Quote from @Michael P. Lindekugel:
Quote from @Dennis Maynard:
Quote from @Michael P. Lindekugel:
Quote from @Dennis Maynard:
Quote from @Michael P. Lindekugel:
The Fed information is factual. House price over valuation is national from economic research firm Rosenberg Research & Associates.
I provide my economic and financial opinions based on my education and experience to all clients – residential, commercial, investment. A prospective home buyer with a large down payment, significant cash reserves, and long-term employment has very little financial risk when there is home price deflation. If they should or shouldn’t buy a home is complex analysis. Home price deflation is a risk for someone at risk of default. Those are not my clients.
real estate markets are mostly local. Seattle is not boom or bust as is historically Las Vegas, Phoenix, and Miami.
I don’t know what experts you are referring to in your statement “I know the experts that screamed about the 20-30% decline in 2020 and again in 2021”. I don’t know any economic research or credible financial research that was claiming those declines in 2020 and 2021. I told my clients our hot market was going to get hotter. Nationally, the US is short 4 million units of housing of all types. Seattle has had a supply problem since the early 2000s. There is the supply constraint. There is the demand outstripping supply which not the same as the supply constraint. Those two economic problems persisted over the last two years causing home price inflation (not appreciation. Not the same) and rent price inflation.
Each ¼ point increase in 30 year fixed mortgage rates decreases home buyer purchasing power by 2.5% to 3%. When mortgage rates hit 5% the cumulative decrease in purchasing power is 17% to 20%.
The Federal Reserve definitely does not want continued hyperinflation. home price inflation makes up a large part of US GDP.
Couple things on this Michael. I appreciate your concern, but we are not experiencing HYPERINFLATION. By definition, hyperinflation is 50% inflation PER MONTH. Next, higher overnight rates means fewer profits for banks. It does nothing in an environment which inflation is caused by money flooding the system. "Prices rise when governments print too much money." This is essentially what is happening. The FED and OTHER Central Banks are continuing to print money through asset purchases including MBS and Treasuries in our case. This was extended through Summer essentially. So rate hikes, meh. Means little. In order to curb this they are going to have to contract the money supply. They are going to have to reduce their balance sheet. This will contract the M2 money supply. The action is actually deflationary.
The Fed is walking a tight rope. They are trying to buy assets and then sell it again on the overnight market. It is not a safe game to play. Again, contracting the money supply is really the only way out. However, they do not want to collapse the market at the same time. This means the stock market and the housing market. We have the largest and wealthiest generation in history. If they suddenly lost that wealth, it would be a disaster.
So will housing prices fall, probably. How much? Hard to say. People have lots of cash right now. I'm getting offers on listings where people are putting 700k on a 1.5M house. And the amount of equity in homes right now is unprecedented. Almost 50% of homeowners own their homes outright. So no, no crash. People learned their lesson after 2009.
As for supply and demand imbalance, not going to normalize any time soon. Supply is held up by boomers who are not downsizing, they are staying put and going out on a stretcher. Part of the reason the builders are not creating more supply.
I will post two videos separately on my complete thoughts on the subject just incase BP tries to take them down.
In the technical definition created by Cagan in 1956, yes, it is 50% and described as created by money supply. Hyperinflation or high inflation for that matter is not always from money supply anymore. from behavioral economics we know inflation can be demand driven as described by Khan in 1975 called adaptive expectations which is what happening today. consumers expect higher prices, so consumers buy more now in anticipation driving up prices and companies charge more knowing consumers expect higher prices and will pay higher prices. That is upward spiral of demand driven price inflation.
Higher federal funds rates won’t eat into bank profits for while because banks will increase interest rates to customers until customers decide those interest rates are too high to borrow. Banks are flush with cash and have no incentive to pay higher interest on deposits.
The Fed is ending QE in March and beginning QT in May. Instead of letting assets mature and roll off the Fed will sell off assets prior to maturity to increase supply, decrease prices, increase yields and increase mortgage interest rates to directly target demand driven house price inflation part of GDP.
I have never said crash. That is your words. A correction or a bear market does not equal collapse or a crash in housing. We don’t have the same over leverage problem or unemployment loss of income that existed prior to the Great Recession that could lead to a lot of default.
@Michael P. Lindekugel "Housing on a national level is overvalued relative to inflation by about 35%" - A 35% correction in the housing market would be a crash when compared to and with previous 'corrections' so yes while you didn't say it, the implication you are making is as such. Case-Shiller Index fell ~27% during the housing crash as a reference. I fully agree with your comments on over leveraging. Second, you did use hyperinflation in reference to the 1970's which inflation did not happen as the 1979 rate did not exceed 14%. I do agree there is a potential correction, pricing will adjust to new cost of ownership. However, people and buyers are still flush with cash (albeit that is dwindling). I think we both can agree that the Money Supply and printing is out of control. Inflation does feed on itself with higher expectations. The continued printing of money is facilitating massive spending in Congress exacerbating the problem combined with really bad policy. More money in the system leads to more spending for fewer goods with higher COGS.
if there is devaluation of around 30% and there is not a lot default as homeowners have income and cash reserves, then the housing market is not necessarily crashing. i am specifically not using "crash" or similar words because there wouldn't likely be massive default. yes, i refer to inflation in the 1970s as hyper inflation relative to other periods of time where the economy experienced high inflation.
the Fed went over board printing money and overboard with QE and waited too late to stop saying transitory. the amount and velocity of QE effectively transferred most investment risk of principal to taxpayers which further fueled margin investing not seen before.
Again, by definition.
Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.
(investopedia.com, nd)
It is important to use the correct definitions not so much for our conversation as it is for those who don't know.
