Tag Archives: Housing bubble

Why the Housing Bubble Bust Is Baked In, by Charles Hugh Smith

Posted on June 30, 2022 | Leave a comment

When you blow up bubbles they bust. From Charles Hugh Smith at oftwominds.com:

Putting this all together, it’s clear that the source of the current housing bubble is the explosion of financial speculation fueled by central bank policies.

Those benefiting from speculative bubbles have powerful incentives to deny the bubble can bust. Rationalizations abound as bubbles inflate, and the continued ascent of speculative bets seems to “prove” the rationalizations are correct.

But bubbles arise from speculative excesses, and once these reach extremes and reverse, bubbles burst and all the self-serving rationalizations are revealed as rationalizations.

Let’s start with some caveats I’ve already covered in Is Housing a Bubble That’s About to Crash? (May 2, 2022):

1. Housing is local, so there may be locales where prices are still rising due to unquenchable demand and low supply and other places where demand is low and supply ample where prices plummet.

2. The wealthiest 1% on a global scale is a very large number, and wealthy buyers seeking a safe haven in North America come with cash and don’t care about mortgage rates. Desirable enclaves could see home prices climb even as the national bubble pops. (World population: 7.8 billion X 1% = 78,000.000 or roughly 30,000,000 households.)

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The Upshots of the New Housing Bubble Fiasco, by MN Gordon

Posted on December 3, 2021 | Leave a comment

When the current housing bubble pops, it won’t be as bad as the pop in 2008-2009, it will be worse. From MN Gordon at economicprism.com:

“The free market for all intents and purposes is dead in America.” – Senator Jim Bunning, September 19, 2008

House Prices Go Vertical

The epic housing bubble and bust in the mid-to-late-2000s was dreadfully disruptive for many Americans.  Some never recovered.  Now the central planners have done it again…

On Tuesday, the Federal Housing Finance Agency (FHFA) released its U.S. House Price Index (HPI) for September.  According to the FHFA HPI, U.S. house prices rose 18.5 percent from the third quarter of 2020 to the third quarter of 2021.

By comparison, consumer prices have increased 6.2 from a year ago.  That’s running hot!  But 6.2 percent consumer price inflation is nothing.  House prices have inflated nearly 3 times as much over this same period.

Here in the Los Angeles Basin, for example, things are so out of whack you have to be rich to afford a 1,200 square foot fixer upper in a modest area.  Yet the clever fellows in Washington have just the solution.

Massive house price inflation has prompted the FHFA, and the government sponsored enterprises (GSEs) it regulates, Fannie Mae and Freddie Mac, to jack up the limits of government backed loans to nearly a million bucks in some areas.

Specifically, the baseline conforming loan limit for 2022 will be $647,000, up nearly $100,000 from last year.  In higher cost areas, conforming loans are 150 percent of baseline – or $970,800.  What gives?

If you recall, ultra-low interest rates courtesy of the Federal Reserve following the dot com bubble and bust provided the initial gas for the 2000s housing bubble.  However, the housing bubble was really inflated by Fannie Mae and Freddie Mac.  The GSEs relaxed lending standards and, thus, funneled a seemingly endless supply of credit to the mortgage market.

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Posted in Banking, Business, Collapse, Debt, Financial markets, Government, History, Law, Politics, Propaganda

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Housing Bubble #2: Ready to Pop? by Charles Hugh Smith

Posted on July 9, 2021 | Leave a comment

Housing bubble #2 exploding will be even more destructive than #1, because the world is much more leveraged and there are many other bubbles ready to pop. From Charles Hugh Smith at oftwominds.com:

All debt-fueled speculative bubbles pop, even as cheerleaders claim otherwise.

The expansion of Housing Bubble #2 is clearly visible in these two charts of house valuations, courtesy of the St. Louis Federal Reserve database (FRED). The first is the Case-Shiller Index, which as you recall tracks the price of homes on an “apples to apples” basis, i.e. it tracks price movements for the same house over time.

Note that this is an index chart where the index is set at 100 as of January 2000. It is not a chart of median housing prices.

The second chart is also a housing price index chart courtesy of the U.S. Federal Housing Finance Agency. (Shoutout to the USFHFA, never came across your work before.)

The red line marks where house prices would be if they had tracked the Consumer Price Index (CPI), i.e. inflation as measured by the Bureau of Labor Statistics. You’ll notice that the last time the Case-Shiller Index touched this baseline was 1998, almost a quarter-century ago. On the FHFA index, it hasn’t touched it since the mid-1970s, 45 years ago.

You’ll notice that housing would have to drop by 40% to touch the baseline. Yes, this is officially “impossible,” because the Fed has our back in every bubble and housing never goes down because the demand is forever rising.

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