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U.S. Housing Bubble Enters Stage 2: Suddenly-Motivated Sellers

John Rubino profile picture
John Rubino

Housing bubbles proceed in fairly predictable stages. Stage One is long and (initially) slow, fueled by excess central bank money creation or foreign demand or some other source of liquidity that encourages large numbers of people to buy houses. At first, sellers remember the peak prices from the previous bubble and aren't willing to sell at anything less than that (in finance-speak, they're "anchored" at the highest price they could have gotten last time around). So demand initially outstrips supply, causing home prices to rise, slowly at first and then explosively as increasingly-desperate buyers become willing to pay any price while mortgage lenders, seduced by fat fees and confident that they can securitize and offload any kind of dicey mortgage, lower their standards to include pretty much the whole of society.

Stage One usually ends with price spikes in the hottest markets so extreme that they generate headlines. Like these:

San Diego home prices spike

Home Prices Spike Near Murrieta, SoCal Median Hits Record Level

Orlando Home Prices Spike 10 Percent Annually in April

Another month, another record for Denver home prices

Phase Two of a typical US housing bubble begins when sellers read these headlines and note that prices are now above what they could have gotten in the last bubble. With the memory of how badly, during the subsequent bust, they'd wished they'd sold at the peak still reasonably fresh, they realize that they've been given a second chance to cash out, move to a cheaper, less-frenetic place, and coast on their real estate riches. So they call a realtor and list their house. As do a bunch of their neighbors. Supply, out of the blue, jumps.

That may be what's happening now:

The housing shortage may be turning, warning of a price bubble

(CNBC) - The most competitive, tightest housing

This article was written by

John Rubino profile picture
John Rubino manages the financial website DollarCollapse.com. He is the co-author, with GoldMoney’s James Turk, of The Money Bubble (DollarCollapse Press, 2014) and The Collapse of the Dollar and How to Profit From It (Doubleday, 2007), and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a money market trader, equity analyst and junk bond analyst. During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

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Comments (9)

danstvguy profile picture
Wish I had acted on this article with shorts on the brokers (Z, RDFN). Good call. I don't see a bubble bursting though, just a slow burn downward after years of over-heated urban markets.
Interestingly, other SA contributors are touting bank stocks as bargains in the offing.
The high real estate prices in our big cities today is due primarily to government regulation, not fed liquidity. And higher prices always brings (or tries to bring) more supply to the market, as supply and demand are always trying to reach equilibrium. One must keep in mind that in 2008 a government-mismanagement-of-mortgage-markets crisis led to a "housing crisis", described by many as a "bubble". Housing per se was not in a bubble in 2008; meaning if the financial (mortgage) crisis had not happened, there would not have been a housing crisis. Real estate is highly local, of course, but overall there is no "national housing bubble" in the US right now. Hopefully our government has learned the consequences of meddling in mortgage markets, but alas, I fear my wishful thinking is overtaking my reality-based thinking when I start making statements like that!
make it stop profile picture
author is likely correct mostly, although the price crash will be in luxury and the middle and low priced housing will be pretty stable this time...there is a shortage of affordable houses but not a shortage of overall houses...
This article reads like "I am trying to convince you that there is another housing bubble, and here is the evidence that proves my point." I'm more of a "follow the evidence to a conclusion" type, rather than the other way around, so I really don't buy into this article's premise.
How many homes are owned by rent-seeking capital/edge funds? As a % of total homes vs owner-occupied? Also, how many homes are held for short term rental ala Air B N B? Both sources are probably more in need of investing raised hot-money funds vs getting bargains, that is they are getting tons of new money and being middlemen deploy it whether or not their presence on the buy side drives prices up beyond most retail buyers' means.
I have my Realtor.com account set on several towns (no big cities) in S. Florida and New England to advise of new listings; save certain properties from each; and follow them. I'm also noting the price history of the properties, and prices, particularly in S. Florida, are about back to their 2006 highs; no more bargains.

I suspect that given the outrageous levels of rent being paid that now approaches 50% of gross income and above the prior acceptable level of 30%, should have renters eager to buy.

But many properties in places like S. Florida were purchased after the collapse for bargain prices and rented out by individuals and REIT Type Entities to produce income that was lost with the Zero Interest Rate Policy (ZIRP) that prevailed and these properties remain in the income producing portfolios.

To meet any new demand should mean builders have to build and/or present day owners have to sell ergo, watching the data for Building Permits and Existing Home Sales may provide clues where the Real Estate Market is at and where it is going.
Not buying it
Me neither. Not yet anyway. Maybe 5 years from now.
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