There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001 until the housing market could no longer be sustained resulting in a complete collapse of the financial markets and banking.<p>The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions of foreclosure cases and allow the entire industry to consolidate. That $2T resulted in the longest bull market in history, as well as the biggest transfer/consolidation of wealth in history.<p>It was unprecedented until the “stimulus packages” during Covid which is probably closer to a total of $7-8T, so far, once the federal reserve leveraging is included. Once again the policy response during this crisis was designed to benefit corporations and the wealthy. One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.<p>The very same way people look back and excuse the banks for their culpability for the financial meltdown resulting in “the Great Recession”, and even more bizarrely argue to some extent that taxpayers should thank the banks for allowing the taxpayers to bail them out (ie finance their foreclosure cases and major bank acquisitions)…its clear the people have once again been conned by politicians and are stupid enough that we will be reading future articles about how 2020-20?? wasn’t a stock market bubble and wasn’t inflation and that the people will once again be thanking politicians and the federal reserve for robbing them.
Paul Krugman described the effect memorably in 2005.<p><a href="https://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html" rel="nofollow">https://www.nytimes.com/2005/08/08/opinion/that-hissing-soun...</a><p>"Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.<p>In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.<p>But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions -- hence "zoned" -- makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles."<p>Just ignore the first sentence in the article and the prognosis on a bubble popping messily....<p>Erdmann adds to the thesis in a very valuable way by pointing out that people move out Zoned zone to Phoenix and other US metros.<p>Just pity the countries that effectively don't have a Flatland, like Australia, the UK and NZ.
Interesting view and great data crunching. But I am amazed how one can write a long article purportedly about the causes of the 07/08 crisis without ever mentioning credit quality. By my impression, the prevailing view is that the crisis was caused by poor credit quality of some home buyers (I remember the term NINJA borrowers - no income, no job or assets). This was masked away in complex financial products (CDOs,...) that made it hard for buyers like banks to assess individual borrower quality and instead had them rely on (flawed) valuation models by rating agencies. The high ratings for these products allowed the market for them to balloon from a niche to a gigantic size that made it systemically important. When the first cracks started showing, worries about borrowers' credit quality turned into worries about banks' credit quality, leading to bank-run-like situations in the money markets, and ultimately the failure of banks like Lehman Brothers and others.<p>The article seems to start from a misleading claim, one that misses a crucial part of the picture, and that is much easier to refute than the full story. The data is still super interesting to see.
> And yet not very many people think we’re in the middle of a second housing bubble.<p>Really? It seems pretty obvious to me that we're in the middle of a huge bubble. The problem is the bubble may not pop for decades because propping up the bubble is government policy at every level from federal to state to local. And if they ever stop, tons of people will be totally screwed. Never mind that even more people are getting screwed by the bubble...
This analysis seems to be attacking a strawman "the economic recession caused housing to drop, not the other way around". I mean there were <i>multiple, interconnected</i> factors including lax lending standards, anticipation of ever increasing housing prices, overbuilding in some locations. It's pretty clear none of them were responsible <i>on their own</i>.<p>And the fact that they use Canada as an example of a country "that never saw a housing crash" is kind of funny considering Canada <i>median national housing prices</i> is almost <i>double</i> that of the US now.<p>I would agree that the US is likely not in a bubble now, but Canada sure as hell is.
It's probably more than one thing. I agree with with the points on supply, plus the fact that cities can only grow so much before transportation becomes impossible, and then there is a huge premium to be near the center (watch the traffic in the streets in old movies or documentary from the 1970s compared to now in cities like Paris or London).<p>But I think another big factor is that we are measuring inflation wrong. I think the various QE had the same effect than any other money printing in history, to drive prices up. But I think the way it was introduced (directly in the financial system, rather than paying people with it), meant that the inflation was localised into financial assets, and to the cost of anyone benefiting from higher financial assets (VC, asset and hedge fund managers, etc). So stock prices skyrocketed, as prime real estate prices, college tuitions, expensive restaurants, etc. But that's not captured by the various CPI indices.<p>Then came covid, with its new, massive rounds of QE. But this time the money printing was distributed to ordinary citizens through various furlough schemes, financed by deficits, pretty much directly financed by the central bank. And oh surprise, about a year later we see inflation jumping up massively.<p>So it may be that these inflation adjusted real estate prices charts aren't adjusted as they should.
It would probably be more accurate to call it a subprime mortgage bubble.<p>Those were the assets that were significantly over-priced. Or one could argue that in '07 they were correctly priced given the questionable assumption that home values would only increase.<p>Home values themselves were high but definitely not in bubble territory. It was the derivatives that amplified those high home values. Specifically mortgages that couldn't be paid unless home values continued to increase. That kind of asset is very bubbly, an asset that only has value under a certain transient conditions, and the rating agencies marked them as relatively safe.
Yeah, and people still keep moving to the Phoenix metro area. The housing market is now closed for median income families as a result of the constant growth and the housing inventory here being dried up.<p>I want to emphasize that: if you're a median household income, middle class family moving to Phoenix, you can no longer afford homes here. <i>There's zero inventory.</i> ARMLS listings will produce <i>nothing</i>.<p>That's not an exaggeration. After breaking down the cost of a mortgage, insurance, property tax, cost of food based on USDA Cost of Food reports, median car payments, bills and utilities, and additional monthly expenditures, there's no way the math works out.<p>Phoenix is now Los Angeles. Look somewhere else. Phoenicians are.
That chart of vacancies is an oversimplification. It's too smoothed. For example the vacancies should have a breakdown into per-month bands. Rentals of not-direct 'apartment' style units should be counted in some other category of profiteering.<p>Each <a href="https://en.wikipedia.org/wiki/Metropolitan_statistical_area" rel="nofollow">https://en.wikipedia.org/wiki/Metropolitan_statistical_area</a> in the US should have a graph per major downtown, for suburbs within a given rush hour commute distance (1 hour, 2 hour, 3 hour) and then each state for outlying areas (anything outside of another graph).
><i>And yet not very many people think we’re in the middle of a second housing bubble.</i><p>Yes. Many people think we're in the middle of a much larger bubble across the whole unsustainable economy.
Something funny about bubbles. I’ve heard it said that housing prices in 2005 were outrageous, so much that they could only possibly be justified if the population somehow banded together to stop most new housing from being built. Likewise I’ve also heard something about the dotcom bubble- that the valuations of tech firms in 2001 were outrageous. That the multiples given could only ever be sustained if American consumer tech came to dominate the world…
In Europe we have had no housing bubble because mortgage rates are higher by a few %, and no investment mortgages are available for retail 'investors'. You are lucky to even get one on a stable salary. There are zero possibilities for investors to buy up and hoard houses unless they do so in cash.
From the perspective of just wanting to buy a house in the same place my parents bought one, I don’t really care what we call it.<p>The reason I’m able to actually buy one now is because my salary rose faster than the housing prices, but the prices in that location have still risen by about 800% in the past 30 years.
A Wall Street insider high up at a major USA bank once told me that 2008 was a media created phenomenon. There was no mortgage crises, leverage for sure, but nobody went to jail. Why did no one go to jail? Nothing was done wrong. It was a panic sparked by the media.