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Housing Joins The Everything Bubble

When people tick off the components of the “everything bubble” they usually omit US housing, for a couple of reasons. First, bubbles don’t normally recur immediately in the same asset class, because memories of past carnage need to fade before investors can be seduced back into irrational optimism. Since housing was the epicenter of the last boom/bust cycle, no one is looking there for evidence of new bubbles.

Second, the action in housing has been more gradual than in the 2000s, so it hasn’t generated a lot of breathless headlines about speculators making killings with other people’s money.

But this expansion has gone on for such a long time that even modest annual price gains have taken home prices back into bubble territory. And now the news is starting to reflect it. From today’s DollarCollapse.com “Real Estate” links list:

Southern Cal home prices surge 5.6% to record $549,000 in November

Oakland home values surge 261 percent in 20 years

Broward real estate leads rebound in decade after downturn

San Diego median home price hits all-time high of $594k

Phoenix home prices still outpacing wage growth

Dallas-Fort Worth median home prices unaffordable for average wage earners

An average worker can’t afford a median-priced home in the Denver metro

Median home prices are still unaffordable in majority of U.S.

Blue-state voters feel harshest squeeze from soaring home prices

Millennials have no place to turn? Rising home prices

Housing shortage hits new record low, igniting prices

To recap, home prices are above their 2007 bubble peaks in many places while the wages of potential homebuyers have barely risen, which is squeezing ever-larger numbers of people out of the market. Yet somehow the buying continues. This may not qualify as a mania, but it’s definitely looking dysfunctional, because where can a sector go from “record low affordability” if it wants to keep rising?

Going forward, one of two things has to happen. Either buyers go on strike, as they (and their mortgage lenders) recognize that houses are a bad deal at current prices and mortgages written at those prices are unlikely to be paid off. Or the government tries to keep the party going by lowering interest rates to make future mortgages easier to manage.

Since a dramatic slowdown in the housing market would take the rest of nominal GDP down with it, that will of course be seen as unacceptable, leading calls for lower rates, a weaker dollar and various other kinds of stimulus like tax cuts paid for with bigger deficits.

Put another way, even if housing doesn’t crash, the need to keep prices elevated is one more impetus for what looks like a tidal wave of monetary ease coming our way.


Emigrate While You Still Can – To Finca Bayano

8 thoughts on "Housing Joins The Everything Bubble"

  1. I can’t say I’m actually banking on this but as “impossible” as it might seem, the level and consequences of more “monetary easing” may make the last decade look tame.

    So many articles that warn of negative imminent or inevitable financial events like a stock and/or bond market crash “worries” me in that too many people are saying it, and that usually means they will be wrong. How many articles like that have we been reading since 2009?

    In the last decade or so, we have already passed through the impossible and absurd and “obvious” limits (debt levels, deficit spending levels, interest rate levels, central bank interventions, etc.) There simply hasn’t been any of the “normal” expected market reactions and throttling that market theory has predicted. Therefore, I really don’t know what will finally matter to people to change the direction of things. It may be that we haven’t seen nothin’ yet.

    1. Great comment! I will never believe another hyperinflation or collapse article after being duped by the fear-porn and terrible analysis of John Rubino, James Turk, John Williams and Peter Schiff in 2008. And yet these guys are still treated like gold-bug royalty.

    2. you forgot something very important:
      Since the dollar is the Reserve currency , it has a dual role (Internal and External)
      They can play all the games they want internally (The wealth gap , cost of living, and housing is a huge problem due to those internal games), hence your comments but make no mistake about it the confidence in the greenback (external Role) and the petrodollar are definitely coming to an end. You don’t weaponize your reserve currency.Also trade not finance is being done using less and less dollars. it is a slow process and when you countries asking for their gold back, you know something big externally is coming

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  3. Trump already jawboned the Fed into lowering rates 3 times. We have never had a 15-year stock market bubble like the one that is brewing now. Imagine an animal that doesn’t go to the restroom for 1 month. Imagine a woman who carries a baby for 27 months. This is what these rocket-science economists are trying to create. Their arrogance will become our misery.

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