You might remember me from great threads such as:
themmacommunity.com
Well I'm back with another one. I have flipped from believing that the housing market is simply in short supply due to housing units and I now believe a real estate crash is going to happen that will impact significant number of sectors of the economy like it did in 2008.
After 2008 we didn't really build houses at the rate we previously did:
New housing units:
At the same time, a bunch has been made of millennials coming of age, wanting to buy houses and basically blaming this combination of short supply and high demand for the housing prices.
@Hauler Would tell you this is true. You see it's always supply and demand.
But things have been changing.
In 2021, Wall Street purchased 50% of all apartments that were sold and one in seven houses. Historically this is a really weird thing because Wall Street doesn't like to buy illiquid physical assets. They buy derivatives in other financial products that allow quick, buys and sells and it's part of the recent that they are allowed to purchase on margin. If things go wrong the person loaning can always make a call and get their money back just by selling a contract. But if you owe me money and I tell you that you need to sell that house, there can be a just a delay in the process innately. So this is all kind of strange. Wall Street is holding a ton of housing. These assets are then being loaned against.
The other six in seven houses and 50% of apartments for being bought up by residential consumers. If you're paying attention to the news You're aware of that increasingly these are all cash buys. People paying way more than the asking price in while bidding wars. Even as the prices have cooled. You basically don't a chance in this market without coming to the table with some kind of pre-approved financing, but more importantly, cash. Except none of these buyers are really bringing cash. They're cashing out against other assets like their own home. Their home that's inflated and price right now. So their cash is really just a new loan against a house.
This cycle is tying together residential purchasers and Wall Street in a way that the subprime crisis did when we took all of those bad mortgages, packaged them together and traded them around. Once the residential consumers couldn't pay their bills and the Ponzi scheme of selling off to each other crashed, suddenly, Wall Street felt the bite.
That's what's happening right now. Wall Street owns a significant portion of these physical assets creating a shortage. They are renting them out for profit. Residential consumers are in fomo mode getting huge cash loans against their inflated house prices to buy new houses. This all runs up the price of the new house as well and every other house on the block. And then everybody can take cash out refi's against those inflated assets. Wash rinse repeat. Eventually the inflation will pop and when it does everybody is holding notes on assets that they're now upside down on... Including Wall Street.
So what about the innate supply and demand. What about the housing shortage? Well on top of the above asset inflation, the wrong number of housing units doesn't really tell the story as many of us would think.
The last 5 years the new housing units have outpaced the population growth and the millennial aging:
www.deptofnumbers.com
.
So why are houses now three times or more expensive than they were 5 years ago? Inflation. And that inflation is being driven on a cycle of loans against houses that make other houses more expensive and thus allow a new loan on that inflated asset to be made.
This will all eventually crash. The only thing that I can see bolstering it for some time is foreign investment. Over the last couple of years the United States has been a safe haven for foreign currency. New York and Miami are full of Chinese and Russian condos that are sitting empty just being used as a way to hide foreign currency in a safe physical asset. That continued inflow of cash definitely alters this timeline. But if you see my other thread on evergrande and pay attention to the Russian economy right now. I suspect that those inflows will try up at some point as well.
@kneeblock come tell me I'm wrong again.
General - A thread to discuss and follow the incoming inflation bomb
In 2020 the federal reserve made a noted change to its primary policy: https://www.federalreserve.gov/monetarypolicy/guide-to-changes-in-statement-on-longer-run-goals-monetary-policy-strategy.htm The fed made two major changes. 1> There is an increased focus on full employment in the economy...
themmacommunity.com
Well I'm back with another one. I have flipped from believing that the housing market is simply in short supply due to housing units and I now believe a real estate crash is going to happen that will impact significant number of sectors of the economy like it did in 2008.
After 2008 we didn't really build houses at the rate we previously did:
New housing units:
At the same time, a bunch has been made of millennials coming of age, wanting to buy houses and basically blaming this combination of short supply and high demand for the housing prices.
@Hauler Would tell you this is true. You see it's always supply and demand.But things have been changing.
In 2021, Wall Street purchased 50% of all apartments that were sold and one in seven houses. Historically this is a really weird thing because Wall Street doesn't like to buy illiquid physical assets. They buy derivatives in other financial products that allow quick, buys and sells and it's part of the recent that they are allowed to purchase on margin. If things go wrong the person loaning can always make a call and get their money back just by selling a contract. But if you owe me money and I tell you that you need to sell that house, there can be a just a delay in the process innately. So this is all kind of strange. Wall Street is holding a ton of housing. These assets are then being loaned against.
The other six in seven houses and 50% of apartments for being bought up by residential consumers. If you're paying attention to the news You're aware of that increasingly these are all cash buys. People paying way more than the asking price in while bidding wars. Even as the prices have cooled. You basically don't a chance in this market without coming to the table with some kind of pre-approved financing, but more importantly, cash. Except none of these buyers are really bringing cash. They're cashing out against other assets like their own home. Their home that's inflated and price right now. So their cash is really just a new loan against a house.
This cycle is tying together residential purchasers and Wall Street in a way that the subprime crisis did when we took all of those bad mortgages, packaged them together and traded them around. Once the residential consumers couldn't pay their bills and the Ponzi scheme of selling off to each other crashed, suddenly, Wall Street felt the bite.
That's what's happening right now. Wall Street owns a significant portion of these physical assets creating a shortage. They are renting them out for profit. Residential consumers are in fomo mode getting huge cash loans against their inflated house prices to buy new houses. This all runs up the price of the new house as well and every other house on the block. And then everybody can take cash out refi's against those inflated assets. Wash rinse repeat. Eventually the inflation will pop and when it does everybody is holding notes on assets that they're now upside down on... Including Wall Street.
So what about the innate supply and demand. What about the housing shortage? Well on top of the above asset inflation, the wrong number of housing units doesn't really tell the story as many of us would think.
The last 5 years the new housing units have outpaced the population growth and the millennial aging:
Housing Units and Population Measures for | Department of Numbers
Over the past 5 years, the number of the United States housing units increased by 4.27% while the 18 and over population increased by 4.07%.
So why are houses now three times or more expensive than they were 5 years ago? Inflation. And that inflation is being driven on a cycle of loans against houses that make other houses more expensive and thus allow a new loan on that inflated asset to be made.
This will all eventually crash. The only thing that I can see bolstering it for some time is foreign investment. Over the last couple of years the United States has been a safe haven for foreign currency. New York and Miami are full of Chinese and Russian condos that are sitting empty just being used as a way to hide foreign currency in a safe physical asset. That continued inflow of cash definitely alters this timeline. But if you see my other thread on evergrande and pay attention to the Russian economy right now. I suspect that those inflows will try up at some point as well.
@kneeblock come tell me I'm wrong again.
