*If you're thinking about the connection to the GFC housing price collapse, keep in mind rates had generally been falling over the previous 5-7 years, unemployment slack was higher, and housing affordability was much better, whereas in 2023 we've seen a sudden increase in rates, no unemployment slack, and much worse affordability. Also keep in mind the 2004-2007 housing bubble and 2007-2009 housing deflation was mostly a coastal and HCOL area phenomenon. This time the rapid price increases (and now decreases) have occurred almost everywhere.
What you say about the GFC is true. But importantly, the proximate cause of it was the oversupply of housing, and the willingness to finance unqualified buyers to move that inventory (NINJA loans, etc.) We have the exact opposite situation today, and that supply shortage is holding up prices, to the benefit of homebuilders. They were so ravaged by the GFC that the US underbuilt housing for a decade, and only resumed providing for the number of new US households in 2021--barely above breakeven, even as it seems to have been a peak. Rates were dropping, but were still in the 6% range; closer to today than 2019. Also, much closer to long-term averages than the aberration that was the 2010's.
And while home price drops are definitely spread wider geographically, it is hardly everywhere. Q3 data won't come in until early November, but in Q2, 60% of metros saw price increases.
I do wonder how this particular knot unravels. I think even moderately higher rates will only reinforce the stalemate that keeps homeowners locked in. Short of a recession, which would cause more "must move" participants into the market, I think some level of rate reduction would entice people back in. Would this trickle of supply outbalance buyers who are currently held back? How much movement will it take, and is that less than would trigger general inflation / resumption of asset bubbles? Of course, time will also increase pressure, as people experience changes in their family structure, and more people come to paying off those low mortgages.
My opinion is informed by watching the Irish housing market first-hand. Ireland took the GFC worse than the US. Their housing market crash was swift and severe, but didn't bottom until 2014. And building has yet to recover. Much of the supply shortage there is caused by government red tape, as it is very difficult to get building approval. But there is clearly popular unrest about housing affordability, and counterintuitive actions by market participants: they had to enact a tax specifically for vacant properties, to entice owners of inactive housing to get into the market--even while prices continue to set records! This condition is about to be a decade old.
I'm wary of the explanation that we've had a housing shortage, and I think the data contain arguments for and against the claim. Here are some data against the claim.
If we chart new housing starts against growth in the US population, we can see a long period between 2006 and 2017 when population was growing much faster than housing starts. Now we are in an era where housing starts have been exceeding population growth, something which has occurred only a couple of times since the 1960s. When viewing this chart, bear in mind that a housing unit usually provides shelter for more than one person. So, for example, if a new housing unit shelters an average of 2 people, a sustainable level of housing starts might be half of population growth, plus replacement of units taken out of service.
I suppose it's possible to point to that chart and say the 11-12 year span of building far less than population growth which ended in about 2017 is to blame for the 46% rise in the price of the median home between 1Q2020 and 4Q2022. However the dates don't line up.
Fair questions include: "Why didn't we have double-digit price increases eight or ten years ago, at the time the alleged supply deficit was at its peak?" and "Why didn't we have double-digit annual price increases in the 1990s when an even bigger gap in housing starts versus population growth was occurring?" Supply and demand explanations lose credibility when we talk about price movements occurring a decade or multiple decades after an imbalance. The logic of real estate price increases being only explainable by supply reductions and/or demand increases does not account for factors such as interest rates, mortgage standards, minimum down payments, investment manias, or helicopter money.
Other fair questions are: "Were housing prices affected by the fact that thousands of dollars per person in stimulus payments started in 2Q2020, at the exact time when the housing price growth rate increased dramatically?" or "If we assume the GFC was caused by an oversupply of houses (the blue line being close to the red between 2002 and 2006), then aren't we saying any housing shortage from the similarly under-built 1990s was erased and far surpassed by just a couple years of building near but well below population growth? By extension isn't starts actually surpassing the population growth trend in 2020-2022 (blue line above red line in those years) expected to erase any alleged shortage from the 20-teens?"
In summary, the data suggest
to me we may have been underbuilding between 2006 and 2017, but that we may have been overbuilding actually (!) for at least several years to an extent which in the past led to an alleged oversupply issue. I say alleged because I'm old enough to remember talk about the world running out of houses in 2005-2006 too, when in fact a price drop was around the corner!
Remember, the blue line (starts) is probably sustainable well below the red line (population growth) because more than one person lives in the average housing unit. Destruction of housing units is a factor requiring new starts just to maintain balance, but in the GFC we endured a housing correction shortly after starts came within +600k of population growth. In January 2022, that spread was roughly -410k.
We know the following:
-National median home prices increased 46% in just 2.75 years, when usually they just track inflation.
-The price growth rate increased immediately and dramatically upon public receipt of stimulus checks.
-National median home prices then declined over 13% in the first 2 quarters of 2023, shortly after the end of stimulus checks and as mortgage rates exceeded 6%.
-Housing starts have been exceeding population growth since probably about July 2020. That has only ever happened for about 20 months in the early 1970s and one month in 1984.
YMMV
