The 2008 Housing Bubble All Over Again | The Truth

June 1, 2022

The 2008 Housing Bubble All Over Again | The Truth

I’m a real estate agent based in California, and I’ve been in the industry for 20 years. I fluctuate between the top 1% and the top 2% of real estate agents in the world. I also run a few different companies, all successful businesses, in consulting, tech, and media. 

This is just my opinion (from my years of experience in real estate and research on current events) that happened to align with Sean Tully from Fortune magazine.

You might agree or disagree with me (and the article) on this, but there is no housing bubble so stop spreading the false information everywhere. If you don’t agree with me, that’s okay.

Anyway, here’s the article by Fortune titled “This is not the 2008 housing bubble all over again—but a little-known metric can tell us when the next crash is coming.”

This article does require you to have a subscription to Fortune, for you to read the whole thing, so if you want to check it out, go subscribe.

Establishing credibility

That was an attention-grabbing title. This article is by Sean Tully, he’s been writing all things financial aspects for years.

Some of you you may not know him, but he predicted the 2008 housing bubble.

In this article, he says, “Believe me, I’m always reluctant to say, ‘This time it’s different.’ When traditionally reliable metrics point to a fall, it usually happens. Today, the measures I used to predict the last crash seem to be approaching similarly inflated levels right now, the phenomenon that triggered the Dallas Fed’s red alert.”

So, it is reasonable to have some level of concern regarding the possibility of a housing bubble.

“Believe it or not, I first claimed danger ahead in 2002, in a November 4th Fortune cover story called ‘Is This House Worth $1.2 Million?’” the article continues. Sean does measure and predicts these types of things as part of his work, and that 2002 article is way before the actual housing crash happened last 2007 to 2008.

“By the way, I had also called the Nasdaq bubble two years earlier,” Sean from Fortune says.

It is clear that Sean is on the trend, he understands the world that we’re in. So, it is safe to believe that he is not just some random guy writing a piece, claiming things. He does his research, and fully understands the world that he lives in, and that is why he is a sought-after financial news writer.

He also wrote “Is the Housing Boom Over?” in Fortune around September 2004. Sean’s portfolio backs his credibility.

So, let’s see what he says about the current market developments in real estate. 

Housing market pulse

According to him, “In the story, I presented strong evidence that the market has indeed taken leave of the basics, and that expectations of big future gains and ‘fear of missing out’ in a big score were driving prices far beyond the properties’ underlying values. The evidence? The extraordinary disconnect between home prices and rents.”

What I’ve gained from this is, that there is a connection between home prices and rent that can indicate if there’s a disconnect for a fall.

Now, the article raises the question “Where are housing prices headed? Rents are the key metric to watch.” To this, Sean says, “the overriding force governing home prices is rent. People won’t pay much more per month to buy a house as to lease one that’s extremely similar, or to rent a nearby apartment offering the same space.”

He says, “In markets boasting potent job and population growth and little new construction—think San Francisco or San Jose—rents tend to rise fast. The same is true in markets such as Jacksonville or Charlotte that attract lots of newcomers but, though the building is active, new construction doesn’t match the hunger for housing. In those metros, the ratio prices to rent, what we’ll call the ‘P/R,’ tends to be much higher than average, just as the P/E for growth stocks exceeds the S&P norm.”

Here’s the thing. According to Sean, “The problem comes when prices get out of line with rents, jumping so high that families can lease similar properties at monthly payments much lower than what they’d shoulder as owners.”

Sean also brings in a Yale economist, Robert Shiller, who’s also very famous in the financial world, you can look him up.

Sean says, “He [Shiller] puts it, prices to rents ‘behave much like the price/earnings ratios for stocks.’ He added that both are ‘mean-reverting.’ Prices from time to time jump way ahead of rents but then the reverse happens: Prices slow or drop and rents can catch up, restoring the usual relationship between the two.”

It looks like a bubble, but it is not

Sean says in this Fortune article, “Today looks a lot like 2007—but don’t be fooled.”

He goes into why. He says, “So why might it be different this time? Put simply, the basics of supply and demand are lifting rents and prices in tandem in many hot markets. In the bubble, speculation powered the market.”

For there to be a housing bubble, speculation should be the driving force behind the market. Since that is not the case right now, but a severe lack of inventory partnered with high demand, then the real estate market is still considered in the safe zone.

“Buying should remain strong for two reasons. First, although 30-year home loan rates have risen from 3.5% at the start of this year to 5.1% by April 12th, borrowers are still getting a real deal,” says Sean.

Why? Because the economy is expanding.

Look at the second reason Sean gives, “the work-from-home economy is allowing people who’ve been stuck in San Jose or New York suburbs because they work there, to relocate to Jacksonville, Boise, or Austin, where housing prices are much lower. By making the move, they can trade a smaller manse for a much bigger colonial or ranch, and still pocket hundreds of thousands in cash.”

Again, why? Because that’s how the market works right now. A lot of these people are sitting on massive amounts of equity. It’s not like before.

“Owning a house has traditionally proved one of the best hedges in periods of rampant inflation,” Sean says in the article.

We are in inflation. It was at 8.5% as of April 2022, and the Fed is hoping that by raising the rates, they can lower this and that by the end of the year, we will be at around 5 to 5.5% inflation.

If you ask me why you should buy a house if interest rates are going up, well, prices are not done going up. Since we are in the middle of inflation, where would you rather have your money? In the bank where it won’t be growing and losing value, or into real estate where everybody sees it is still going to grow because of the massive amount of demand?

Sean’s conclusion

He says, “All told, Pinto and Peter forecast that prices will rise 17% for all of 2022 and gain another 11% to 12% next year, assuming mortgage rates don’t see a gigantic increase. Rents, they predict, will wax at around the same pace as prices in the strong markets. Here’s the rub: Many of the metros where prices outstripped rents won’t get the rental growth necessary to keep appreciating. We’re talking about a pretty healthy market overall, but we still see a pattern of winners and losers.”

Ed Pinto is the former chief credit officer at Fannie Mae and the director of the American Enterprise Institute’s Housing Center.

Although I think the forecast is a little high, the important thing to note here is, that as long as the rates don’t jump up like crazy, houses will be a bit pricey, but the market isn’t in any immediate danger of crashing.

“In conclusion,” Sean says, “this veteran of bubbles now sees a house on solid ground, its foundation intact. The problem for America is that the symbolic dwelling is a lot more expensive than a few years ago. That’s great for the folks who’ve owned [homes] for a while. But eventually, their gain will be a loss for the youthful buyers who won’t be able to afford the American dream, even in the ‘great arbitrage’ markets where it is, or used to be, most affordable.”

If mortgage rates go past 7.5% to 9%, then the housing market might be in trouble. We’re on a touch-and-go thing here. But if the rates remain where they are, the real estate market is going to continue to be good.