
The seeds of the next housing crisis have been planted - lisper
http://www.marketwatch.com/story/the-next-housing-crisis-is-pending-2016-05-04
======
chubs
Some good thoughts on this topic I read recently: * Quantative Easing (eg
printing money) floods the economy with money, it has go somewhere. * Since
the real economy (manufacturing / information) isn't growing, the money flows
into assets (eg real estate or stock bubbles) * When there's zero interest, it
exacerbates the problem, because if you've got capital, it's impossible to
find anywhere to invest it to get a return. Hence you're incentivised to put
it into assets. * Basically you're not seeing assets (houses/stock) going _up_
in value, you're seeing money go _down_ in value. It's basically out-of-
control inflation, it's just that the inflation isn't spread evenly yet.

Disclaimer: These aren't my ideas, i'm merely parroting. But i thought they
were clever and worth sharing.

~~~
ftwinnovations
These ideas are more than just clever, they are exactly what is happening due
to money printing and zero to near-zero interest rates. You restated the facts
well.

As to those who claim QE ended, and other nonsensical ignorant claims, that is
irrelevant. The money went to reliquify the broke banks' balance sheets, and
so of course did not immediately leave their digital vaults. That takes time,
and we are slowly (technically not at all slowely) watching the destruction of
the dollar's purchasing power via mass inflation, beginning with the assets
closest to the money printing spigot: real estate, stocks, fine art, and other
elite assets.

~~~
rmrm
and yet the dollar is not substantially weakened vs other currencies, it is
quite strong. This isn't a dollar specific phenomenon at all.

It seems a more appropriate statement would be destruction of all currencies
purchasing power. Which leads me to wonder - what is the impact of that
exactly?

Should the dollar be allowed to strengthen greatly (relatively to basket of
all other currencies), is that what people are proposing? Can we guess at what
the dollar based economy might do in that instance?

~~~
toephu2
"is quite strong"...yes currently, but the decline has already begun against
major currencies, e.g. JPY:
[http://www.xe.com/currencycharts/?from=USD&to=JPY&view=1Y](http://www.xe.com/currencycharts/?from=USD&to=JPY&view=1Y)
Also checkout the dollar index:
[http://www.marketwatch.com/investing/index/dxy](http://www.marketwatch.com/investing/index/dxy)

~~~
rmrm
My point is that other currencies are not static. All the world economies are
jockeying to have relatively weak currencies, in order to attempt to spur
inflation and ease their debt loads. It's all relative. The US is not in some
particularly bad spot, certainly Japan and Europe finance ministers would
trade places with ours any day of the week. We have a remarkably strong
economy (and everything else, really) in comparison (which is all that
matters).

------
kin
The anecdotal example of Brooklyn is a bad example IMO. Everyone knows how
gentrified Brooklyn has become. As a result, real estate prices for those
areas are going way up. For those in SF, the same is happening to Oakland.

Also, having just got a mortgage, I can anecdotally counter that despite
Quicken's claims with Rocket, getting a mortgage, at least a "good" mortgage
loan is still incredibly difficult. Thanks to 2008, 2016 loans require a shit
ton of disclosures. So, if there's a bad loan lying around, you best bet it's
going to be hard to disguise it.

As for the < 20% down? That's not a sign of a bad economy per se. I'd factor
that more to a generation of poor savers. NPR recently had a whole segment on
how little the current generation of millennials saves.

Home prices increasing is due to the fact that it's a seller's market. But,
rent prices are increasing as well. IMO you could look at it from a different
perspective. Recent homeowners are buying because it's currently cheap to
borrow and the long-term result is that they actually save money because rent
is increasing at such a dramatic pace.

All said, I do agree w/ the headline, just not with the author's anecdotal
proof.

~~~
placeybordeaux
I agree. Talking about there being a housing bubble like the one that popped
in 2008 would need a whole hell of a lot more than mentioning how some of the
most expensive places in the world are expensive.

------
joshuaheard
"Since government agencies back about 80% to 85% of new loans..." That's the
problem right there: government is underwriting the risk. Get rid of GSE's
like Fannie Mae setting standards and underwriting risk, and you will return
to a more normal market fluctuation.

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draw_down
I think this story shows why it's so important to remember how credit-rating
agencies and investment banks added so much fuel to the fire of the last
crisis. Otherwise you will think the whole problem was silly people taking out
mortgages they couldn't afford and say "this is just like 2007".

Anyway, I could buy the idea that once again some portion of homebuyers can't
really afford what they're buying, but there won't be the crazy systemic
effects that happened last time, unless once again bad mortgages are being
sold as good ones, buried in financial derivatives.

Personally I think the situation is worse than a bubble- I think this is just
how things are now, if you want to live in a city. The demand really is there
to sustain these crazy valuations, and young people and those of us who don't
own are just screwed.

~~~
roofer
I agree. I think it's not really a bubble. It might go down a little, but not
-30% like it did in 2008-2009. Which means we are all going to pay lots of $$$
to live in desirable areas.

QE benefited people who bought in 2009-2012

------
narrator
1\. Give a whole bunch of loans out. Profit!

2\. Loans pay for houses to be built. Profit!

3\. Credit crunch.

4\. Take back homes in foreclosure.

5\. Fed prints money to buy the defaulted mortgages. Profit!

6\. Lend new bailout money to private equity buddies to buy the foreclosed
houses. Profit!

7\. Rent houses to previous homeowners. Profit!

All this is necessary because banking is the foundation of our economy, the
most important sector of our economy and the source of all jobs and growth in
our economy. There is no sacrifice too great that our country must endure to
save the banks in step 3 as the whole economy revolves around the glorious
"doing God's work"[1] cycle detailed above.

[1] [http://dealbook.nytimes.com/2009/11/09/goldman-chief-says-
he...](http://dealbook.nytimes.com/2009/11/09/goldman-chief-says-he-is-just-
doing-gods-work/)

~~~
cylinder
A nation's banking system reflects its core values, its culture, its
fundamental values

Not the other way around

------
cubano
And why wouldn't this happen again?

All the people and corporations whom profited dearly from the 2007 scam got
off completely scot-free and were made then whole on the backs of the US
taxpayers (actually, their grand or great-grandkids, because the money used to
pay the bills was borrowed and added to the $20tril debt)

They fully expect to be bailed out again, so again I ask...with big money to
be had and almost zero risk to the players, why would anyone think its not
happening again?

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gozur88
The very first point is key. Unless you work at a realty company, when guys at
the office are trying to get rich flipping houses we've reached the peak.

~~~
sosborn
Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

~~~
toomuchtodo
Buy When There's Blood In The Streets

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flashman
“Mortgage-default rates are currently very low, but that shouldn’t be any
source of comfort because they are always low when the economy is doing well
and home prices are going up,” said Oliner. “That can turn around quickly if
there is a recession.”

A chart of 2006-2016 mortgage default rates is instructive:
[http://au.spindices.com/indices/specialty/sp-experian-
first-...](http://au.spindices.com/indices/specialty/sp-experian-first-
mortgage-default-index) (set the time period to ten years)

The first mortgage default rate doubled from August 2006 to September 2007. It
then doubled again by November 2008, peaking at 5.67% just three years after
it was at 0.79%... which is roughly the level we're at today.

These things can turn around quite quickly.

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jerryhuang100
the article lacks the major fuel of the current housing bubble in US/CA: the
Chinese buyers. there is an estimated $500B capital outflow from China in
2015. guess a large part of that is in SF/BC/NYC/London real estate.

~~~
alva
In London there are tens of thousands of new build properties which have been
built through Chinese investment. Currently unaffordable to most (£1m plus for
a 1 bed) and so rather unpopular with Londoners. Many developments are 50%+
sold in China before they are advertised in the UK. however I am beginning to
think the Gov may having been playing a clever long game.

Massive outflows from China the last couple of years. Encourage funds into the
UK, mostly London, property market. Build huge number of new homes with
Chinese money. Once (hopefully) the market crashes, glut of thousands of
relatively affordable properties become available.

I am not sure whether this was purposeful, however I have stopped complaining
about foreign funded real estate investment here as it will be extremely
fruitful if the bubble pops. Unfortunately for those in the states mentioned,
it seems the money isn't going into building new properties, but inflating a
low and severely restricted stock.

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louprado
While not mentioned in this article, perhaps real estate agents are also
insisting that buyers bid over the asking price thereby inflating prices.

Last week I was told by my first buyer agent he would not write my offer
despite being 3% ABOVE the asking price for property that listed that day. I
then called the listing agent for the same property who insisted she wouldn't
write my offer unless I offered 25% above the listing price. We eventually
negotiated to 10% above as my first offer. There are only 10 offers on the
property so it isn't as if they were flooded with buyers.

Is anyone else finding your own buyer agent or even the listing agent refusing
to write an offer if it isn't well over the asking price ?

Note I am in the SF Bay Area.

~~~
bagels
If there are 10 offers on the first day of listing, you're wasting everyone's
time including your own, by not offering above asking, as the offer simply
would not be competitive against the other 9.

------
guelo
The American Enterprise Institute does too much lobbying for me to trust them
as straight shooters. Looking at case-schiller [1] it looks a little worrying,
but looking at construction starts [2] the market doesn't seem that overheated
yet.

[1] [http://www.multpl.com/case-shiller-home-price-index-
inflatio...](http://www.multpl.com/case-shiller-home-price-index-inflation-
adjusted/)

[2]
[http://www.census.gov/briefrm/esbr/www/esbr020.html](http://www.census.gov/briefrm/esbr/www/esbr020.html)

------
hristov
The very top of the market is already plummeting. I am talking about the
nosebleed part of the market of 10+ million dollar apartments in new york,
london and miami. These are already falling in prices as most hedge funders
had a very bad 2015 and decided to liquidate some of their housing
investments.

This effect should start working itself down the price ladder soonish. In new
york developers are already splitting up mind bogglingly expensive apartments
to form higher numbers of merely crazy expensive apartments.

So I would not be investing in housing that I do not need right about now.

~~~
shostack
At the upper end you see a lot more real estate purchases for investment
purposes. At the lower end you see people wanting to buy their first home.
That lower end demand is not going to disappear--do you have any data to
suggest that this will in fact work its way all the way down to that lower end
for people who are not "investing" in housing but instead buying a place to
live?

------
eli_gottlieb
Planted? In most major cities they've been growing since basically the last
housing crisis. Land in First World cities has become the new gold, and it has
caused an unsustainable bubble for those of us who actually need somewhere to
live.

~~~
CyberDildonics
You have plenty of places to live, you just don't want to live there.

~~~
hueving
It's always interesting to me how many people think they have a right to live
in a specific location. It's a strange mental model that I haven't fully
grasped.

~~~
1_2__3
It's more interesting to me how many people think money should, and inevitably
will, trump all other interests.

Maybe if you're a 20-something programmer uprooting your entire life to live
somewhere else after decades in a location because financial pressures outside
your control make your home and everywhere near it impossible to afford that's
not such a big deal.

But for fuck's sake, think about this for a second. Most people _do_ have
things rooting them to a particular location. Maybe it's a social circle.
Maybe it's support network. Maybe it's their career, or their children's
schooling, or their health and the local climate.

At the end of the day we as a populace get to decide public policy. Taking
people being priced out of their homes as fait accompli because them's the
market breaks is heartless enough, but then saying disdainful things about
just how painful and difficult it is is worse.

~~~
hueving
Here is the thing, there is only so much room for people. You are either
saying "fuck you" to the young people of the community that want to get a
house in the place they have roots, or you say "fuck you" to the people that
can't afford to live there. I don't see how it's particularly fair for a
person to feel entitled to an area they did not purchase property in over
another that just didn't happen to be there as long.

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taurath
There's a lot of pressure to buy now, which makes me think its probably not a
good time to do so. Its really difficult to make any long term decisions when
it might be at the top of the market.

~~~
forgetsusername
But rates are extremely low. There is never a "right" time; there are only
particular circumstances.

~~~
ThrustVectoring
Rates being low is a bad thing for buying a house. If interest rates were
higher, it'd be harder to qualify for a loan at a particular value, so the
house you're interested in would be cheaper. Plus, you make money refinancing
at a lower rate, and there's no room for rates to fall when they're this low.

