Posted on 05/16/2021 6:50:19 PM PDT by blam
One week ago, we said that in what is increasingly a stagflationary burst (or, as BofA put it “transitory hyperinflation“) right out of the 1970s playbook (and that was even before the latest blistering hot CPI and PPI numbers printed a few days ago)…
… amid this dismal “transitorily hyperinflationary” landscape where those whose incomes aren’t similarly hyperinflating find themselves at risk of being unable to afford a roof above their head, “there was one ray of hope: renting, with rent prices tumbling in recent months and according to the BLS’ monthly CPI metric, rent inflation had just dropped to the lowest in a decade, just below 2.0% annually…
… “which due to the way the CPI basket is weighted acted as a key anchor on overall CPI rates, and served to distort the broader inflationary picture. In short, the Fed would look at the relatively tame core CPI which was only tame thanks to “tumbling” rents and would conclude that there is nothing to worry about.”
The problem, as we cautioned, is that rents were about to soar, after American Homes 4 Rent, which owns 54,000 houses, increased rents 11% on vacant properties while Invitation Homes, the largest landlord in the industry, also boosted rents by similar amount. The other problem is that even without the rent hike, CPI has been undercounted by roughly 50% because if one actually uses house prices as an input in calculating shelter inflation instead of the politically accepetable owner-equivalent rent, core CPI would be about 8.5% (as discussed in “Biggest Rise In Consumer Prices In More Than A Decade Is Understated By Half.”)
Fast forward to today when in a note from Goldman’s economics team, the bank effectively echoed everything we said, and warns that in addition to all the other widely discussed inflationary pressures – most notably the surge in wages as the labor market collapses thanks to Biden’s trillions – it now expects that “a national housing shortage will fuel substantial home price appreciation for at least a couple more years.” To estimate the spillover to shelter inflation, Goldman then uses city-level data on home prices and rents and finds that 5%-15% of the rate of home price appreciation gets passed through to shelter inflation over a multi-year horizon.
(snip)
Combine a residential real estate bubble with the coming office real estate catastrophe as company after company cancels leases as they have learned the economics of allowing workers to work from home.
Goldman says prices going up? Time to sell.
I watch several local real estate markets, and I would say there are already some housing bubbles that do not have wage-labor, job & population growth that can sustain them, and like before the buying that is going in is buying high, which like before will leave some folks “under water”, and in risk of becoming mortgage default cases, and again putting pressure on the whole mortgage-based investment market with all the financial institution ripple effects it had before.
I think the question is which part of the bubble will burst first - real estate or stock markets. Either one will have ramifications for the other. If stocks tumble first it will signal a general economic malaise that will negatively affect the housing markets. If it is real estate bubbles that hurst first, it will systemically affect the financial system as it did before, and that will impact the stock market and the economy, as it did before.
Powell at the Fed, and Yellen at Treasury have their heads in the sand, just as Yellen did in the last housing , which happened on her watch as governor of the Federal Reserve Bank of San Francisco. The meeting records there show clearly Yellen was in denial until after the dam burst.
I’m glad I paid-off my mortgage 5 years ago.
Oh, Goldman is correct this time. It won’t be just houses.
You have massive population relocation out of blue states, combined with sharp rise in consumer prices and housing. People, especially first time buyers, are going to be forced into high density rat holes or rural areas.
As did I.....Opted for a 15 year mortgage. Thank goodness as I’d still have 10 more years to pay had I gone with the 30 year!
bookmark
New construction is usually crappy HOA money pits.
Expects? It’s already been happening. House prices are through the roof and new listings go to escrow in days.
But they say 2007. They should remember 2008. We bailed them out.
As did I.....Opted for a 15 year mortgage. Thank goodness as I’d still have 10 more years to pay had I gone with the 30 year!
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I had a 15 year mortgage which I paid off in 7 years around 1998. I’ve never considered it an “investment”. It’s where I live, my home.
My home has gone up over 30% in one year, at least according to the local tax appraiser.
Even the rural areas are experiencing a huge jump in real estate prices. Especially north Idaho. A next door neighbor’s place with a ratty old 1977 singlewide just sold for $200K. I bought my place in similar shape 6 years ago for $60K. Put a nice 1700 sq ft house with a front porch the size of an aircraft carrier deck on it and now it’s quoted at $330K+. Thank heavens it’s not taxed at that valuation.
Goldman says prices going up? Time to sell.
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Ha! I was thinking the same thing. What were they saying last year before housing prices spiked. Now they’ve already spiked and their analysis is MOTS. That’s it?
Besides which, wasn’t GS one of the largest contributors to the prior financial crisis in 2008?
Add in retail as well. The United States has had an inordinately large amount of retail space per shopper for decades now but with the increasing amount of on-line shopping, especially during the Scamdemic, there's far less need for retail space. I'd include restaurants in the same situation.
Two commercial real estate types that are increasing in value are warehouse space tied to Amazon, FedEx, U.S. Mail, etc. and commercial space for truck trailers and shipping containers, especially near warehouses and ports.
Not really.
We get calls or mailings nearly daily asking about buying our house. People are getting out of the cities and snapping up suburban homes. This is in PA. I can’t imagine the pressure on prices in places like Florida.
Convert many of those office buildings to apartments/condos.
We’re in a blue state...housing market is near boiling...ours goes on market in next 2 weeks
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