Great analysis. As long as we have a strong labor market, I don't think housing prices will go down that much. We have a structural supply shortage in housing in the US.
What might trigger the next leg down is a worsening of the labor market or higher interest rates if inflation creeps back up. If we're in the midst of a commodity supercycle as many are predicting, the current downtrend in inflation will not last. If/when oil goes back up to $100 a barrel, the fed will be forced to keep rates higher for longer.
Thanks for this article Mr. Bear! As an spanish, I'm looking at this in a very similar way in my country. Prices still high due to the high demand that cities have. Also, the gross of the properties are in boomers power, younger generations cant afford to live with more than 40% of their salaries into mortgage (very few takes this option) nor renting. So let's see once this get's more even unsustainable with the pensions ponzi fraud (you should do one article about this, would be funny :)
Thanks for the article Bear. I look forward to reading these every week. Does your analysis take into consideration the amount of investor owned single family homes/ properties from the year 2000-present. It seems the percentage of investor owned houses had a large run up during the post GFC Goldilocks era of low rates and fed purchased MBS. If rates remain “higher for longer“ it seems many investors may end up offloading properties feeding into a cycle of increased inventory and lower prices.
Somebody beat me to it, but housing prices won’t markedly drop unless labor market cracks. If you currently own a home paying 3% on your mortgage, you are not moving and replacing that with a 6% mortgage unless you are forced to if you lose your job. A beer on housing is really a bet on whether the Fed can engineer a soft landing. The equity and bond markets currently believe so, but I’m not so sanguine.
"... there is far less systemic risk than the last go-around, even in a protracted down-market. "
This is an important insight. Perhaps worth noting is that if the economy drifts lower and layoffs deepen and extend from the current small-ish number of localities (*cough* Silicon Valley *cough*) that outlook could change. I
Thank you Bear, another great topic. Some additional data points to consider may be the operating cost specifically related to the home. I'll pick on the power bill as example: I just received notice of 13% rate increase for my residential power usage here. This is the first major rate increase I've seen in our market here in the past 3 years. It goes into effect in March. Quick google implies that as of March last year PGE (largest distributor of power in CA) had notified its public utility commission of 18% increase to start Jan 2023. It stands out that on my notice (Northeast) it says that the PUC can't stop the rate increase and that it would go on the bill regardless, not sure if the same in the CA market or not - that PGE notice appears to be in a review process as far as I can tell from their online tracking system, but I wonder if they can still surcharge it in the mean time. Checking one of the other metro areas you covered here (Chicago) -- they seem to have notified of 18% increase starting by next year (as far as I can tell they already have about an 8% increase on the slate for this year. Even Florida Power & Light is increasing 10% starting in April. If 2022 was fuel, it makes me wonder about the impact of inflationary forces in 2023 via electric bill - something nearly every entity carries regardless of transportation needs and productivity area. Diesel effects a lot, including power. But power itself is probably an input for nearly all productivity (and leisure).
Along the same lines and tying in perhaps more directly to your original topic -- there is also a national (if not global) transformer supply issue: specifically pad mount transformers of the size that are typical for most residential service are extremely scarce and have increased dramatically in price to the end user as a result. In any area with new construction of the underground delivery variety -- this shortage is preventing new housing from being completed such that it can hook up to the grid. Current lead time is in the neighborhood of 70 weeks (according to my power company).
Great analysis. As long as we have a strong labor market, I don't think housing prices will go down that much. We have a structural supply shortage in housing in the US.
What might trigger the next leg down is a worsening of the labor market or higher interest rates if inflation creeps back up. If we're in the midst of a commodity supercycle as many are predicting, the current downtrend in inflation will not last. If/when oil goes back up to $100 a barrel, the fed will be forced to keep rates higher for longer.
Thanks for this article Mr. Bear! As an spanish, I'm looking at this in a very similar way in my country. Prices still high due to the high demand that cities have. Also, the gross of the properties are in boomers power, younger generations cant afford to live with more than 40% of their salaries into mortgage (very few takes this option) nor renting. So let's see once this get's more even unsustainable with the pensions ponzi fraud (you should do one article about this, would be funny :)
Regards TLBS!
Thanks for the article Bear. I look forward to reading these every week. Does your analysis take into consideration the amount of investor owned single family homes/ properties from the year 2000-present. It seems the percentage of investor owned houses had a large run up during the post GFC Goldilocks era of low rates and fed purchased MBS. If rates remain “higher for longer“ it seems many investors may end up offloading properties feeding into a cycle of increased inventory and lower prices.
Somebody beat me to it, but housing prices won’t markedly drop unless labor market cracks. If you currently own a home paying 3% on your mortgage, you are not moving and replacing that with a 6% mortgage unless you are forced to if you lose your job. A beer on housing is really a bet on whether the Fed can engineer a soft landing. The equity and bond markets currently believe so, but I’m not so sanguine.
"... there is far less systemic risk than the last go-around, even in a protracted down-market. "
This is an important insight. Perhaps worth noting is that if the economy drifts lower and layoffs deepen and extend from the current small-ish number of localities (*cough* Silicon Valley *cough*) that outlook could change. I
Thank you Bear, another great topic. Some additional data points to consider may be the operating cost specifically related to the home. I'll pick on the power bill as example: I just received notice of 13% rate increase for my residential power usage here. This is the first major rate increase I've seen in our market here in the past 3 years. It goes into effect in March. Quick google implies that as of March last year PGE (largest distributor of power in CA) had notified its public utility commission of 18% increase to start Jan 2023. It stands out that on my notice (Northeast) it says that the PUC can't stop the rate increase and that it would go on the bill regardless, not sure if the same in the CA market or not - that PGE notice appears to be in a review process as far as I can tell from their online tracking system, but I wonder if they can still surcharge it in the mean time. Checking one of the other metro areas you covered here (Chicago) -- they seem to have notified of 18% increase starting by next year (as far as I can tell they already have about an 8% increase on the slate for this year. Even Florida Power & Light is increasing 10% starting in April. If 2022 was fuel, it makes me wonder about the impact of inflationary forces in 2023 via electric bill - something nearly every entity carries regardless of transportation needs and productivity area. Diesel effects a lot, including power. But power itself is probably an input for nearly all productivity (and leisure).
Along the same lines and tying in perhaps more directly to your original topic -- there is also a national (if not global) transformer supply issue: specifically pad mount transformers of the size that are typical for most residential service are extremely scarce and have increased dramatically in price to the end user as a result. In any area with new construction of the underground delivery variety -- this shortage is preventing new housing from being completed such that it can hook up to the grid. Current lead time is in the neighborhood of 70 weeks (according to my power company).