Sunday, May 2, 2021

"Housing Crash Is Ahead! As Lumber Prices Surged 340% Price Bubble Is Out Of Control"

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"Housing Crash Is Ahead! 
As Lumber Prices Surged 340% Price Bubble Is Out Of Control"
by Epic Economist

"The US housing market bubble is running out of control. A growing number of experts have been warning the Federal Reserve has been blowing the current price bubble by keeping mortgage rates at historically low levels, enabling prices to reach unprecedented highs. However, things are becoming increasingly unsustainable and the threat of a housing market crash of epic proportions is looming on the horizon.

The remarkable surge in home prices and household debt have deteriorated the Housing Affordability Index, which measures whether a typical family makes enough income to qualify for a mortgage loan on a typical home at the national and regional levels. The expanding gap between home prices and affordability is a clear sign that the housing market is in dangerous bubble territory, just as seen during the previous housing boom.

Housing data is reaching levels last seen in 2006, and industry experts are concerned about the impacts another housing bubble will have, particularly considering that 15 years ago the 2008 real estate bubble burst threatened the stability of the entire global financial system, and today we're experiencing the same levels of inflation, but a lot more money is flowing into the sector, which means the crash is bound to be much more extreme. Today's market is already creating major imbalances across several segments of the economy, and although this rally might look different from the last one, the market's principles remain the same.

That's what billionaire real estate investor Jeff Greene has recently argued in an interview with CNBC. Greene, who made a fortune shorting subprime mortgages more than a decade ago, said this is an "omni-bubble". When asked for how long this euphoria would last before a crash occurred, the investor said: "It depends. How long do you keep the faucet open and this money running?"

Greene believes the market is overheating right now and his previous bet against the housing market in the mid-2000s makes his comments quite notable. "When you see prices go up the way they've gone up, you have to ask yourself: Why did this happen?" he outlined. Americans have also been posing the same question and Google data show that in recent days, searches for "When is the housing market going to crash?" have dramatically increased.

In essence, consumers have been growing worried that the housing bubble may be ready to burst in face of skyrocketing prices and an exceedingly elevated demand. Google reported that the search question "When is the housing market going to crash?" had jumped 2,450% in the past month. "Why is the market so hot?" searches had doubled in just a week. And, in the most telling indication that the market bubble is running out of control, the question "How much over asking price should I offer on a home 2021" spiked 350% in that same week.

The U.S. has just a 3.6-month supply of homes - the lowest point on record. By the numbers, it’s becoming increasingly harder to deny that America’s housing market is overheating. Greene upholds that this is happening "80% because of the extraordinary amount of liquidity in the economy, 20% because of fundamentals". The investor also mentioned rising costs for lumber, suggesting a major inflationary spike will show up across several segments of the economy over the comings months.

The Federal Reserve's monetary policies have not only expanded the home price bubble but they have also created several other price bubbles due to rising inflation. Lumber prices portray that reality. In twelve months, prices spiked 340%, and new records are set almost on a daily basis. The surge in lumber costs added $35,872 to the price of an average new single-family home and $12,966 to the market value of an average new multifamily home, according to the NAHB. And this is just the beginning. "I think we're going to have inflation that no one is forecasting whatsoever, and it's going to have to lead to much higher interest rates and that is going to slow down all these markets," Greene warned.

The last time America’s housing industry looked like this, the Great Recession occurred, property values plummeted, a massive wave of foreclosures was registered, and Americans lost trillions of dollars of equity and retirement savings. Even though this time around the intrinsic supply and demand fundamentals might be different in part due to the effects of the health crisis, but the panic-buying and speculative exuberance look a lot like it did fifteen years ago. As we've crossed the bubble zone and consumers aren't keeping up with the pace of the home price appreciation, when the housing market finally crashes we will see our fragile post-outbreak economy falling again in a steep recession and we'll be lucky if a global financial crisis doesn't follow."

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