Very useful balanced analysis. Makes the case that this time isn't different in either direction. As an investor who bought in Austin 2009-10, I have been selling for the past year. I hope to buy back in a few years. Much appreciated.
it would be interesting to see the average monthly payment compared to average salary over time. I would expect this ratio to converge to a fair value.
Hey Bear,l have followed you since Cassandra recommended your insights on China.l haven’t owned a share in my life but l value your balanced narration of well researched complex issues,though l don’t always understand some(most) of the language, l glean enough to keep me from becoming comfortable in an otherwise seemingly bountiful environment -Thankyou
one helpful thing to overlay on the points of "are those who purchased able to make these payments" is how much of this came from stock based compensation at inflated stock values. With stock price depreciation how many are forced to liquidate.
Thank you once again for a fantastic piece.. at the present time are you 100 percent cash ? With inflation so high I guess if In cash you limit your losses in this environment
Hey Bear, thanks for the great material you have been putting for us out there. I simply cannot overstate the value of your analysis for a young DIY investor like me with only 4 years of experience.
How do you view rents in this bubble?
Rents usually lag house prices so I suppose it is reasonable to say that some upwards pressure might be seen, especially as people that indented to become first-time homebuyers might find renting to be a cheaper alternative compared to paying a higher mortgage rate on an inflated house price. I suppose this is the obvious thought.
And then I can see a dynamic in which people who have owned bubbly stocks and have seen their net worth decimated recently might be less willing to take the risk of buying a house.
On the other hand though a lot of high earners (thinking about employees in tech companies), who were previously being based with stock options that are not fully vested now see that part of their wealth reduced (due to correction in stock market). At the same time though, those high earners will now be paid in cash instead (i.e. previous stock compensation being offset by increased wake so that their employer does not lose them) - which might make them feel more rich and therefore willing to bid up rent prices?
I think we will begin seeing record defaults in 2023 forward considering high home prices people purchased at in the last couple years, intentionally high inflation, energy restrictions and corresponding high utility rates, stagnating income and supply chain scarcity.
Those who overpaid for their homes even at slightly higher interest rates are going to really feel the hurt quicker, especially since people tend to buy the most house they can afford and leave little to no savings.
We shall see. But even with a bad macro backdrop, consumers de-levered substantially at the beginning of the pandemic and so are coming from a healthy starting base. The key question will be whether people bought houses they couldn't actually afford (won't be able to make the monthly payments). So long as they can make their monthlies it doesn't really matter if the housing market is down or up - it will only matter if they look to sell
There’s a bigger problem nobody is even talking about. Homes for sale that have not been built sits at an all time high. What happens when homeowners put money down for these houses and those companies default because they no longer have access to near zero credit to build these unbuilt homes? This was the biggest unrecognized default point of the 2007-08 housing crisis, I remember 20% of new or refurbished housing projects sitting dead for years in south Florida. This will be no different.
Very useful balanced analysis. Makes the case that this time isn't different in either direction. As an investor who bought in Austin 2009-10, I have been selling for the past year. I hope to buy back in a few years. Much appreciated.
it would be interesting to see the average monthly payment compared to average salary over time. I would expect this ratio to converge to a fair value.
Agree. Maybe good for the next post!
One of your best work so far. You're really talented. Congrats
Too kind! Thank you for reading
Hey Bear,l have followed you since Cassandra recommended your insights on China.l haven’t owned a share in my life but l value your balanced narration of well researched complex issues,though l don’t always understand some(most) of the language, l glean enough to keep me from becoming comfortable in an otherwise seemingly bountiful environment -Thankyou
I'm glad you've enjoyed reading them. I will keep it coming
one helpful thing to overlay on the points of "are those who purchased able to make these payments" is how much of this came from stock based compensation at inflated stock values. With stock price depreciation how many are forced to liquidate.
Thank you once again for a fantastic piece.. at the present time are you 100 percent cash ? With inflation so high I guess if In cash you limit your losses in this environment
Hey Bear, thanks for the great material you have been putting for us out there. I simply cannot overstate the value of your analysis for a young DIY investor like me with only 4 years of experience.
How do you view rents in this bubble?
Rents usually lag house prices so I suppose it is reasonable to say that some upwards pressure might be seen, especially as people that indented to become first-time homebuyers might find renting to be a cheaper alternative compared to paying a higher mortgage rate on an inflated house price. I suppose this is the obvious thought.
And then I can see a dynamic in which people who have owned bubbly stocks and have seen their net worth decimated recently might be less willing to take the risk of buying a house.
On the other hand though a lot of high earners (thinking about employees in tech companies), who were previously being based with stock options that are not fully vested now see that part of their wealth reduced (due to correction in stock market). At the same time though, those high earners will now be paid in cash instead (i.e. previous stock compensation being offset by increased wake so that their employer does not lose them) - which might make them feel more rich and therefore willing to bid up rent prices?
I think we will begin seeing record defaults in 2023 forward considering high home prices people purchased at in the last couple years, intentionally high inflation, energy restrictions and corresponding high utility rates, stagnating income and supply chain scarcity.
Those who overpaid for their homes even at slightly higher interest rates are going to really feel the hurt quicker, especially since people tend to buy the most house they can afford and leave little to no savings.
We shall see. But even with a bad macro backdrop, consumers de-levered substantially at the beginning of the pandemic and so are coming from a healthy starting base. The key question will be whether people bought houses they couldn't actually afford (won't be able to make the monthly payments). So long as they can make their monthlies it doesn't really matter if the housing market is down or up - it will only matter if they look to sell
There’s a bigger problem nobody is even talking about. Homes for sale that have not been built sits at an all time high. What happens when homeowners put money down for these houses and those companies default because they no longer have access to near zero credit to build these unbuilt homes? This was the biggest unrecognized default point of the 2007-08 housing crisis, I remember 20% of new or refurbished housing projects sitting dead for years in south Florida. This will be no different.
Excellent points. Something most of us don’t consider.