The Line That Explains The Coming Housing Depression
Summary
TLDRThe video discusses a concerning trend in the U.S. real estate market, particularly in southern regions, where rapid price increases, unsustainable price-to-income ratios, and rising speculation mirror conditions from the 2008 financial crash. Economist Robert Shiller, known for predicting the 2008 collapse, highlights these trends using his Case-Shiller Index. While the broader market appears stable, southern areas like Florida show signs of vulnerability, leading experts to speculate about a potential market crash. The video explores these trends and compares them to early 2000s housing bubble indicators.
Takeaways
- 📉 Real estate markets are inherently local, but a significant correction is happening in a specific U.S. region while the rest of the country remains competitive and optimistic.
- 📚 Robert Shiller, a renowned economist and co-creator of the Case-Shiller Index, is cited as a leading expert on real estate trends, with insights that have predicted past market crashes.
- 🏡 Shiller's 2000 book 'Irrational Exuberance' identified three key factors that led to the 2008 housing crash: rapidly increasing home prices, high price-to-income ratios, and speculative buying.
- 📈 Home prices across the U.S. have surged, particularly in southern states, mimicking trends seen in the early 2000s before the last crash.
- 💰 The price-to-income ratio is at unsustainable levels, making homeownership unaffordable for many, and increasing financial strain in markets like Miami.
- 🔍 Shiller suggests that waiting to buy might be wise, as housing prices are still high and a potential downturn could occur.
- ⚠️ Speculation in the housing market is rising again, particularly in southern regions, with a growing number of home flips, mirroring pre-2008 conditions.
- 📊 Housing affordability is at historic lows according to the University of Michigan's consumer sentiment survey, indicating a very pessimistic outlook on buying conditions.
- 💸 Although subprime lending has been tightened since the 2008 crash, speculation and risky behaviors still persist, particularly in regions like Florida.
- 🌍 If a housing crash happens in 2024, it will likely start in the southern U.S. regions, which have shown more volatility compared to the rest of the country.
Q & A
What is the main theme of the video transcript?
-The main theme of the transcript is the potential real estate market crash in certain regions of the United States, particularly in the southern states, and how factors like rapidly increasing home prices, price-to-income ratios, and speculation are contributing to this instability.
Who is Robert Schiller, and why is he significant to this discussion?
-Robert Schiller is a renowned economist, academic, and author known for his work in real estate markets. He co-created the Case-Shiller Index, a widely respected tool for tracking housing prices, and his insights have proven valuable for understanding and predicting market dynamics, such as the 2008 financial crash.
What are the three main factors identified by Robert Schiller that indicate a housing bubble?
-The three main factors identified by Schiller that indicate a housing bubble are: 1) rapidly increasing home prices, 2) high price-to-income ratios, and 3) speculative buying in the market.
How do current home price increases compare to previous market conditions?
-Current home prices have risen significantly, with increases seen across almost every state, especially in the southern states. While these increases haven't matched the extremes of the 2008 buildup, the rise is still concerning, indicating similar speculative behavior.
Why is the price-to-income ratio considered a key indicator of market instability?
-The price-to-income ratio measures housing affordability by comparing home prices to typical incomes. A high ratio indicates that homes are becoming unaffordable, suggesting financial strain on buyers or increased speculation, which is unsustainable and can signal a bubble.
What does Schiller suggest about current market conditions?
-Schiller suggests that current home prices are very high by historical standards and that prices may cool off. He advises caution in buying decisions, though he acknowledges that purchasing a home is often more than just a financial decision.
How does speculation currently manifest in the housing market?
-Speculation is evident in the high rate of home flipping, particularly in southern markets like Atlanta and Memphis, where the proportion of flipped homes is nearing levels seen before the 2008 crash. This indicates increased speculative activity in the market.
What regions are most at risk of a market correction, according to the transcript?
-Southern regions, especially places like Florida, are most at risk of a market correction due to rapid price increases, high price-to-income ratios, and significant speculative buying.
Why does Schiller believe that predicting long-term housing market trends is challenging?
-Schiller believes that predicting long-term housing trends is challenging because market dynamics are influenced by various factors, including psychological elements, economic policies, and broader financial conditions, making it difficult to foresee long-term outcomes.
What does the University of Michigan's consumer sentiment survey indicate about current home buying conditions?
-The University of Michigan's consumer sentiment survey indicates that consumer sentiment regarding home buying conditions is at an all-time low, reflecting widespread pessimism about affordability and the current state of the housing market.
Outlines
🏡 Real Estate Market Warning: Signs of a Bubble?
The U.S. real estate market is showing regional signs of a major correction, particularly in the southern regions, despite a stable national outlook. Economist Robert Shiller, known for predicting the 2008 housing crash, offers key insights into current market dynamics. Shiller's analysis of historical data, housing prices, and speculative behavior warns that rising home prices, income imbalances, and market speculation could indicate another crash similar to 2008.
📈 Schiller’s Three Key Indicators: Are They Flashing Red?
Robert Shiller's analysis centers on three critical factors that predicted the 2008 crash: rapidly rising home prices, high price-to-income ratios, and speculative buying. Currently, home prices across the U.S. have soared, especially in southern states like Florida, with growth reminiscent of pre-2008 trends. The Case-Shiller index captures some of this rise, but its limited scope fails to fully reflect the extent of price volatility in other regions.
💸 Price-to-Income Ratios: A Dangerous Sign
The affordability of homes is rapidly declining as price-to-income ratios worsen across the country, particularly in places like Miami, where housing prices far outpace local incomes. This has led to financial strain for many homeowners, raising concerns about a potential market bubble. Shiller's comments during a CNBC interview highlight concerns over unsustainable pricing, though he hesitates to advise buyers against purchasing outright due to the personal nature of home ownership.
🛠 Is the Market Heading for a Speculative Collapse?
Speculative buying was a major factor in the 2008 housing crisis, and signs of a similar trend are re-emerging. Home flipping rates have reached concerning levels, approaching pre-2008 highs, especially in the southern markets like Atlanta and Memphis. While tightened loan regulations have reduced risky lending, speculation remains strong in real estate, raising questions about the sustainability of current market dynamics.
🌎 Southern Real Estate: A Region on the Brink?
The southern U.S., particularly Florida, is experiencing a highly active and volatile housing market. If a major crash occurs, experts predict it could begin in this region, where price increases and speculative buying are rampant. Analysts are watching closely to see if the warning signs from Shiller's analysis, similar to those before the 2008 crash, signal a broader market downturn. The video's conclusion encourages viewers to stay informed and visit the creator’s Substack for deeper insights.
Mindmap
Keywords
💡Real Estate Market
💡Robert Schiller
💡Case-Shiller Index
💡Housing Bubble
💡Price-to-Income Ratio
💡Speculative Buying
💡Home Flipping
💡Affordability Crisis
💡2008 Financial Crash
💡Interest Rate Changes
Highlights
A strange trend is unfolding in the U.S. real estate market, with one region undergoing a massive correction while the broader market remains competitive.
Robert Shiller, a renowned economist and co-creator of the Case-Shiller Index, has been instrumental in predicting real estate trends, including the 2008 financial crash.
Shiller's book, *Irrational Exuberance*, identified three key factors leading to the 2008 crash: rapidly increasing home prices, price-to-income ratios, and speculative buying.
Currently, home prices are rising sharply across the U.S., particularly in southern states, but the Case-Shiller Index only tracks ten metro areas, missing the full extent of the volatility.
In Miami, home prices increased by 1136% between 2001 and 2006 before the 2008 crash, and a similar trend is seen now with prices up 85% since 2019.
Affordability is plummeting nationwide, with price-to-income ratios far below historic levels, stretching people financially or inviting speculative investment.
Shiller recently stated that current home prices are 'out of control' and suggested that buyers might want to wait as prices could cool off.
The University of Michigan's Consumer Sentiment Survey indicates that home buying conditions are at an all-time low, reflecting widespread pessimism about affordability.
Speculation remains a concern, particularly in southern markets like Atlanta and Memphis, where home flipping rates are nearing pre-2008 highs.
Home flipping, a sign of market speculation, is at levels comparable to 2006, with 9% of home sales being classified as flipped properties.
While lending regulations have tightened since the 2008 crisis, speculation continues to drive the market, though it's hard to determine if it's reached excessive levels.
If a real estate crash does occur, it is likely to start in the southern regions of the U.S., which have been experiencing more market volatility than the rest of the country.
The broader U.S. market remains relatively stable, but signs of instability in southern regions raise concerns about a potential housing market crash.
Shiller's three factors—rapid price increases, price-to-income imbalance, and speculation—are present in today's market, echoing conditions before the 2008 crash.
Despite concerns, no one, including Shiller, has definitively predicted a 2024 crash, but the signs are reminiscent of the early 2000s housing bubble.
Transcripts
we all know that real estate is
inherently local however a strange trend
is unfolding in the United States while
the broader Market remains highly
competitive and optimistic one
particular region is undergoing a
massive correction this has led many to
speculate that a major crash might be on
the horizon though the rest of the
country appears stable the signs of
instability in this area hint at deeper
issues that could spell trouble ahead to
understand how people are coming to this
conclusion it's crucial to turn to a
leading expert in the field and not just
some YouTuber babbling on about stats
this is Robert Schiller Schiller is a
renowned Economist academic and author
who has made significant contributions
to the study of real estate markets he
co-created the case Shiller index widely
regarded as the gold standard for
tracking housing prices if there's
anyone who has extensively studied real
estate Trends dating back hundreds of
years it's Robert Chiller his book
irrational exuberance first published in
2000 served as a predictive warning to
investors about the overheating housing
market which eventually led to the 2008
financial crash Schiller's insights and
indicators have proven invaluable for
understanding and predicting market
dynamics by analyzing historical data
psychological factors and economic
indicators Schiller provides a
comprehensive framework for assessing
housing market conditions and potential
risks so how did he predict the last
crash and what can we learn to
anticipate in today's market it turns
out that that in his book he focused on
three main factors rapidly increasing
home prices price to income ratios and
speculative buying let's break these
down to understand why some people think
another 2008 style crash is coming first
let's examine the number one point
rapidly increasing prices there's no
doubt that home prices have surged well
above normal levels however Schiller's
case Schiller index commonly referenced
on the St Louis fed website doesn't
fully capture the extreme nature of this
search currently we're experiencing a
significant increase in prices across
nearly every state from California to
New York with even more severe rises in
southern states the K Schiller index at
least the one covered by popular media
only covers 10 Metro areas with Miami
being the only major southern city
included this limited scope
unfortunately does not reflect the full
extent of the Market's volatility for
example in Miami from roughly July 2001
to June 2006 the K Shiller index
increased by 1
136% right before the bubble burst in
the 2008 crash this period which I'll
call the' 08 buildup lasted about 5
years in the most recent buildup from
around the summer of 2019 to now prices
have risen by about 85% singling a
similar Trend while the growth hasn't
been as extreme when you factor in
interest rate changes and insurance
changes in Florida it can be argued that
this recent buildup is just as
concerning as the one in the early 2000s
in other Southern cities the story is
the same people are frustrated with the
rapid growth this region has experienced
over the last 5 years and it doesn't
seem to be reversing any time soon if we
judge the market based on the factors
outlined in Schiller's book IR rational
exuberance it's not unfair to say that
this Market easily ticks the first box
of a bubble rapidly increasing prices
now let's move to the second box price
to income ratios throughout the country
affordability is plummeting the price to
income ratio measures how much a typical
person earns and what percentage of that
income they need to spend to afford a
typical home breaking this down by
region and using Miami as an example you
can see that affordability is far below
historic levels this means people are
financially stretched to own a normal
home or there's a lot of speculation and
outside money entering the market
expecting Equity to continue Rising this
is seen as typically unsustainable and
is yet another piece of evidence that we
may just be in a bubble now back to
Schiller for a second he's recently gone
on record to say that prices are getting
out of control in an interview with CNBC
last March he told the audience that
clearly they should consider waiting to
buy as prices would likely cool off so
far he's been wrong but that doesn't
really change his rationale you can hear
him talk about it in this clip while
nobody including this renowned Economist
is going to tell you not to buy just
because housing is such a big family
decision that's way more than just
purely Financial it doesn't change the
fact that we're currently living in an
era far above historical Norms take a
listen to him explain hiking 25 basis
points at its last meeting despite the
recent bank failures of svb and
signature and as borrowing costs rise
what will the ripple effect be on
residential and Commercial Real Estate
joining us now Yale professor of
Economics Robert Schiller Professor
we're so happy to have you on the show
today um we're we're going to get a bevy
of housing data this week including K
Shiller home price index tomorrow we
have this Brewing debate about whether
we've seen a bottom or even at least a
stabilization in the housing market how
do you see it
well it's it's easy to forecast the
short run in the housing market not so
easy to forecast if you're a long-term
buyer it's not
clear uh but home prices are are very
very high and uh by historical
standards uh I would extrapolate the
downturn somewhat uh it's going to
continue uh maybe if you have a chance
to delay your purchase it might be a
good a good time to do it Robert I want
to go back to housing for a moment how
does this affordability standoff that we
see in residential real estate end I
mean we've got extremely low inventory
High interest rates is it going to take
higher unemployment to break landlord's
ability to to increase rents and from
there the Investments don't pencil out
anymore and and therefore they got to
dump them and and you know inventory
Rises and prices drop drop or something
else yeah well that's uh the capitalist
system with the Central Bank uh I think
it works pretty well most of the time uh
and
uh I I I wouldn't Tinker too much with
it uh we have smart people on the fed
and the treasury secretary I admire
Janet
Yellen uh they uh they may have to
accept however I think this is as own
power has put it they may have to accept
something of a recession but but for the
housing market how should the people at
home who are maybe thinking about
selling a home you kind of address
thinking about buying a home how should
they expect this to play out if you have
a chance to sell your house now even if
it's for a little less than you wanted
do you go ahead and do it because you
know higher inventories are inevitably
coming uh I wouldn't say
inevitably uh I would say that it's
likely to be some more
declines so uh but I hate to you know
home purchase is such a family decision
I hate to uh
overreact uh so we do have a declining
Market at the
moment uh but you know there are cost to
not selling at the right time the
convenient time or you might lose a
house that you liked uh to somebody
else uh so I I don't think it's an easy
answer to that that
question when these price to income
ratios go beyond historical Norms rapid
normalization often occurs unexpectedly
people know that now is a horrible time
to buy and this sentiment is reflected
in the University of Michigan's consumer
sentiment survey which has tracked home
buying conditions since the 1960s
looking at the long-term chart it's
clear that we're essentially at an
all-time low for buying conditions never
before in history have people been this
pessimistic about their ability to buy
witha going back over the past 60 years
years that makes check too now for the
last Point speculation it's true that in
the early 2000s especially in Florida
there were loose regulations that
allowed people to borrow excessive
amounts of money and engage in
fraudulent activities from the top down
from investors agents and appraisers to
Banks lending institutions and even the
federal government many individuals were
involved in practices that made them a
lot of shady money this created
environment where people turned a blind
eye to fraud and greed it's almost
unquestionable that prior to the last
big bubble there was much more
speculation in the real estate markets a
significant part of this was due to
subprime lending and loose loan
regulations which have since been
tightened however this aspect remains
Highly Questionable without a doubt
there is still plenty of speculation
especially in southern markets but
determining whether has reached a tulip
level of greed is challenging if we look
at home flipping as an example the raw
home flipping rate which is the number
of homes flipped in a quarter is
definitely concerning currently we're at
68,000 homes a number not far off the
2006 highs right before the market crash
to make matters worse if we examine the
flipping rate which is the ratio of
flipped homes to homes for sale we see
that flipping is pretty much on par with
the pre2 2008 highs with as many as 9%
of sales being categorized as flipped
homes or condos if you look at the
article Linked In the description you'll
see that regionally it's even worse than
this chart shows in southern markets
like Atlanta and Memphis the ratio of
homes that are part of a flip is even
higher so from that aspect regardless of
the loans these flippers are using it's
clear that speculation is on the rise
whether or not we can call it excessive
is very hard to gauge overall you can
see that Robert Schiller's points about
the early 2000s Market which included
excessive price Rises price to income
imbalance and speculation are evident in
today's real estate market while I don't
believe Schiller has explicitly called
this Market a bubble ready to implode we
can say that some of the same conditions
he used to make his argument in 2000 are
now apparent in the 2024 Market the big
question every real estate analyst is
trying to answer is where we go from
here what we do know is that in the
southern regions especially in places
like Florida we're seeing a very active
Market compared to the rest of the
country if there is some sort of Crash
it will almost certainly start in this
region which signifies two very
different markets thank you guys for
watching as always please make sure you
hit that like And subscribe button if
you enjoyed it and while you're at it
take some time to look at my brand new
substack which contains contains more
in-depth articles regarding these topics
complete with graphs and more in-depth
material the link is in the description
Ver Más Videos Relacionados
Real Estate Bubble vs Boom | Identifying Real Estate Market Cycle
Calgary Housing Market July 2024: Sales Dip & Inventory Rises
This Is The Best Investing Opportunity In 30 Years
Repeat Of 2008 Financial Crisis As Wave Of Foreclosures Coming | Chris Vermeulen
The Calgary Real Estate Market: What They're Not Telling You
2008 Financial Crisis के 2 मुख्य कारण | 2008 recession Explained and Simplified in Hindi
5.0 / 5 (0 votes)