. Builders are still saying, that even at the current prices, they're having a hard time getting a good ROI(considering all the supply and labor shortages) and aren't very bullish which means supply can't increase much. And in much of the country increasing housing supply is made illegal through regulations and zoning.
How much housing supply per person would be enough for you ? Currently we are at 1000 square feet per capita, doubled in last 40 years:
https://images.app.goo.gl/PpbQjaEDAiFZ5PP28
113 comments
[ 2.8 ms ] story [ 152 ms ] threadThe reason home prices are not on line with fundamentals is - well there is just too much liquidity. Money is looking for places to go and there are not many. Except stocks. And then the next bet is real estate. They printed way too much for too long. Interest rate is at historic low, there is way too much savings, and in this inflationary environment, real estate is an excellent leveraged asset. No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.
Oh yeah, the same Dallas Fed chairman did not see the whole inflation thing coming either.
Yes, it is different this time.
The Fed chair saying "we're fucked" is, on its own, enough to cause a credit crisis. (This is why the Fed doesn't tend to make blanket forward-looking statements like "everything is just fine.")
People are going to manipulate things in their favor as much as they have the power to do so. Oligarchs in America and elsewhere have the most power, and thus do the most manipulating. Also, it's no secret that the vast majority of wealth is concentrated in the hands of a few oligarchs.
That's the easiest way to dismantle that particular grand conspiracy.
The most pragmatic approach is to understand that they don't rely on voting to get their way. But they absolutely compete for resource appropriation and their special interest. It is better if they act like gods of their particular domain or sector, so they can exert control over just that and not compete. But it also reinforces that they cannot and do not coordinate much together.
When I was in France, there were people super passionate about being sure I knew about the fraternities that control the world and the supporting conspiracy documentaries with ominous music for 2 hours, except these ones were french ones based in Paris
So are these greater or less than Bilderberg
What about the Trilateral Commission
ALEC
Fuck, the Lizard People
Either the fed is powerless to stop the economic crisis we've suffered, or they're too incompetent to manage them. Either way it looks like they need dissolved.
Also note [2]:
"In 1913, this problem was addressed by the creation of the Federal Reserve System (Fed).33 The Fed was to remedy the situation in a two ways. First, it would provide a means by which banks could borrow in times of stringency to satisfy their customers’ demand for cash. Second, it could create a new form of money, Federal Reserve notes, which could be expanded or contracted in quantity to respond to the need for more cash."
"The creation of the Federal Reserve had little if any effect on the gold standard. The dollar was still defined in terms of gold. Federal Reserve notes were redeemable in lawful money. The Fed not only operated under the gold standard, but was charged with maintaining it, and kept a percentage of gold cover for its notes. Gold still dictated the value of the dollar. "
[1] https://www.federalreservehistory.org/essays/great-depressio....
[2] https://sgp.fas.org/crs/misc/R41887.pdf
“ Because the international gold standard linked interest rates and monetary policies among participating nations, the Fed’s actions triggered recessions in nations around the globe.”
That’s what I was alluding to, sorry for not being clear :)
>the Fed's actions triggered recessions
I don't think this strengthens the case for justification of the fed.
It's like people who ask why they need to be vaccinated for polio now that there's very few cases of it.
False, false, and false.
"Despite the creation of the Fed, a wave of bank runs resulted in massive bank failures over the period 1930-1933."
https://sgp.fas.org/crs/misc/R41887.pdf , pg. 9
1) The Fed should create the outcomes such that their predictions were wrong
2) While also just having a bad interpretation of data to begin with
3) The Fed is only imagining that its toolkit can cause a specific outcome for economic growth, but it cannot cause humans to transact a certain way or predict what a large group of humans (or large pool of capital) will do. No economist can, and the other economists don't have an infinite balance sheet to try to influence it either.
4) The Fed was never asked to or mandated to do the things it does to stimulus the economy. (Caveat, the stimulus bills in 2020 are a major exception). The Fed just notices that nobody can stop it. Similar to the Supreme Court realizing that and testing it in Marbury v Madison. Congress lacks consensus on it and everyone is afraid of the alternative (Congress having to deal with monetary policy themselves, politically).
https://en.m.wikipedia.org/wiki/Impossible_trinity
Source?
The vast majority of rental stock is not SFH, and the vast majority of rental homes are owned by mom & pop's.
I'm not suggesting anyone go out and buy a 2br house for 3 million dollars, but I do think that real estate will hold it's value in general much better than USD.
This is hyperbole. The Fed, by and large, held the American economy together through the financial crisis and more remarkably the pandemic. Until now, neither of those produced meaningful levels of inflation. To say "their credibility is on the line" is to disagree with a multi-trillion dollar bond market taking the Fed's every word very much seriously.
> the same Dallas Fed chairman
This is the Dallas Fed's leadership [1]. None of them authored this article, certainly not the (interim) president, Meredith Black. If you want the dry stuff, what the Fed is actually saying versus its individual researchers, consult the beige book [2][3].
[1] https://www.dallasfed.org/fed/leadership.aspx
[2] https://www.federalreserve.gov/monetarypolicy/beige-book-def...
[3] https://www.federalreserve.gov/monetarypolicy/files/BeigeBoo... March 2
Central planners in the USSR were probably lauded by some subset of the citizenship, too. Doesn't mean it wasn't a sham.
Im not claiming that centralized Fed is perfectly wise, nor we should be subservient too it. But I also don’t want to live in a non-government state with no financial system.. an example that comes to mind is Somalia.
When that choice is before the American people, we'll be sure to turn to your perspective, but it's entirely irrelevant to the topic at hand, which is that the fed caused a problem they have yet to fix and they're not even now taking the steps necessary to fix it. We have a word now that exemplifies the ridiculous policymaking perspective that led the last year of bad decisionmaking: transitory inflation. That concept was laughable.
Considering that after 2008 and 2020, we did not end up living in a weird Mad-Max blood-covered hellscape, trading bottlecaps for hits of zyme and ammunition (Which would have been the likely ideological outcome of 'just let the whole economy fail'), I think the Fed has weathered the past two decades fairly well.
It seems like there were two big problems that we have done a good job avoiding since then.
#1. Way too many people were rich on paper and with margin.
#2. Once the economy started to collapse everyone panicked and tried to avoid spending money, which causes a negative feedback cycle.
2008 was similar to issue 1, but we avoided step 2 by bailing out the banks and auto companies that should have collapsed.
'Should' is doing a lot of work in that sentence.
Should a business that's selling $10 bills for $9 collapse? Yes, that's pretty obvious.
Should a business that's consistently selling $10 bills for $10.05, but requires access to short-term liquidity that completely evaporated overnight to function, and is now not functioning, because some other unrelated part of the economy is sick, and all flow of credit has stopped?
Should that latter business fail? Who's going to be better off for it failing? Even if killing that business will create an economic catastrophe, as well as a mountain of geopolitical concerns that are the consequences of de-industrialization? [1]
On a metric of anything but ideological purity, the fed stopping the economic collapse where it did was a bargain at twice the price.
[1] Just ask Russia in 2022 how well de-industrializing all of its inherited Soviet economy has worked out for it. It's now in the unenviable situation where its domestic production can't even sustain a Soviet-era standard of living, without relying on now-sanctioned foreign trade.
All because it hyper-optimized on growing the 'productive' parts of its economy (Oil, oil, gas, oil, and gas), and let the unproductive parts (all that old, crappy, internationally uncompetitive Soviet industry) rot away.
I don't think that the janitor at GM "should" have lost his job. It would have been nice if everyone lying about the real quality of the MBS products lost all the money they made though
Isn’t this the housing market today? A huge portion of household wealth is the house itself and thanks to massive increases everyone feels rich because on paper it looks good, but it is all financed with ever increasing levels of debt.
There's a demand curve of renters willing to rent housing at different price points and I can see how this would put a lower-bound on housing prices, but why should there be any upper bound? When you buy a house you intend to live in there is no associated revenue stream, and the only return you can hope for is your expectation that someone else will buy the house from you for more in the future.
Maybe you can quantify that return, by modeling a rising population and municipalities which are slow to add housing? It still feels like housing is worth what other people are willing to pay for it, that's the fundamental.
My understanding is that some states have been losing people net and have still had rents and home values skyrocket. I think an increase in Airbnb would be one possible contributor.
'xnx did the same thing as a sibling comment, but I just wanted to add that we can do better! This info is super readily available.
[0] https://fred.stlouisfed.org/series/RRVRUSQ156N
1. Population: https://fred.stlouisfed.org/series/POPTOTUSA647NWDB 2. Housing Units: https://fred.stlouisfed.org/series/ETOTALUSQ176N
So, if we had 1m excess Covid deaths in the past ~2 years, the population would still have grown by ~1.5m per year.
Same point in a different context: I would be skeptical of someone arguing that the reason for the Great Resignation is opportunities opening up in the workforce due to COVID casualties. The numbers just aren’t high enough.
Source?
Did you even try to find this source on your own? If not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
Or if you’re trying to educate yourself or simply asking out of interest, there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’.
This would be impossible to do without knowing what the poster meant by vacant rentals. Some would interpret any empty rental unit as vacant, whereas others would interpret it as a rental that is actually available for rent as being vacant. Without a source or other clarification, it can be impossible to know by which definition someone is using.
>if not, whose obligation do you think it is to supply a source for empirical claims in a civil discussion?
The burden on proof is always on the one making the assertion.
> there’s probably a more meaningful way of engaging with the OP than a one word comment: ‘source’
It saves everyone from reading a long sentence when in the end all they are asking is for the person making the assertion to supply proof.
https://www.worldometers.info/world-population/us-population...
Both of them have put in at least 3 bids on houses in the last year or so and every time they got out-bid by a lot. Imagine a listed house at $600,000. You offer $620,000. You lose and find out later the house sold for $720,000.
This is freaking New Jersey and Tampa, Florida. None of this is realistic. Why is it like this?
I just lost after putting a $1,325,000 bid on a $1,000,000 list price for a 1000sqft house
Edit, Zero added
Edit>> they left off a zero in the first number.
Something doesn’t add up? But maybe it’s just a question of most homes on the market actually not being desirable enough to get these high bids.
I just moved to Chicago instead and got a place for 10% under asking...
My family isn't too far away, and I had a few close friends there, so it worked out surprisingly well.
Cook County... Well, that's a different story. The current assessor is following through on his campaign promise to clean up the assessors office and make property assessments modern and fair. And everyone hates him. If his reforms survive, the next step is to start a fight over how much everything costs. And then Cook County will be well on its way to fiscal health. If the reforms do not survive...
But you should also note that property taxes as a percentage of property value are significantly lower in the city of Chicago than suburban Cook County. Like a house in Chicago could be paying half the property tax compared to a similarly-priced house in Glenview.
But that's also interesting to note that city of Chicago is quite cheap then unincorporated? suburban cook county, the thing of course is all the historical reasons why city of Chicago is empty, though as of late, Bronzeville and more south has not been so bad.
So many beautiful houses there that were/are still quite cheap, relatively and good property.
What price was the comp homes being sold for?
It's like it because the house isn't actually worth $620,000. It's worth closer to $700,000, but if the seller underprices it, they are hoping that emotionally attached people with more money than sense enter into a bidding war, that drives the sale price way past its real value.
The best way to drive up the sale price for your house is to offer it for a bargain.
When looking at housing cost trends, don't look at listing prices, look at sale prices. Sale prices in that area didn't go up by 20% over the span of a week. If they did, those houses would be selling for trillions of dollars by the end of next year.
House details: https://www.zillow.com/homedetails/38-Sycamore-Ave-Mill-Vall...
A neighbor sold his house recently, he said he had a half dozen offers in a week, 3 were over his asking price, 2 were all-cash with no contingencies.
I don't know how this market can be sustainable or how the average buyer can compete if they need a loan.
I want to build, I don't even know where to start and I don't have a super elastic budget.
Oh, and mortgages for construction are so much worse.
We really need to encourage people to build by having a streamlined process.
- One thing that I've picked up from a number of sources that isn't mentioned in the article, is that millennials entering the home buying phase of their lives as being a big reason why housing was primed to pop between 2020-2024. Basically demographics have played a huge part in this boom. - Most mortgages are actually in good shape from a paper perspective [1] - Most mortgages are 30-yr compared to the crazy ARM instruments [2]
My theory is that home prices will NOT drop, like in 2008, but rather will stabilize. Three reasons why: 1. Milliennials will keep overall demand up 2. Homebuilders will slow down on producing new inventory, and we're already at all time lows for inventory 3. Existing homeowners will be hesitant to sell because most are locked into a 30-yr with most likely a sub 2-3% mortgate
All of that, in theory, will result in less overall supply which will keep prices stable
[1] https://twitter.com/LoganMohtashami/status/15084587889693450...
[2] https://twitter.com/lenkiefer/status/1507870733615214598
https://fred.stlouisfed.org/series/HOUST
i wouldn't expect this to level out or even decrease without a drop in prices, but what do i know
2. We are close to all time highs in home construction pipeline, and the rate of starts is at 2000s bubble levels and increasing. We will likely eclipse the 70s building peak sometime this year.
3. If they aren't selling they also aren't buying (generally). Somebody choosing not to move due to low rate has no net effect on inventory
These narratives have been powerful in shaping the FOMO psychology though, despite data showing the exact opposite is true.
What's driving housing now is pure psychology, and low active listings (not low structural supply). The Fed will likely start selling MBS, driving rates to 6% or above to solve both of these.
Though the fact they even bought MBS for so long to begin with somewhat implies they don't care about creating a bubble in housing. Maybe they do nothing and let it ride
Really really high housing prices are sustainable if the supply is low enough. Imagine a city of 100K with only 10 houses for sale, it doesn't matter if 99K can't afford houses. all that matters is that 10 or more people can afford the remaining houses. as long as that's the case, prices can and will continue to climb higher and higher. this is an incredibly distopian future where fewer and fewer can afford shelter.
Now ask yourself where supply is going. that's the key to understanding the next moves in the housing markets. Builders are still saying, that even at the current prices, they're having a hard time getting a good ROI(considering all the supply and labor shortages) and aren't very bullish which means supply can't increase much. And in much of the country increasing housing supply is made illegal through regulations and zoning.
It is not "housing supply." The latter is the quantity of single-family homes on the market in common sense.
Here's the source for the graphic: https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-s...