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SWJJ
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I acknowledge the term bubble on my part was a poor word choice to describe the current environment of rising house values.
Housing market watch: Mortgage company fires 900 employees over Zoom (1 Viewer)
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OP
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SWJJ
Toxic Optimist
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I edited the title for a more accurate reflection of the environment.
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i'm just waiting for bcclemms to tell me how to think about this
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You ain't the only one, lol.
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From the Moody’s PowerPoint:
You're both right.
There is a shortage in housing caused in great measure by the low interest rates.
Cheap money leads people to want to buy and drives up the price.
An increase in interest rates will have an effect on housing prices.
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We're all right that limited supply and ample availability of funds support higher prices. Also, that's not a bubble.
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SWJJ
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Yep, I should have said housing run, instead of bubble.We're all right that limited supply and ample availability of funds support higher prices. Also, that's not a bubble.
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I agree with SuperChuck's take on this. Basic supply & demand factors indicate this is a new equilibrium. Although I'll also agree that a "correction" is forthcoming. However, that doesn't necessarily mean a correction in price/value; it could mean a correction in the appreciation rate.
Where I live in south-central PA, the annual appreciation rate has been in excess of 10%+ per annum over the last 2 years. Historically, it averages 2-3%. I'm more inclined to believe that a "correction" in the current market will be a return to "normal" appreciation rates. Another historical measure of demand to consider is days on market (DOM). Traditionally, an approximately 6 month supply of inventory (stated as number of homes on market at any given moment, versus 30 day "absorption" of available homes; in other words, how long to sell every home currently available, if priced appropriately) has been considered as equilibrium, with 180 DOM. In my area, the DOM has ranged from 4 days to approximately 30 days. Historically unheard of! I don't think a "correction" will result in any significant price reductions, as housing demand continues to exceed supply factors.
The only other consideration, IMO, is a "shock" to the system. Interest rates are my biggest concern. Rising rates are a given, as in a historical context, 6%-8% is an average rate. We have been at 2%-3% for longer than I could have ever imagined. If there is anything artificial in this real estate market, it's the unbelievably low mortgage rates! But as Chuck points out, that applies to all asset classes, and isn't specific to real estate. Rising rates will be a good thing, IMO, as it should temper demand, thereby bringing the demand level closer to the supply level, and reducing pressure on upward pricing, and helping to maintain a lower Housing Affordability Index (HAI). Until supply chain issues are resolved, vis-a-vis construction materials, there isn't much we can do on the supply side to increase supply. At this point, our greatest results will likely result from reducing the demand side. But it has to be a natural gradation, giving the market a chance to react and adapt. Bumping rates from say 2.5% to 4.5% in a single quarter would be a "shock" that could result in price correction. But even this is a tricky proposition, as housing is a known basic commodity, like food and gasoline, which is mostly inelastic. People may get squeezed from the buyer's market, but they still need housing! Which will probably contribute to a continued boom of the rental market.
The ultimate fix needs to come from the supply side, as the current issue is a result of demand exceeding supply. We can reduce the number of buyers, but we can't reduce the number of folks seeking housing. They've got to live SOMEWHERE! So the only way to fix the imbalance, longer term, is to increase supply. Back to the supply-chain issues...
JMO...
Where I live in south-central PA, the annual appreciation rate has been in excess of 10%+ per annum over the last 2 years. Historically, it averages 2-3%. I'm more inclined to believe that a "correction" in the current market will be a return to "normal" appreciation rates. Another historical measure of demand to consider is days on market (DOM). Traditionally, an approximately 6 month supply of inventory (stated as number of homes on market at any given moment, versus 30 day "absorption" of available homes; in other words, how long to sell every home currently available, if priced appropriately) has been considered as equilibrium, with 180 DOM. In my area, the DOM has ranged from 4 days to approximately 30 days. Historically unheard of! I don't think a "correction" will result in any significant price reductions, as housing demand continues to exceed supply factors.
The only other consideration, IMO, is a "shock" to the system. Interest rates are my biggest concern. Rising rates are a given, as in a historical context, 6%-8% is an average rate. We have been at 2%-3% for longer than I could have ever imagined. If there is anything artificial in this real estate market, it's the unbelievably low mortgage rates! But as Chuck points out, that applies to all asset classes, and isn't specific to real estate. Rising rates will be a good thing, IMO, as it should temper demand, thereby bringing the demand level closer to the supply level, and reducing pressure on upward pricing, and helping to maintain a lower Housing Affordability Index (HAI). Until supply chain issues are resolved, vis-a-vis construction materials, there isn't much we can do on the supply side to increase supply. At this point, our greatest results will likely result from reducing the demand side. But it has to be a natural gradation, giving the market a chance to react and adapt. Bumping rates from say 2.5% to 4.5% in a single quarter would be a "shock" that could result in price correction. But even this is a tricky proposition, as housing is a known basic commodity, like food and gasoline, which is mostly inelastic. People may get squeezed from the buyer's market, but they still need housing! Which will probably contribute to a continued boom of the rental market.
The ultimate fix needs to come from the supply side, as the current issue is a result of demand exceeding supply. We can reduce the number of buyers, but we can't reduce the number of folks seeking housing. They've got to live SOMEWHERE! So the only way to fix the imbalance, longer term, is to increase supply. Back to the supply-chain issues...
JMO...
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It's understandable, other people call it a bubble too (as you cited). I think people generically refer to any sort of asset price inflation as bubbles, but I think it can be important to distinguish because true bubbles are fundamentally bad because they are unsustainable and basically a really big Ponzi scheme (those late to the game will likely sustain substantial loss). They become irrational and they will fail - dramatically.
Price growth caused by other systemic factors can be angular on a chart, it can even look like a bubble. But if it is rational and if those factors have a realistic basis, they can persist without the same risk of dramatic failure.
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