"We have never had a foreign power undertake things that were as devastating to the U.S. as what our policymakers in 2008, 2009 and subsequently have done."
You want the Red Pill, or the Blue Pill?
My first trip to Austin in February happened to coincide with a visit a colleague from the industry took to the area as well. He was also in search of the real housing story in Austin. We were not able to connect during the trip, but compared notes when we returned. I let him talk first, and I was stunned. He told me about getting picked up by some clients from the airport (he is an executive at a lender), fancy dinners and celebrating his milestone birthday In Da Club-style.
“Wow,” I said. “Did you see all the excess inventory?”
“Say what,” he said.
Suffice it to say, they took him to all the happening spots, but when I started asking him if he visited this area, or that area (even downtown) it was then I realized we were in serious trouble. My trip could not have been more different as I visited not only downtown, but traveled the entire perimeter, including the exurbs plopped in the middle of cow pastures. I stayed at the Courtyard in Georgetown, forgoing the club. In his estimate, Austin was on the upswing.
“The AirBnB Bubble Popping Will Pop the Housing Bubble” Charles Hugh Smith is always interesting.
A systemic driver of this bidding war for rental properties is the "AirBnB" model of monetizing individual properties to compete with hotels and resorts for lodging. This model is called short-term vacation rentals (STVR), and the already-rich have been pouring their wealth into STVRs for the past 15 years…
What's often forgotten about real estate is prices are set on the margin. The Pareto Distribution is a handy tool for understanding how an entire neighborhood's home prices are re-set by a mere handful of sales.
The Pareto Distribution is often summarized as the 80/20 Rule. The 80/20 rule can be distilled down to 80% of 80% and 20% of 20% to the 64/4 Rule: the "vital few" 4% exert outsized influence over the 64% mass. So 4% of sales can re-set the valuation of 64% of all neighboring houses.
So 40 houses selling for around $450,000 will re-set the valuation of 1,000 nearby homes from $800,000 to $450,000. This is why an apparently modest number of fire sales of money-losing STVRs will dissolve the floor under bubble valuations.
The STVR bubble was entirely an artifact of 1) historically absurdly low mortgage rates and 2) post-pandemic price-insensitive "revenge spending". Both are over. There is no way the bottom 90% can afford homes at today's bubble valuations, so the pool of buyers is limited to the top 10% already-wealthy, whose appetite for owning "surplus capital" rentals vanishes once the lofty weekly rates and low vacancies reverse into high vacancies and collapsing rental rates.
The bottom 90% have tapped out their pandemic windfalls and their lines of credit…The collapse of the STVR bubble will topple a line of dominoes as corporate owners will awaken from their fantasies and realize they better sell now to lock in their gains before they vanish. Wealthy households who "land-banked" properties for capital gains and places to park "surplus capital" will also awaken to the the need to lock in gains by selling.
This is how bubbles collapse: the "vital few" 4% sell at whatever the market will bear, pushing prices down, and the 64% awaken to the rapidly narrowing window for locking in bubble capital gains. This rush for the exits triggers a strike in buyers, who realize there is no way to know how low valuations will fall, and so waiting for a bottom makes much more sense that playing "catch the knife," i.e. buying as a bubble deflates, hoping you don't get burned by prices falling after overpaying.
There’s not a housing shortage. There’s a pricing problem.
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