Housing Bubble 2.0 – Are You Ready For This?
By Tyler Durden
The mind-numbing Case-Shiller regional charts below are presented without too much comment. As MHanson.com's Mark Hanson adds, the visual says it all.
Bottom line:
Q: If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages?
A: Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.
1) Funny (and Demented) Seattle area Realtor anecdote regarding the potential for another housing Bubble: “House prices can’t be in a bubble because they are only 10% greater than the 2006 peak, meaning growth of only 1% per year since 2006. And 1% per year is not the Bubble type gains we saw back in the mid-2000’s”.
DOH! How do you argue with that? You don’t, you just turn the other cheek and pound a drink.
2) Case-Shiller’s most Bubblicious Regions
Bottom line: If these key housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don’t happen in “isolation”.
Not shown in these charts of absolute index levels is the three-straight months of national yy price gain deceleration. Moreover, the CS captures prices up to 7-months old at the tail so conditions are already a lot different than shown here.
3) Notes & Observations on above chart:
• The bubblicious regions above all have one thing in common…STEM. As such, if the tech and biotech sectors hit a wall, which some believe has already begun, so will these housing regions.
• If these key housing markets hit a wall they will take the rest of the nation with them; Bubbles and busts don’t happen in “isolation”.
• House prices have retaken Bubble 1.0 levels on the exact same drivers: easy/cheap/deep credit & liquidity that found its way to real estate. The only difference between both era’s is which cohorts controlled the credit and liquidity. In Bubble 1.0, end-users were in control. In this bubble, “professional”/private investors and foreigners are. But, they both drove demand and prices in the exact same manner. That is, as incremental buyers with easy/cheap/deep credit & liquidity, able to hit whatever the ask price was, and consequently — due to the US comparable sales appraisal process — pushed all house prices to levels far beyond what typical end-user, shelter-buyers can afford. Thus, the persistent, anemic demand.
• Bubble 2.0 has occurred without a corresponding demand surge just like peak Bubble 1.0. As such, it means something other than fundamental, end-user demand and economics is driving prices this time too.
• The end result of Bubble 2.0 will be the same as 1.0; a demand “mix-shift” and price “reset” back towards end-user fundamentals once the speculators finish up, or events force them to the “sidelines”.
• Lower prices will create demand, which …read more
Source: Housing Bubble 2.0 – Are You Ready For This?
