Unless the Fed is going to start buying millions of homes outright, prices are going to fall to what buyers can afford.
There are two generalities that can be applied to all asset bubbles:
1. Bubbles inflate for longer and reach higher levels than most pre-bubble analysts expected
2. All bubbles burst, despite mantra-like claims that "this time it's different"
The bubble burst tends to follow a symmetrical reversal of very similar time durations and magnitudes as the initial rise. If the bubble took four years to inflate and rose by X, the retrace tends to take about the same length of time and tends to retrace much or all of X.
If we look at the chart of the Case-Shiller Housing Index below, this symmetry is visible in Housing Bubble #1 which skyrocketed from 2003-2007 and burst from 2008-2012.
Housing Bubble #1 wasn't allowed to fully retrace the bubble, as the Federal Reserve lowered interest rates to near-zero in 2009 and bought $1+ trillion in sketchy mortgage-backed securities (MBS), essentially turning America's mortgage market into a branch of the central bank and federal agency guarantors of mortgages (Fannie and Freddie, VA, FHA).
These unprecedented measures stopped the bubble decline by instantly making millions of people who previously could not qualify for a privately originated mortgage qualified buyers. This vast expansion of the pool of buyers (expanded by a flood of buyers from China and other hot-money locales) drove sales and prices higher for six years (2012-2018).
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3 comments:
How the hell can we have another bubble when we haven't came out of the last one?? GEESH. Let it get up and dust itself off FIRST. Before we start having imaginations AGAIN.
Just another negative prediction from self proclaimed economist
7:44 right.
Thinks really haven't improved that much since the great recession started in 2008. Yes there are jobs, but the quality and pay of those jobs are not enough to pay a living wage to to afford housing.
That's why there are so many homeless people out there who are working full time and cannot afford an apartment or a home.
I volunteer through my church to help feed and provide temporary sleeping quarters for the homeless during the coldest months of the year. I can tell you that most of them out there are not bums.
There is a housing crisis in the country that isn't being addressed, and if it isn't addressed soon, you will have riots unlike anything that is going on in France or Venezuela.
I think this country is near a breaking point right now. I think Trump is trying to change things for the better, but there are too many forces working against him.
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