Thoughts about this latest Fed article that consumer "exuberance" might be tipping us into a market correction?
Fed Article - click
Some highlights from the article:
Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s. Reasons for concern are clear in certain economic indicators—the price-to-rent ratio, in particular, and the price-to-income ratio—which show signs that 2021 house prices appear increasingly out of step with fundamentals.
While historically low interest rates are a factor, they do not fully explain housing market developments. Other drivers have played a role, including pandemic-related U.S. fiscal stimulus programs and COVID-19-related supply-chain disruptions and associated policy responses. The resulting fundamental-driven higher house prices may have fueled a fear-of-missing-out wave of exuberance involving new investors and more aggressive speculation among existing investors.
Another important long-run anchor—tied directly to housing affordability—is the ratio of house prices to disposable income. Chart 3 shows dates of episodes of exuberance for this measure of housing affordability. These data—unlike our previous metrics—do not yet display evidence of explosiveness in the third quarter of 2021. But the rapid increase in the statistic close to the threshold during 2021 indicates that U.S. real house prices may soon become untethered from personal disposable income per capita.
The current reading indicates that the U.S. housing market has been showing signs of exuberance for more than five consecutive quarters through third quarter 2021.
Based on present evidence, there is no expectation that fallout from a housing correction would be comparable to the 2007–09 Global Financial Crisis in terms of magnitude or macroeconomic gravity. Among other things, household balance sheets appear in better shape, and excessive borrowing doesn’t appear to be fueling the housing market boom.
Fed Article
