Housing Market
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Housing Market
I look at a graphic like this, and not sure what consequences could come out of it. It can't be good.
In my market, housing prices have been on a tear since 2012 and went hyperbolic in the last 2-3 years 30%+. The stat I just read for Phoenix is up 204% since 2016. We all know that can't be sustainable. The Case Shiller chart presaged what happened in 2008. Is it doing it again? If so, what are the broader consequences for the economy and financial markets? If not, why is this different?
In 2008 the markets were so interdependent, or even directly dependent on housing that it triggered a complete system wide crisis. Would/could that happen again, or are any new guardrails in place?
To my eye a correction to mean looks like 30% or more. Certainly more if there is an overcorrection like 2008.
So what's a guy to do? Keep some dry powder and plan to buy property when there's blood in the streets? Allocate more into the PP as storm preparation (now might be a good time with the mini rally we've seen)? Or do like Alfred E. Neumann, this is a new normal and what, me worry?
I can tell you this; just in my daily life, the wealth effect the average homeowner feels based on the escalation in their home value is palpable. Because of it, I see people spending money like drunken sailors holding their balance sheets and singing about what a fine girl Brandy is.
If housing crashes, it should solve the demand side of the inflation equation pretty quickly.
To add another dimension on to this, take a look at what's happening to the real estate market in China right now. Any reason why that might be contagious, or is it contained to China?
In my market, housing prices have been on a tear since 2012 and went hyperbolic in the last 2-3 years 30%+. The stat I just read for Phoenix is up 204% since 2016. We all know that can't be sustainable. The Case Shiller chart presaged what happened in 2008. Is it doing it again? If so, what are the broader consequences for the economy and financial markets? If not, why is this different?
In 2008 the markets were so interdependent, or even directly dependent on housing that it triggered a complete system wide crisis. Would/could that happen again, or are any new guardrails in place?
To my eye a correction to mean looks like 30% or more. Certainly more if there is an overcorrection like 2008.
So what's a guy to do? Keep some dry powder and plan to buy property when there's blood in the streets? Allocate more into the PP as storm preparation (now might be a good time with the mini rally we've seen)? Or do like Alfred E. Neumann, this is a new normal and what, me worry?
I can tell you this; just in my daily life, the wealth effect the average homeowner feels based on the escalation in their home value is palpable. Because of it, I see people spending money like drunken sailors holding their balance sheets and singing about what a fine girl Brandy is.
If housing crashes, it should solve the demand side of the inflation equation pretty quickly.
To add another dimension on to this, take a look at what's happening to the real estate market in China right now. Any reason why that might be contagious, or is it contained to China?
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Re: Housing Market
Maybe this is an indication that the CPI understates inflation. Michael Saylor makes the point that inflation is not a scalar, it is a vector. The more luxury the good, the greater the inflation, e.g. cost of an Ivy league education has outpaced CPI. Owning a home is a bit of a luxury, so I would expect homes to inflate more than CPI.
I don't know how useful a chart like that is where the definition of the denominator is changing due to political forces.
I don't know how useful a chart like that is where the definition of the denominator is changing due to political forces.
Re: Housing Market
Maybe that perspective would suggest homebuilders are a good VP bet for the near-mid term? The biggest of the homebuilder ETFs is iShares ITB. It's down 25% YTD. But I haven't dug into it deeply enough to see whether that might be due to inflation driven margin compression or some other factor.Desert wrote: ↑Fri Aug 19, 2022 11:13 am I agree, it looks very concerning. But it seems very different that 2008, when people were wildly speculating on rising prices. This time it appears to be a real housing supply shortage. I don't expect it to necessarily end well though, when supply eventually does catch up.
A friend who is a mortgage processor says he is seeing a lot of cash out mortgages on investment properties. He thinks investors are taking their cash out now so if there's a major correction they can let the property go into foreclosure having monetized their gains. Of course, this is a comment from one guy and the mortgages he happens to be processing, so very anecdotal data indeed. But I wonder if what he describes is widespread.
I don't know what to think, but threw it on the table here for other perspectives.
Re: Housing Market
Good point about CPI potentially being a distortion. Here is a chart that just plots three indexes in isolation. I think it tells a similar story, but maybe not as dramatic. The escalation in all three post 2020 is unprecedented to my eye.Jack Jones wrote: ↑Fri Aug 19, 2022 10:50 am Maybe this is an indication that the CPI understates inflation. Michael Saylor makes the point that inflation is not a scalar, it is a vector. The more luxury the good, the greater the inflation, e.g. cost of an Ivy league education has outpaced CPI. Owning a home is a bit of a luxury, so I would expect homes to inflate more than CPI.
I don't know how useful a chart like that is where the definition of the denominator is changing due to political forces.
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Re: Housing Market
A softball teammate told me she is hoping to sell her house at the present high, live with relatives for a while, then, hopefully, buy after a decline in housing prices.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Housing Market
Might be a brief deflation so Blackrock can scoop up homes, but the Fed will buy anything, including stocks to reflate. The story of the decade is China's demographic/real estate collapse and what they do to control 1,300,000,000 angry people (lockdowns)
Re: Housing Market
I'm curious why the Chinese Central Bank (PBOC) can't just do what is bring done here in the US in terms of buying up toxic assets and propping up certain markets. I mean the Chinese print their own currency, right? Is there some reason why MMT should work here in the US (so far) but not in China? Why not just bail out Evergrande, send everyone in lockdowns "stimulus" checks, etc.?boglerdude wrote: ↑Fri Aug 19, 2022 8:18 pm Might be a brief deflation so Blackrock can scoop up homes, but the Fed will buy anything, including stocks to reflate. The story of the decade is China's demographic/real estate collapse and what they do to control 1,300,000,000 angry people (lockdowns)
Or maybe the strategy of the CCP is just to continue to lie about their economic numbers so that the perception of individuals is something along the lines of, "Damn, I am really struggling to get food and pay my bills but GDP is up again this quarter so maybe it's just me."
I'm seriously asking. Why not just "print" their way out of this mess?
Re: Housing Market
Boy, that is an excellent question. Not only for the reasons you point out, but China's overall debt/GDP ratio is comparatively low. This means they have a lot of headroom before getting into the danger zone (where we live). You would also think that an economic crisis is worth printing away, if it slows down or gets in the way of the bigger picture of world domination.barrett wrote: ↑Sun Aug 21, 2022 7:15 amI'm curious why the Chinese Central Bank (PBOC) can't just do what is bring done here in the US in terms of buying up toxic assets and propping up certain markets. I mean the Chinese print their own currency, right? Is there some reason why MMT should work here in the US (so far) but not in China? Why not just bail out Evergrande, send everyone in lockdowns "stimulus" checks, etc.?boglerdude wrote: ↑Fri Aug 19, 2022 8:18 pm Might be a brief deflation so Blackrock can scoop up homes, but the Fed will buy anything, including stocks to reflate. The story of the decade is China's demographic/real estate collapse and what they do to control 1,300,000,000 angry people (lockdowns)
Or maybe the strategy of the CCP is just to continue to lie about their economic numbers so that the perception of individuals is something along the lines of, "Damn, I am really struggling to get food and pay my bills but GDP is up again this quarter so maybe it's just me."
I'm seriously asking. Why not just "print" their way out of this mess?