Podcast: Housing prices soar with rising inflation

That's pretty much exactly what happened in the 1980s

>either the whole thing tips over and we see a significant price correction ala 2008

There's a ton of middle ground between your two scenarios. 2008 was the biggest housing price crash in history.

I think we see a recession, modest asset price decline, and then stagnant home prices and stock market returns for 10 years.

If we take path 2, then you would expect the stock market NOT to crash as it is currently doing... and if it would take that path, now would be a great moment to buy in, right? Since the prices it would stabilize should be inflation adjusted at the moment.

There is a third outcome, which is that mortgages continue increasing with rents not following suit, making buying homes unaffordable for increasing numbers of people. Currently there is a "mortgages must be cheaper" rule enforced by many landlords who refuse to rent out their properties for less than the mortgage. But if new landlords, say wall st, show up, who buy houses in cash, then it might cause an increase in purchase prices without an increase in rents.

a correction would imply that housing prices are inflated by artificial factors, rather than actual demand. it seems like that's mostly not true, and house prices are high because the demand is simply outpacing supply.

i don't see any reason to expect that the status quo can't continue and simply get worse. inequality between the homeowner class and the renter class will continue to grow. the wealthy will get to participate in the ownership market, and it'll be irrelevant for everybody else. as long as homes are treated as an investment commodity and investors can expect significant returns without having to rely on rental income, the rent market and the ownership market can be detatched from each other.

I don't see that we are headed that way.

Consumers started spending less. Target has already announced that they are reducing prices. Compared to last year, there are a lot more items on clearance in the clothing stores. There are only 20 or so ships are waiting at the LA port.

Whirlpool has started laying off assembly line employees as demand softens.

New mortgage applications are down by 21%.

I expect to see the 50 year mortgage (still 20%, still no prepayment penalty) at suspiciously low rates introduced by Freddie and Frannie soon. No politician wants to be the one in office when the music stops.

Don’t forget the option where BlackRock and friends buy up all the housing slack with the printed trillions they were given and we get a go at “You will own nothing and be happy.”

I think it's much more likely prices will continue to march higher for years to come. Don't see any reason for things to change. Still huge demand for certain area/neighborhoods.

There is simply far too much housing inventory for companies to own absolutely everything. There is also the prospect that if prices climb so high that the middle and lower class residents are priced out, homeless encampments will take over absolutely everything, while unoccupied inventory slowly deteriorates. I am not a market analyst, but if you look around even at some of the most prestigious retail neighborhoods, the effect of engineered inflation on the housing market has already displaced so many people that even the wealthy are not safe in venturing out to shopping districts and nightlife spots.

It's a self defeating cycle that needs to be reigned in. No matter how many fences people build around their homes, and how much security they hire. If the majority is forced into desperate living situations, they eventually revolt and redistribute wealth.

It is really government's responsibility to reign this in by lowering income taxes, taxing the rich and corporations properly, by reinforcing fair wages, and in many other ways, but even people in those positions of responsibility are asleep at the wheel of accountability, and also lining their own pockets.

Eventually, we as consumers need to stop contributing to these cycles of hysteria by not buying those overpriced homes, and working to develop the communities we're currently in. Individuals need to avoid greed impulse as landlords and stop dramatically raising rent and for companies to prevent artificial price inflation too (gouging), understanding that it will create a better eco system over time for us all.

Globalism of information and companies has led to harmful results in many ways, it has also driven us to a point where price controlling monopolies have far too much power, and too much overhead to keep costs down, and to keep world-wide distribution and value up for goods reliably.

There are literally thousands of overconfident investors now (many faking success and many that inherited their wealth) sitting on vacant properties, failing companies, and losing money on business ideas, yet posting about their extravagant lives and fake symbols of their business skill along with terrible investor advice on social media.

Along with Crypto, NFT, and investment scams that are regularly promoted by big industry, this drives the greed and ignorance that in turn affects current investment and ultimately business failure. We need to call this practice out, or face experiencing the market chaos and even deeper crashes that will indeed come.

One factor to consider is that as inflation erodes stock market prices, investors will exit equities in favor of real estate. These buyers can pay cash and therefore won't care about mortgage rates like homeowners do.

>And you know what the easiest to obtain source of large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages.

The banks are going to price in their forward expectations of inflation into their interest rates. They won't just hand you cheap money and eat it.

> Wages and cost of living have an innate balance, that sometimes swings more one way or the other, but by definition can't exceed certain limits: e.g. we can't all make US minimum wage and afford SF rents / home prices.

So reading your comment gave me a thought.. Why? To pose a question, why does it matter that people need housing? (Matter, in the sense of - have an impact).

Ie, it will only have an impact if something will correct it, right? And what would correct it? Normally i'd say "Well people can't afford homes, so the prices will lower" - but people haven't been able to afford homes for a long time, i thought. This tweaks some already janky numbers, but i fear it doesn't tip the apple cart. If "people" (in the common sense) aren't propping the housing market up then their lack of participation in this market wouldn't change much, no?

Ie, i wonder if the people who were offering cash and driving up housing prices yesterday will be doing the same thing tomorrow. Mortgage rates don't matter much to cash rich, no?

》People need to live somewhere, every day

You assume people also had to pay rent or mortgage. There was already very long moratorium on evictions...

> People need to live somewhere, every day.

Americans have lots of space to downsize from detached large houses with big lots while cutting on rental/mortgage costs.

But why have prices soared in just a few years while the population barely grew?

Something else seems to be driving up prices other than just "people need a place to live", and I don't see any inherit reason as to why housing prices cant go down 20-30% just like the stock market.

> large amounts of long-maturity, fixed-rate debt in most countries is? Mortgages.

Actually, outside of the US, most mortgages are floating-rate.

> People need to live somewhere, every day. > we can't all make US minimum wage and afford SF rents / home prices.

This is true. SF also has one of the worst homeless problems in the first world.

It’s easy to think the problem will be confined to a few particularly bad cities and things will stay balanced at a lower amount elsewhere. The reality is there really is no reason it won’t become the standard, or even the minimum.

Home sellers and landlords are demanding increasingly ridiculous prices and they’re more than happy to let properties sit empty for years than they are to lower prices a single dollar. I’m not sure if it’ll be resolved so easily.

Every year the passes in which prices go up means having to buy at a higher price. After a certain point, even if the market does correct, you may still never have a chance to buy at the original price you wanted but waited. It's not like gold or bitcoin, in which prices can crash and take forever to recover. Housing prices tend to be much more stable and recover from crashes faster, so this means fewer bargains can be found. You have to hold your nose and buy at a high price, often.

Don't worry, they'll be 25 milion in 20 years. 50 million in 40 years, and a cool 100 million in 60 years. There's definitely lots of room for asset prices to rise. One could argue infinitely. Your property will definitely always rise way above inflation with no possible reason for correction.

The money printing far, far, far predates the present administration. It's been going on for at least 15 years, and many argue it started after the 1987 crash. The big question is whether this is finally when the music stops.