I’ve said if for a bit -house prices are coming down (in many areas – not all areas).
Now, it’s not speculation, it’s well regarded as happening in residential real estate.
Here’s a transcript in case the video gets taken down:
Home prices are very high by historic standards, says yields Robert Shiller
0:15
hiking 25 basis points at its last meeting despite the recent bank failures of SPV and signature, and as borrowing costs rise, what will the ripple effect be on residential commercial real estate? Joining us now Yale professor of economics Robert Shiller professor, we’re so happy to have you on the show today. We’re gonna get a bevy of housing data this week. Including Case Shiller home price index tomorrow. We have this brewing debate about whether we’ve seen a bottom or even at least a stabilization in the housing market. How do you see it?
0:45
Well, it’s it’s easy to forecast the short run in the housing market, not so easy to forget if you’re a long term buyer, it’s not clear.
0:55
But home prices are very, very high. And by historical standards, I would extrapolate the downturn somewhat.
1:07
It’s going to continue maybe if you have a chance to delay your purchase, it might be a good even time to do it.
1:17
It might get a little cheaper after another six months.
1:21
Hmm.
1:23
I want to shift gears a little bit cuz you’re one of the founders, one of the fathers of behavioral economics, and I want to get your thoughts on the banking turmoil that we’ve seen over the past several weeks, what it’s going to mean to future credit availability, and just the role that behaviors that attitudes have played in everything we’ve seen unfold.
1:44
Yeah, well in my book, narrative economics, I talk about narratives of regarding financial panics or bank runs. And these were perennial narratives in the 19th century, as essentially more on they got stronger and stronger. I think I think that’s a bank run can help helps. It helps if the narrative is that banks are endangered.
2:12
And so eventually Congress in 1913 had to put a stop to this. Like people were so worried about their banks, so they created the Federal Reserve.
2:26
And even that, we give the fed a really tough problem to deal with this fundamentally psychological reaction to a narrative.
2:39
I want to go back to housing for a moment. How does this affordability stand off that we see in residential real estate? No, I mean, we’ve got extremely low inventory, high interest rates, is it going to take higher unemployment, to break landlords ability to increase rents and from there, the investments don’t pencil out anymore? And therefore they got to dump them and, you know, inventory rises and prices drop or something else? Yeah. Well, that’s the capitalist system with a central bank. I think it works. Pretty well, most of the time. And I wouldn’t Tinker too much with it.
3:24
We have smart people on the Fed and the Treasury Secretary I admire Janet Yellen.
3:30
The they may have to accept however, I think this is as Jerome Powell has put it, they may have to accept something of a recession. But but the housing market, how should the people at home who are maybe thinking about selling a home you kind of address thinking about buying a home? How should they expect this to play out if you have a chance to sell your house now even if it’s for a little less than you want to do you go ahead and do it because you know, higher inventories are inevitably coming?
4:01
I wouldn’t say inevitably, I would say that is likely to need some are defined so but I hated you know, home purchase is such a family decision. I hate to overreact. And so we do have a declining market at the moment.
4:22
But you know, there are a cost to not selling at the right time. convenient time where you might lose a house that you lied to somebody else.
4:34
So I don’t think it’s an easy answer to question.
What if…
The low interest rates caused a BALLOON in the housing prices, and everyone drove up prices because monthly prices were so low.
But, the Fed printed basically limitless more money which caused inflation.
Runaway inflation caused prices of EVERYTHING to increase.
To combat this, they raised interest rates.
Now houses are unaffordable, and people selling now can’t afford the payments of the same house they lived in.
So for now, they don’t move and sit tight – they rent or whatever. (but the point is, that constrains the supply of houses at 3% interest rate when inflation is 10%+)
This keeps prices high because the houses are “appreciating” faster than the loan price.
But, the interest rates are causing a slow down / tapering of demand.
As prices “drop” even a little, people question if they should have sold before or now… But there is still limited supply right now, so they decided to “cut their loss” from the peak of the market and sell now at a slight decline.
But here we are today – just tipping the iceburg – prices are now dropping.
NOW they are admitting prices are dropping (which takes a lot of ego to admit that prices are declining in housing but overall inflation is still going up and not down…).
Right before the cliff though, people are still talking about housing (even at the high prices) being a potentially good “investment” > against the actual numbers and they think that long term, prices only go UP after a short correction.
This works for now, prices are down a bit, investments are potentially “on sale”!
But, paired with big banks collapsing, and big companies doing layoffs and outsourcing to cut costs, are we getting close to that “cliff”?
When we hear (right now) the FIRST people saying that potentially holding off, waiting 6 months may bring more affordable houses, that could dry up demand just enough to be another domino in 2023.
But I could be all wrong!
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