This is a long video with some interesting insights: “The Math No Longer Works”: Sky-High Mortgage Rates Pop Housing Bubble by Wolf Richter • Nov 10, 2022
The US housing market is frozen, with buyers waiting for lower mortgage rates or lower prices, and sellers anchoring on very high bubble prices. Case-Shiller has about a 6 month lag, and further housing price drops are expected in that data. When the market unfreezes, the first sellers to lower their price will see less of a drop. Houses are priced at the margin: when a house sells that becomes the comparable price for all houses in that neighborhood. So Zillow prices will drop.
Bond investors lost out to QE, and this lowered consumer spending. After 2008, when bond rates were cut to near zero, fixed income retirees spent less. This contributed to the low US economic growth after 2008. The 4% yields today will support consumer spending, and so the recession will be mild.
The job market has changed, with airlines being the best example of what not to do. Rehiring people is difficult, and so companies will be slow to do big layoffs. The airlines were quick to layoffs, and now have worker shortages.
This housing bubble is different than 2008. There is high inflation and banks are not holding most mortgages, and so there will be no Fed put.
Towards the end of the video, some predictions are made:
“Higher inflation, higher mortgage rates for many years to come.”
“QE as a stimulus tool is going to be put away for good.”
If you have a mortgage: “Pay your mortgage, and don’t look at Zillow.”
These Spendid posts are referenced in the video:
The Most Splendid Housing Bubbles in America: Holy Cow, September Update
by Wolf Richter • Sep 28, 2021: “Even the Fed is getting antsy about this raging mania house-price inflation. Housing Bubble 1 is starting to look cute in comparison.”
The Most Splendid Housing Bubbles in America: Price Drops Spread across US. Steepest Monthly Plunges since Housing Bust 1 in San Francisco -3.5%, Seattle -3.1%, San Diego -2.5%
by Wolf Richter • Sep 27, 2022: “The Case-Shiller index, which lags by several months, is starting to flip market by market, including in Phoenix, Dallas, Washington DC, and Boston.”