Unless Rents Rise, Housing Is Set Up for an Epic Crash
Comment of the Day

September 22 2022

Commentary by Eoin Treacy

Unless Rents Rise, Housing Is Set Up for an Epic Crash

This article from Bloomberg may be of interest to subscribers. Here is a section:

But then the yellow dots happened. Home valuations increased as rates increased, just as in the housing bubble. Perhaps that is turning around now, as housing prices are beginning to decline (typically before we see large price declines we see softening markets — fewer buyers and sellers, longer delays between listing and sales — as have been happening in the last few months) and the Fed is raising rates. But looking at the data so far, it looks like a bubble.

Maybe you shouldn’t pay much attention to what I think now, since I was exactly wrong two years ago. But I’m still not panicking about a housing crash. I expect valuations to revert to long-term mean because rents will continue to increase rapidly, meaning no dramatic drop in home prices is necessary. I base that on expectations for more legal immigration and legalization of existing undocumented immigrants and lifestyle changes — mainly more working from home — triggered by the pandemic, but not reverting to past practices. 

Eoin Treacy's view

The big difference between the housing bubble in 2005 and 2021 is consumer leverage. In the mid-2000s lending standards disappeared. People were buying houses with little more than a signature and never intended to pay the mortgage. Today, 20% down payments are still the norm in the USA. That is beginning to change with Bank of America floating zero down options but it is not commonplace.

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