Comment by throwawaygh | Hacker News Reader

Comment by throwawaygh | Hacker News Reader

Parent Full thread

Those quotes describe a taut rubber band that could easily be released in the next 1-2 years.

> With families building up savings during pandemic and increasingly working from home, demand for property is on the rise...

Return to office, taking deferred vacations, etc. winds down the savings.

> labour shortages, global supply chain bottlenecks

won't last forever.

So there's downside demand-side risk and upside supply-side risks, with identical underlying causal triggering conditions (end of pandemic). Oh, and how long can central banks hold off on rate increases?

The risk of a violent crash has less to do with the probability of a rapid post-pandemic renormalization and more to do with the tight causal links between the risks of upside supply and downside demand. Less like "crash will definitely happen" and more like "X_1, ..., X_n all have unknown but likely highly correlated probabilities, so if one happens they all happen and if you get X_1, ..., X_n all at once there'll definitely be a crash"

I think.

The only reason the bubble burst was due to overleverage.

Houses were only sold en masse due to a prescribed flowchart: borrower couldnt pay, bank takes house, bank doesnt want actual houses so bank sells house, bank already earned enough on interest to sell house at a loss, bank can also take losses and list property for lower to sell faster, bank found out it couldn't take losses.

This isnt happening right now. The overleverage isnt in real estate. Everyone is looking in the wrong direction just because price go up.

Where is the overleverage, though?

Where is the overleveraging now?

My theory for a possible price correction is that those buying places with the intent of becoming landlords will be unable to find tenants that can make the house purchase profitable.

Or now there's 6 people living in 3 bedroom home because rent is so so sooo high...

Think about how many years over-building went on before the collapse in 2008.

There's a good chance that, in the coming years, labor and materials prices will fall such that builders will start construction on too many homes. But that's a while away. material prices are falling, but they are still elevated. And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.

In these situations, I'm a big believer in contrarian outcomes. Because if a large number of people think some event will occur, then they act in a way which gives them the best outcome should that event occur. The popular trend right now is to speculate a housing collapse. Thus, I think most people are going to put off buying at "elevated" prices for a few years, until it becomes crystal clear that they were wrong.

My prediction: House prices will be like the stock market circa 2016. Everyone will be predicting a collapse "any time now" while prices soar at a crazy pace and continue to do so for a decade.

> The popular trend right now is to speculate a housing collapse.

Price action is sentiment. Words are hot air. People are NOT speculating on a housing collapse. Exactly the opposite.

I disagree.

Prices demonstrate the attitudes of people who are buying houses. I'm concerned with the attitudes of people who are not buying houses. Why aren't they buying houses? Because they think the are going to fall in the near future. Why do I think that? Because this is a popular sentiment expressed by normal people on social media.

Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.

> I'm concerned with the attitudes of people who are not buying houses.

That's fair.

> Why aren't they buying houses?

I think a lot of people are buying.

> Because they think the are going to fall in the near future.

One major reason people with massive hoards of cash aren't buy is uncertainty around WFH. "Where to buy? Depends. Let's see how this whole return to office thing goes..."

> Yes, it's wholly unscientific of me to use Reddit and Facebook as a barometer of society, but I'm not a professional economist, just another rando on the internet making bad predictions.

Aren't we all :)

It depends on the place, but as a random data point, in a very hot market, Romania, I have a few separate data points of people with means to buy that are holding off for exactly the reason you mention.

OK, but the number of people who are buying houses is high enough to drive the prices into the stratosphere. If the non-buyers were trying to buy, prices would be even higher. So I'm not sure that you can use the existence of non-buyers to say that there's fear of a collapse. There's less fear than normal right now, as measured by what the market is doing.

There's less fear than normal right now, as measured by what the market is doing.

How broad is the market relative to society? Could say 3% of people investing tons of money, while 97% are not, create the same result we are seeing today?

Yes, that's possible. I do not have the data to either confirm or disprove it.

> Why aren't they buying houses?

My experience is that there are a lot of people looking to buy a house, there's just no houses to buy. I bought a house earlier in the year and put an offer in the day it went on the market, and I was still only one of several offers they got that day. I also have a friend who's looking at houses right now and it seems to be basically the same, houses are getting multiple offers and selling within a few days of going on the market, and anything that doesn't sell that fast isn't worth buying.

The good question is probably "Why aren't people selling?", but I'm not sure that's actually the issue. Google suggests at least as many homes will sell this year as last year, which leads me to believe there must be more buyers than normal.

> there must be more buyers than normal.

Petite investors. I saw somewhere on another thread speculation that a crash could come from prospective land lords not being able to make their properties affordable. That seems possible.

> Petite investors

Is there a reason to assume there are more people attempting this than normal? I would think this is the worst time to attempt that since the prices are so high. You may very well be right, but it feels like we're going full circle since presumably those 'investors' think the prices are going to continue to go up or else they wouldn't be buying...

I wish there were better data. All I can offer is anecdote.

Oh, another important point: they aren't necessarily buying investment properties! They might be buying their padnemic/wfh home and then not selling their already paid off starter home/condo

Two Anecdotes: I have a friend who recently sold his house because he expects a collapse (sell high, buy low). I am waiting to buy a house because I also expect it to collapse.

One is active, the other passive

> And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.

The ECB is talking about Germany, France and the Netherlands, where the average home is an apartment in a shared building. Going on anecdata from my surroundings, those take at least two years from project for sale to finished and ready for use.

That coupled with limited place and an already existing housing shortage and growing prices, it will IMHO take much longer than a year for the current shortage to be corrected.

I don't think you're wrong but I don't think you're right.

Housing starts aren't necessarily responding to demand, because yeah, nobody wants to over-build and contribute to a default. Plus there are other factors that impact housing starts in most high-cost areas (i.e. availability of land to build on.)

I don't see a pop, yet I'm not certain prices will soar. People will typically shop based on 'what they can afford' and that usually means monthly payment; as rates went low, it was easier to bump up the ask price; the best way to put it is, if rates drop from 4% to 3%, you can finance around 10% more money over 30y with the same overall monthly payment.

I do think there might be some 'bumps' in the road, but ironically, many of the people 'waiting' will probably end up pulling us out of the bumps (or, maybe, causing another surge.) I think overall the most likely scenario is we'll see some periods of paused growth or slight decline.

Worth throwing out there, at least in US the housing market typically cools down a bit over the winter, so take any news of decreases in volume with a grain of salt.

> And houses take a while to build -- four months minimum, nine+ more typical. So even if overbuilding started today, there's still a good year or so before that stuff comes on the market.

Tract builders target 100 days to complete a home from ground up. The permitting, zoning, and land acquisition is the slowest part, but once all of the paperwork is done, they can pump out entire neighborhoods in a couple years max.

Yep, that's the short term bear case. The long term bear case is: demographic pyramid inversion, interest rates bottoming out, and asset owners becoming a minority of the electorate.

The long term really-bear case is: asset owners becoming a minority of the electorate, revolution, war, and then everybody dying and most of the housing stock being destroyed.

I'd rather be an asset owner than a revolutionary in that case, though, because it's always easier to play defense than offense. The vast majority of non-billionaires can sit tight and not be explicitly targeted, but starving revolutionaries have to fight for survival. Assets can be rebuilt, but death is permanent.

> asset owners becoming a minority of the electorate.

I wouldn't hold my breath on that one - something like 95% of governors are also property investors.

The last 20 years has taught me to be suspicious of renormalization arguments. History marches on; people have memories, but history itself seems to be a big Markov process where the future depends only on the present and the forces that drive it, not the past.

I could believe an argument based on causal links of supply & demand, but I'm skeptical that they'll operate in the direction you suggest. To my eye: remote work was a spring that's been ready to burst since about 2014 but needed the pandemic to catalyze it; we're not going back to offices; home offices are going to become very desirable; savings (in the form of financial assets, at least) are increasing because of inflation; and supply chain bottlenecks are not normalizing anytime soon.

> The last 20 years has taught me to be suspicious of renormalization arguments.

2021-2008 = 13 < 20.

I'm actually thinking of late-90s up through today:

There were a lot geopolitical papers written then about the unipolar world and how we'd reached the end of history and liberal democracy had won. To the extent that people imagined threats to U.S. dominance, they usually envisioned state actors like Russia or China. Few people predicted the rise of international terrorism, widespread state failures, mass migrations, and internal destabilization of states.

There were a fair number of commentators who said that the Internet was a fad and we'd go back to calling up businesses when we got tired of webpages. The dot-com boom was a bona-fide bubble - it burst, severely - and yet it also wasn't. I predicted the Amazon would go out of business in 2001 when their stock was down 90% in a year; it now owns retail, and is worth 50x that.

People wondered how the hell a website for throwing virtual sheep at one another was worth $15B in 2007. It's now worth $942B, and blamed for taking down governments.

We just had a page at the top of HN about someone's 2011 prediction that Bitcoin would fail. It did, for all the reasons they listed, and yet is still worth 20,000x what it was going for then. It's also had some 60-70% declines in that process.

The general lesson I take from these is that life is a whole lot more random and absurd than a lot of people think it is. A lot of people who lose everything in bubbles are right about the direction of the trend (oftentimes on a subconscious level), but wrong about magnitude and timing. I see a lot of people asking whether today's housing situation is like 2008, and to my eye the fundamental forces are nothing alike. But 2005-2008 might have been the bubble before the trend, which sets up the causal forces leading to a genuine housing shortage now.

I think the dot-com example is a good analogy for the current housing market.

Prices in certain regions will just. keep. going. up. Maybe with dips here or there.

But there's also a lot of speculation happening in down-market junk.

These are good insights, I get the sense maybe that you may be tracking your predictions or at least are revisiting them more than most people. The common behavior is to forget just how uncertain the past was.

Or summarized: first things seem impossible, then they seem obvious.

Reply on news.ycombinator.com