We are happy to cover all sides of the bubble beat. This is the second release this month from our perma-bear, Mark Hanson. He has been saying the same thing for 3-4 years, and it’s all based on theory and previous history. Around here, our market is almost completely driven by owner-occupiers who are buying homes for the long-term:
An excerpt:
If 2006 was a known bubble with housing prices at “X”, affordability never better, easy availability of credit, unemployment in the 4%’s, total workforce at record highs, and growing wages, then what do you call today with house prices at X+ 5% to 20%, worse affordability and credit, higher unemployment, weakening total workforce, and shrinking wages? Whatever you call it, it’s a greater thing than “X”.
2016 is not 2006. Tom Stone up in Wine Country are discussing this.
Far fewer short term holders.
Far fewer looking for return exclusively.
Far fewer DTI stretches.
Epic low interest rates keeping monthly nut low.
This is ridiculous. Even with Hanson’s proposed 20% decline in prices – that’s what “collateral” means. Oh, and I’d love to know who is lending and ignoring the other two Cs – this bubble is not fueled by strippers and gardeners buying up houses with high speed swim lane NINJA loans.
Anyway, the mortgages fueling this second “bubble” have capacity and collateral – and no one is going to be eager to walk away from their down payment. Sure some people might end up out of work or divorced and have to sell, but how even a sustained downturn leads to a death-spiral of price decreases makes no sense.
I’ve read lots of research that shows that sub-prime loans were not the major contributing factor to the Great Recession. It was good old, regular prime loans that caused the bulk of the crash.
Folks got crazy with treating their houses like ATMs and cashing out that equity and going on spending sprees!
Which I recall reading a recent article showing that HELOC was increasing and California home owners were taking out the lion’s share of those loans.
The next recession may not be a carbon copy of the last one, but it’s inevitable that one is coming. And some folks are trying to find ways to avoid it and preferably profit from it.
There’s a balance between going 100% prepper and going totally off the grid and hunkering down in your compound in the mountains of the East valley. Versus treating your house equity like an ATM and buying up every luxury in sight, just to one up the Joneses next door.