Bubble? Crash? Correction? What is Happening?

A friend texted me this Fortune magazine story – Are we in another housing bubble? – this week.

Reasonable. A lot of people are searching for answers to the “are we in a housing bubble?” question, myself included.

Part of my answer

A long time ago an economist told me that the reason he made predictions, even when they were wrong, is that nobody trusts economists if they don’t make predictions.

I think it’s too early to tell whether we are in a bubble or not, but it is correct that housing prices have gone way beyond commensurate salaries and income, and a moderation of prices is needed, necessary, and inevitable.

I also think that right now there are more buyers coming out and preparing for the winter 2022 and spring 2023 real estate markets, there are homes on the market and so long as that remains the case, we should be OK… Particularly the things in the lower price points.

This one is different

I know. Famous last words and all.This market does not have the BS loans that the last market cycle did.

But – housing affected by so many variables that it’s difficult to tie things together without the benefit of hindsight.

Less new construction until now
Mortgage rates going from 4% to 6% to stabilizing at 5%
Pandemic moving patterns
Economy and inflation
Wars
American and international political instability
Gas prices
Health care costs going through roof
College loans preventing buyers from purchasing homes
Housing affordability at a near all-time low

We have a lot going on that affects – directly and indirectly – the housing market, not just in Charlottesville and Albemarle, but our entire country.

Are we in a bubble? I don’t know.

And as I’ve said for years, anyone who tells you definitively that we are or are not in a housing bubble is either lying or selling you something. The absolute best answer to the question is “I do not know,” but here’s what I’m thinking and why.

We track the housing market too closely.

I wrote this in 2006.

One of the problems with the housing market is the constant tracking of the housing market. The market has never been an immediately-liquid investment, and it ought not be treated as such. How many of you read every line of your quarterly IRA or 401(k) statements? Hopefully not, because those are intended to be long-term investments. So is housing.

The market is a bit like the axiom – “a watched pot never boils.” We won’t know how the market is doing today until we look back from a six- to nine-month removed perspective. We can gain insight by looking at the numbers – interest rates, 10 year Treasury notes, pending sales, recent solds … but to get an accurate understanding, we have to look in the rear-view mirror.

Most of the analysis is cogent, articulate and informative, but. Do we really need to track the market on a daily, if not seemingly hourly basis? Many contracts were written three, four, six months ago. In reality, when analyzing the housing market, one is analyzing the past and attempting to project the future.

Housing should be, except in rare instances, a ~~three to five year~~ (2022 update: five to seven year) decision. We have lost sight of that over the past several years. The media has played a very large part of that, but so have the buyers and sellers. Let’s take a breath, step back a bit, read the apocalyptical and rosy projections and determine that reality is probably somewhere in between.

I tweeted this this week.

And new not new construction listings are at a similar pace. This is the danger of looking at a narrow snapshot. There were only a few more listings in the 1st 10 days of August, year over year – that gives one angle. But when looking at 1 July through 10 August, year over year, a lot more not-new-construction listings came on the market last year versus this year.

Perspective matters – both when looking at the housing market through the lens of “what should I do right now?” which is the question everyone is asking, and from the perspective of “will we be happier if we buy or sell right now?” when looking at things from a long-term perspective.