Real-time market monitoring finds signs of brewing U.S. housing bubble

https://www.dallasfed.org/research/economics/2022/0329

by nimbius • 4 years ago

75 99 4 years ago

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.

Yes, it is different this time.

nopenopenopeno3• 4 years ago

Their only option is to be wrong. At the end of the day, the fed has an impossible job to do.

spaetzleesser3• 4 years ago

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.

notch656a7• 4 years ago

They can be dissolved. The constitution does not require a central bank.

vmception• 4 years ago

Oooh, nice, this has levels to 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).

closeparen• 4 years ago

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).

onlyrealcuzzo4• 4 years ago

No wonder even institutions are now buying, in fact one in every 3 SFHs in US are now owned by institutions.

Source?

stonogo2• 4 years ago

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.

gitfan863• 4 years ago

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.

dclusin• 4 years ago

Until the alt coin they were emotionally invested in loses 80% of its value. Then the stock market and USD don't look so bad.

JumpCrisscross2• 4 years ago

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].

[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

datavirtue3• 4 years ago

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.

stjohnswarts• 4 years ago

Yeah the only people I've seen that say the Fed is useless have been anarchists and libertarians and gold bugs.

aaaaaaaaata• 4 years ago

The gears kept turning, doesn't mean irreparable damage wasn't done.

Central planners in the USSR were probably lauded by some subset of the citizenship, too. Doesn't mean it wasn't a sham.

listenallyall• 4 years ago

"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.

vkou3• 4 years ago

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.

gitfan863• 4 years ago

I recently read a book that was basically a diary of a businessman from the great depression with some commentary.

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.

brian_cloutier• 4 years ago

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.

88913527• 4 years ago

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).

lend000• 4 years ago

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.

mirntyfirty• 4 years ago

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.

xnx2• 4 years ago

First result: https://fred.stlouisfed.org/series/RRVRUSQ156N

TameAntelope• 4 years ago

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.

[0] https://fred.stlouisfed.org/series/RRVRUSQ156N

datavirtue3• 4 years ago

The problem is so bad that you can lose population and still be under water with the housing supply.

sportslife• 4 years ago

At the national level, a quick look says population/total units is holding steady, or maybe even trending lower.

1. Population: https://fred.stlouisfed.org/series/POPTOTUSA647NWDB 2. Housing Units: https://fred.stlouisfed.org/series/ETOTALUSQ176N

EricDeb• 4 years ago

i dont think it's population growth.. I mean haven't a million people died of covid?

ianferrel• 4 years ago

Pre-Covid the US population was growing about 2m per year.

So, if we had 1m excess Covid deaths in the past ~2 years, the population would still have grown by ~1.5m per year.

prepend• 4 years ago

Population growth in new areas because of telework. People are fitting into new homes based on not having to drive into urban centers.

Enginerrrd• 4 years ago

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.

DiggyJohnson2• 4 years ago

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.

nopenopenopeno3• 4 years ago

Rental vacancy rates remain near all time lows

Source?

xnx2• 4 years ago

First result: https://fred.stlouisfed.org/series/RRVRUSQ156N

DiggyJohnson2• 4 years ago

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’.

gorwell• 4 years ago

Population isn't growing much at this point tho. It's trending to 0%.

https://www.worldometers.info/world-population/us-population...

posnet• 4 years ago

That site lists the number of migrants as being identical for the last 5 years.

11101010001100• 4 years ago

Better stop building those houses now then ....

innagadadavida• 4 years ago

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.

imapeopleperson• 4 years ago

Income most certainly is increasing

spaetzleesser3• 4 years ago

The ratio of price/income has been growing way faster over the last decades.

stonogo2• 4 years ago

In absolute terms, yes. It's not, however, increasing fast enough to keep up with rent, food, fuel, power, or inflation.

VWWHFSfQ• 4 years ago

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?

s1artibartfast2• 4 years ago

It is actually insane

I just lost after putting a $1,325,000 bid on a $1,000,000 list price for a 1000sqft house

Edit, Zero added

gautamcgoel2• 4 years ago

OT, but I enjoy the hitchhiker's reference in your username :)

daenz• 4 years ago

Well clearly you were an order of magnitude too low.

Edit>> they left off a zero in the first number.

pavlov• 4 years ago

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.

timy2shoes• 4 years ago

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.

onlyrealcuzzo4• 4 years ago

I was bidding in Los Angeles 10% over asking, but the sale price was usually 30-50% over asking.

I just moved to Chicago instead and got a place for 10% under asking...

rootsudo2• 4 years ago

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.

itake2• 4 years ago

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.

What price was the comp homes being sold for?

vkou3• 4 years ago

Why is it like this?

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.

hardtke• 4 years ago

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.

House details: https://www.zillow.com/homedetails/38-Sycamore-Ave-Mill-Vall...

Johnny555• 4 years ago

I bought my house about a year ago, since then it's gone up in value by about 30% (based on comps of nearby home sales)

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.

QuadmasterXLII2• 4 years ago

Is it possible to have stable housing prices when mortgages are available at a rate markedly below inflation?

aaomidi• 4 years ago

I mean it's also that construction is hard and expensive.

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.

QuadmasterXLII2• 4 years ago

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.

gautamcgoel2• 4 years ago

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.

djfobbz• 4 years ago

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?

dstainer• 4 years ago

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] https://twitter.com/LoganMohtashami/status/15084587889693450...

[2] https://twitter.com/lenkiefer/status/1507870733615214598

peakay• 4 years ago

house starts are increasing

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

adam_arthur• 4 years ago

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

throw8383833jj2• 4 years ago

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.

naveen994• 4 years ago

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

itake2• 4 years ago

This doesn't consider the 3 L's of real estate.

horns4lyfe• 4 years ago

There’s no way you can believe that’s a good indicator of real housing supply.

aesh2Xa1• 4 years ago

This graphic represents "house size in square feet" and "square feet per person."

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...

throw8383833jj2• 4 years ago

That's misleading because that's just the new housing supply coming onto the market which is a small percentage of the housing market.

betaby• 4 years ago

Meanwhile in Canada https://www.realtor.ca/real-estate/24203995/81-st-johns-rd-t...

Real-time market monitoring finds signs of brewing U.S. housing bubble

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