I’m wondering if the shift away from offices increases demand for (nicer) homes. If this is a permanent shift (and a driving factor as opposed to e.g. interest rates), prices will stay high.
There's an increasing amount of commercial real estate capital flooding the residential market because there have been warning signs of a commercial real estate bust for years now. This is partially driven by low interest rates because it's better for companies looking to park their millions in single family homes. Corporations buying homes en masse is a major factor here.
Inflation is ~8%. My mortgage is fixed 3.5%. New mortgages are 5%. I have no incentive to move period as don’t many others. Supply is constrained. Everyone renting is getting squeezed and wants to buy. New housing in desirable places locked up by NIMBYs and gov regulations. Housing prices will keep rising.
Don't forget corporations buying single family homes. A tremendous number of residential transactions are by commercial real estate firms buying residential instead to avoid parking their cash in commercial real estate as well as large-scale Airbnb investors.
its that primary residence owners aren't the main moving forces, it is the institutional funds, pensions that rely on low interest rates to scoop up properties, and those guys are no longer able to finance debt as rates keep moving up.
if you open up a chart with real estate and rates, you will see a lagging positive correlation. during times of low rates, it is followed by a large property appreciation and vice versa.
NIMBY and zoning regulations is a bit like "if we never build and sell prices won't fall" mentality yet the same real estate markets have gone through deflation after a global real estate bubble correction (late 80s) and remain depressed or stagnate for decades until interest rates rise again.
Another backdrop is that we are at end of the road after the longest running QE (since '08) and around half of the monetary supply (top of my head) was printed in the past 2 years.
We are in uncharted waters now and if the Chinese real estate market implosion and choking supply chains is any clue, we are headed for a pro-longed global recession that certainly includes real estate.
The only safe havens have always been: art, limited production exotic cars, precious metals, gems and gold.
The intent of current monetary policy is to get control of inflation. Today, a move might not make sense, but that math may well change if the policy proves effective.
anyone leveraged and on the hook for mortgage at today's value without locking in their rates are going to quickly find out the law of compounding interest
Do lenders even originate variable rate loans home anymore? I thought that went away after 2008 precisely because of how catastrophic it was. I just closed on a home and variable rate mortgages weren't even an option in my case.
Part of what would make it a bubble is what it means for the bubble to pop. I see housing as creating a very strong headwind for many (most?) people, but I don't necessarily see a bubble.
Similar to student debt. It's a strong headwind, but not everything that's bad in economics is a "bubble".
I learned a hard lesson when I bought a home in Q4 of 2007 at 21 years old. It didn’t help that I was planning to graduate from my undergrad in 2008. As many on HN, I try to learn from my mistakes… however, you can never time the market and I have been saying we are in a bubble since about a year before the pandemic. I live in Northern California if that matters.
Why do I feel this way? The economy has been frothy for a while, it’s been irrational and appears to defy the laws of physics metaphorically speaking of course.
1. When taxi drivers and shoe shiners are giving real estate advice…
2. When a lot of young buyers have reached the age that they don’t remember the last bubble popping.
3. When you’ve been in a bull market for 9+ years
4. When people are buying JPEGs worth more than houses. (I am still bullish on crypto and NFTs, I just feel that we are early in the hype cycle)
5. When housing is viewed as an investment vs. A place to live.
6. When bad companies both private and public are not being held accountable by investors. (I have seen too many startups IPO, that in my opinion probably shouldn’t have been able to do so.)
Some other things I track, but am not going to look into for this comment are the following;
- how is 3M doing? As they are a supplier to many finished goods, if 3M isn’t doing well, perhaps it is an signal that there is a reckoning in the future. (I worked at 3M in 2008 and remember when the international markets stopped ordering products)
- I also look at some products like RV sales, its a luxury good, I don’t know if this is as strong of an indicator today of a future recession, due to remote work and the rise of vanlife, but if you can think of similar goods that share these qualities that might be a good indicator, luxury good, sales price between $10k-$200k, not effected by other trends like wfh.
- The Dallas Fed this we might be in a housing bubble.
I’m sure there are other sources, but when high income, educated people struggle to afford things, it makes me think that we might be in a bubble and asset prices need to at the very least correct to create marketplace liquidity.
I would enjoy learning of other obscure market indicators that readers of HN monitor, if you know of one, please reply to this comment.
16 comments
[ 2.9 ms ] story [ 47.2 ms ] threadif you open up a chart with real estate and rates, you will see a lagging positive correlation. during times of low rates, it is followed by a large property appreciation and vice versa.
NIMBY and zoning regulations is a bit like "if we never build and sell prices won't fall" mentality yet the same real estate markets have gone through deflation after a global real estate bubble correction (late 80s) and remain depressed or stagnate for decades until interest rates rise again.
Another backdrop is that we are at end of the road after the longest running QE (since '08) and around half of the monetary supply (top of my head) was printed in the past 2 years.
We are in uncharted waters now and if the Chinese real estate market implosion and choking supply chains is any clue, we are headed for a pro-longed global recession that certainly includes real estate.
The only safe havens have always been: art, limited production exotic cars, precious metals, gems and gold.
yes, the days of low interest rate is over.
anyone leveraged and on the hook for mortgage at today's value without locking in their rates are going to quickly find out the law of compounding interest
The Soviet Union lasted for 69 years. It's hard to wait that long.
Judging by price-to-buy versus income, if you are in Damascus, Syria, then definitely. If you are in San Antonio, no.
Judging by ROI (rent vs. own), Seoul, South Korea, and Lagos, Nigeria are the other two extremes.
https://www.numbeo.com/property-investment/rankings_current....
Similar to student debt. It's a strong headwind, but not everything that's bad in economics is a "bubble".
I learned a hard lesson when I bought a home in Q4 of 2007 at 21 years old. It didn’t help that I was planning to graduate from my undergrad in 2008. As many on HN, I try to learn from my mistakes… however, you can never time the market and I have been saying we are in a bubble since about a year before the pandemic. I live in Northern California if that matters.
Why do I feel this way? The economy has been frothy for a while, it’s been irrational and appears to defy the laws of physics metaphorically speaking of course.
1. When taxi drivers and shoe shiners are giving real estate advice… 2. When a lot of young buyers have reached the age that they don’t remember the last bubble popping. 3. When you’ve been in a bull market for 9+ years 4. When people are buying JPEGs worth more than houses. (I am still bullish on crypto and NFTs, I just feel that we are early in the hype cycle) 5. When housing is viewed as an investment vs. A place to live. 6. When bad companies both private and public are not being held accountable by investors. (I have seen too many startups IPO, that in my opinion probably shouldn’t have been able to do so.)
Some other things I track, but am not going to look into for this comment are the following;
- how is 3M doing? As they are a supplier to many finished goods, if 3M isn’t doing well, perhaps it is an signal that there is a reckoning in the future. (I worked at 3M in 2008 and remember when the international markets stopped ordering products)
- I also look at some products like RV sales, its a luxury good, I don’t know if this is as strong of an indicator today of a future recession, due to remote work and the rise of vanlife, but if you can think of similar goods that share these qualities that might be a good indicator, luxury good, sales price between $10k-$200k, not effected by other trends like wfh.
- The Dallas Fed this we might be in a housing bubble.
https://www.dallasfed.org/research/economics/2022/0329
- Bank of America thinks we are near an economic slow down.
https://fortune.com/2022/04/08/recession-shock-bank-of-ameri...
I’m sure there are other sources, but when high income, educated people struggle to afford things, it makes me think that we might be in a bubble and asset prices need to at the very least correct to create marketplace liquidity.
I would enjoy learning of other obscure market indicators that readers of HN monitor, if you know of one, please reply to this comment.