Case-Shiller Showing Higher Ratio Than Ever Recorded Before - Are We In For a Collapse in Housing?
https://www.longtermtrends.net/home-price-vs-infl…
See the above link: Are we in for a 2008-style collapse here soon? The Case-Shiller ratio is higher than at ANY point in its history. The link above even points out the last housing bubble before a crash (which is significantly lower that where we are today.)
The real home price takes into account the effects of inflation and therefore allows for better comparison over time. The ratio in the chart above divides the Case-Shiller Home Price Index by the Consumer Price Index (CPI). The Case-Shiller Home Price Index seeks to measure the price of all existing single-family housing stock. Based on the pioneering research of Robert J. Shiller and Karl E. Case the index is generally considered the leading measure of US residential real estate prices.
What are your thoughts on the state of the housing market?
Sure looks like the double top from 2008. I believe the SFR prices will come down or at a minimum, they've peaked for the next 7 to 10 years.
Countering that with the fact that the US is in a housing shortage crisis of anywhere from 4-10 million homes (depending on the study you read). Simple supply demand could have home prices hold up despite high rates environment. For the record, I have no idea what will happen, but believe the counter argument could be valid.
The is a common response that I see but it doesn't make any sense to me. Simple supply and demand would dictate home prices would be where they are today because of that 4-10 million home shortage, we're at equilibrium. That's a valid point but irrelevant for tomorrow's pricing unless you're saying the shortage will get worse. Permitting has dropped so that may happen eventually but first a large wave of supply that needs to be absorbed which will adjust that equilibrium and put downward pressure on pricing. Add in the growing lack of affordability, increasing inventory for sale as less and less owner's have 3% interest rates, and expectations of job losses, and it points to downward prices for homes.
What are you referring to when you say SFR? Because per your comment below it's not single family rental
I think we are coming to the peak, currently in desirable areas, mainly the East Coast, Mid-Atlantic, and North East, there are still some institutional buyers and family shops buying SFR. Some of the issue is in the markets are also flooded with Boomers who will be coming up on selling their inventory but haven't. They are flush with cash and doing deferred financing. Buying homes cash for above asking, then refing 6 months to a year later for their kids or themselves as they retire and transition. I think we are seeing stress already in TX and the SouthWest, as well as some CA and NW areas. I think, though, a lot of SFRs are going to keep some of the HCOL areas floating as people don't mind renting when their rent is 5k a month for a house vs 8500-9000 for a mortgage and don't have the issues of owning. I think the middle class and lower upper class will be F'd and the market will collapse there. People on this thread we are F'd because our market probably won't burst anytime soon haha think $1M + props
Follow up, though: Areas that have SFR programs will stabilize but maintain a good course of action; others will be in for pain. I mean, CC debt is at an all-time high and delinquencies are at a high since 07, and car repos are skyrocketing. Saw a report only 68% of student loan borrowers had started to repay their loans. This is all starting to snowball, and Credit Scores will start going down again; lending is already tighter in ccs and Car loans. Soon housing as well, I assume. Credit Scores were at an all-time high and have already started coming back down. Most of these delinquencies haven't hit people's credit scores yet.
No national crash is happening barring a mass homeowner liquidity crunch, exiting of buyers, including investors, and a capital markets collapse. All three things would need to happen.
The single family market is functioning like it should. SFR like most real estate assets should largely be a function of regional economics. That’s playing out where for example the Bay Area saw a price decline because of the downtrend in tech and ensuing layoffs even though nationally prices rose.
Consumer leverage is nowhere near 08 levels and there are significantly fewer subprime homeowners. Before the GFC, we had ~25% of all mortgages originated being subprime and tons of mortgage fraud. Lending standards are tighter and origination fraud is tampered because of regulations.
Let’s not forget that there is a giant national housing shortage, so there is a strong floor for demand.
There are a whole bunch of other details but bottom line is that there will be no national housing crash similar to 2008. That’s not to say there isn’t a possibility of some national decline but it won’t be a) as severe and b) long lasting.
I agree with your last point, but the one key thing your analysis doesn't address re: the strong demand floor is that floor is only there so long as we are not in a recessionary environment. In a recessionary environment that argument falls apart quickly.
That was my first point but to be explicit that was talking about specifics of a severe recession.
With regard to the housing shortage, most people don’t know the actual figure is to the tune of 8 million plus homes. That’s a lot of demand collapse.
Again, not saying a national decline can’t happen, but we are not in 2008, and those same arguments from that period don’t hold from a fundamental supply/demand, regulatory, and credit conditions standpoint. The GFC was a complete aberration and you’ll be hard pressed to find a housing price collapse similar to it from a duration and impact perspective with price data across many recessions.
Some other thoughts: https://abcnews.go.com/Business/home-prices-soaring-bubble/story?id=110…
Summary: No, we are not in a bubble and worst case scenario a fairly modest decline, not a crash, could happen if we enter a recession.
There is a scenario though where UE skyrockets and the Fed is too late to cut so demand is overwhelmed by supply. Additionally, what if the fed cuts but the 10yr remains high. If foreign entities dont believe the US will get the debt situation under control the 10 yr could remain higher than some expect. In that scenario it would take the Fed stepping in and resuming QE. So many scenarios. I do think that the economic situation currently is much worse than is being portrayed atm, but baseline seems to be flat or a small decline nationwide. Phoenix, Florida, Texas seem to be in the most trouble currently.
Forgive me I'm not familiar with RE economics. Why are FL, TX specifically in trouble?
For a long time I was worried that home prices would spike significantly as soon as rate cutting started, but lately I've started to think it may actually have the opposite effect. Prices continue to float upwards on the back of a seriously limited supply of homes on the market since potential sellers don't want to trade in their existing mortage for one with much higher rates. What happens when these houses begin flooding the market en masse?
Thought about this is as well but the problem with this theory is that historically most homesellers are usually a homebuyer. But if there's a large migration from one area to another area then the area people are leaving from could still see large home price declines. You really need distressed sellers, who are forced to sell and can't buy another home.
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