The Second Housing Bubble Ends With A Bang, Not A Whimper, David Stockman Warns

Tyler Durden's picture

Following our earlier discussion of the echo-boom in housing, David Stockman appeared on Yahoo's Daily Ticker with Lauren Lyster to pour come much-needed cold water 'reality' onto the hopes of an increasingly sheep-like investing public. Homebuilder stocks up 100%-plus simply reflects that "we are in a bubble once again." The former CBO Director added that "in a world of medicated money by the central bank, things aren't what they appear to be," as he explained there is "no real organic sustainable recovery."


Stockman further contends, "It's happening in the most speculative sub-prime markets, where massive amounts of 'fast money' is rolling in to buy, to rent, on a speculative basis for a quick trade. And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came." Critically, he points out we live in a world of boomers looking to be trade-down sellers, not one of trade-up buyers, as "the fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it’s appeared.


He concludes that the American Dream of home-ownership 'forced' upon the citizens was a huge policy mistake as he chides, "let the market decide," as he clearly sees Bernanke recreating yet another speculative bubble.


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kliguy38's picture

Stockman should know he was one of the early proponents in the 80s of the new he realizes he was a tool

francis_sawyer's picture

I'd be a very happy "tool" if I were sitting across from Lauren Lyster...

krispkritter's picture

You'd have a very happy tool if Lauren Lyster was sitting across you...

francis_sawyer's picture

It would be happiness all around...

Muppet Pimp's picture

I tend to disagree with Stockman because this time, there is nowhere else for money to go.  TD, if you could provide some color on the structure of these deals (investors using single family as an asset class now) it might shed some more light.  But I think Stockman is wrong.  The rotation this time is not going to be out of overpriced bonds into overpriced stocks imo.  It is out of overpriced paper and into real assets.  Again, if we could get some light shed on how these deals are structured would help, but bottom line, if the properties get rented the regardless of if the investors and hot money flee, the custodian still owns the property and there is cash flow.  Now, if property prices double in the next six months we can revisit the issue but at present Stockman is just trying to sound smart by getting his soundbite out there in hopes of an "I told you so" in a couple years to be followed up by a book deal. 

Stockman is wrong.

malek's picture

 there is nowhere else for money to go

That's like declaring we cornered stupidity, it has nowhere else to go

slightlyskeptical's picture

there is nowhere else for money to go

I think it is declaring that significant amounts of money need to be lost to bring things into equilibrium.

flacon's picture

For every loser there is a winner. Who wins the money that was lost by the "investors"?

The Monkey's picture

Consumers looking for affordable housing.

Supernova Born's picture

Organic growth from 100% artificial fiat.

Alchemists have a new project that will be as successful as the base metal to gold project.

steve from virginia's picture



Investing in rental real estate is a good deal if:


 - You know the area like the back of your hand (Iinvestors don't know anything and don't care),


 - You have low-cost financing available so you don't have to risk your own money. (Investors in cahoots with the banks so cost is indeed low ... for the investors, high for everyone else. Taxpayers provide moral hazard for this 'science experiment').


 - You have the ability to be a good property manager and control costs: keep tenants paying on time, screen prospective tenants properly, repair property when it breaks without having to hire Halliburton, etc. (Investors are proven incompetents because they already have been bailed out once during this cycle!)


 - You intend to improve the neighborhood (Are you kidding??? Investors here don't give a flying fuck about neighborhoods or anything else. They will lease to drug dealers so they can claim higher rents).


NOTE: some flippers have made money but more have lost. See, "You must know neighborhood" section, above.


Stockman misses the point: any speculative returns are offset by losses elsewhere, these losses are not recognized by lenders on balance sheets. Here is more accounting control fraud underway right under everyone's noses!


BTW: bring Lauren Lyster out of exile! Let her have her own show, Yahoo.



ClassicalLib17's picture

In my neck of the woods I see investors buying homes for 1970 prices with 1990 real estate taxes, but collecting top of the market rent.  That especially includes the wonderful section 8 program.  Illinois is sorely in need of a Gary Johnson right now.

Seer's picture

It's nothing more than transaction-skimming.  Turnover.  The kings of this should be no surprise to anyone: the banking sector.  And their only risk is defaults, which, we now know, won't happen to THEM (they'll be backed by the Fed, which is backed by its powers in Govt).

Further, there's an unstated loser in all of this, and that's the System itself.  Not like this is a bad thing, the corrupt System eating itself...

And, lastly, logic and reason are big losers.  People will STILL not get why things got fucked up.

steelhead23's picture

This is wrong thinking.  Where did all the money go when housing prices went down 30%?  Your pocket?  Mine?  Nope, a whole bunch of trillions went to money heaven.  That is, it simply disappeared into the ether.

chindit13's picture

Exactly.  Everyone claims to hate fractional reserve banking, but it seems many still do not understand its full impact and horror.

Someone wrote a comment yesterday detailing gold-leasing and re-hypothecation, which resulted in many believing they held claim to the same asset (the gold).  Everyone seemed to understand the joke.  Substitute fiat for the gold, and for some reason confusion sets in, but the concept is exactly the same.  Breaks in the chain create air pockets.  There is not a winner for every loser, except in a futures trade.  In a chain, whether it results from fractional reserve or re-hypothecation, there are more losers than winners.  Bernanke, as well as Japan, have been trying to fill those air pockets for years.

Seer's picture

" there are more losers than winners. "

Yeah.  And what is the leverage in the banking system, 30 to 1?  That would be 30 losers to 1 winner?

chindit13's picture

The term "velocity of money" is in some ways just a technical way of saying "what's yours might also be mine, and what's his might be all of ours".  We end up with multiple claims on the same "asset".

Seer's picture

It's still kind of there, but it's propping up the banks.  Pull it and they collapse.  So, yeah, it's pretty much gone.  Only way it could find it's way back into the light of day would be if everything were to magically start booming (odds pretty much zero) or, when the hounds of hell get unleashed and hyperinflation lets loose in some crazy notion that it's necessary to keep things from collapsing (which would be like shooting oneself in the head in order to keep from being killed).

Stuck on Zero's picture

For every loser there is a winner. Who wins the money that was lost by the "investors"?

Not necessarily.  If there is a rout in the stock market everyone loses.



Tad Ghostal's picture

Not necessarily.  If there is a rout in the stock market everyone loses.

Not necessarily.  If there is a rout in the stock market everyone long loses, the shorts win.

Argonaught's picture

Whoa...that's wrong.  Shorts win.  Those not brazen enough to short, but just move to cash before the rout win.  Those who never invested win.  In general, those that have capital to put to work at better prices win.  This HIGHLIGHTS the fraudulent thinking that things always going up is good. 

Antifaschistische's picture

I'm with you MP that money will be searching for some place to go. a very very fundamental level.    These "rental properties" are not like homogenous commodities.   Cheap rental properties get destroyed.  (unlike farmland, or gold, or tungsten mines)  To this extent, the big money that now owns a truckload of rental properties is NOT like a flipper who's sole purpose is to add value (albeit overvalued value) to an asset.   These properties are being devalued.   "Home" buyers (not house flippers) will not want to pick up the scraps from the coming, who will buy?

CPL's picture

You guys are forgetting the other housing market and the parasite industries to them.  Haven't seen it mentioned yet.

Cottages.  I'm not talking the tight, cozy squat in the woods with multi purpose (bed/drinking/hunting/hanging meat).  I'm talking those awful cookie cutter shit boxes.  Usual on a deep mortgage, they cost a fortune, 5% down for your piece of nature!

Because what is more fun than owning a second house to clean and fix developed by a lake.  Offered in various plots from on the water (premium Million plus) and what the locals call "a bit of a walk". All by the same people that build the McMansion and introduced the open air mall in the middle of the Tundra in Canada.  Just incase you missed the feeling of being really close to your neighbour in town.

The parasite industries are the ATV/SKidoo/Boat.  Pick one and ride it to the bottom.  The companies are really fragile. Cash is tight in them, especially in a situation that your past inventory is worth more than the new.  Thanks to the power of inflation.  Their credit facilities are slightly below loan shark with flexible remediation terms like "pay it fucking now".

So find a rec toy maker and whom ever acts as their primary credit lender for the honour of sitting on water for 19% a year on 60k.


Muppet Pimp's picture

Lot of truth there CPL.  The two best days in a ____ owners life are ....

CPL's picture

Like an financial anchor floatation device.  Straight to the bottom.

Mark123's picture

I think his point is that any "recovery" in housing is driven by speculation - not people buying houses to live in, or moving up to a bigger home.  I agree with his assessment - but it is hard to find out what is really going on out there (so much smoke).


I think the thing most people miss is that the ENTIRE mortgage market is now government owned, and the banks are just processing paperwork.  How many mortgages are being originated and held by private banks?  From what I understand the vast majority is through FHA, Fanny Freddie or some other government program to support targeted groups (military etc). 


What meager real demand there is will disappear in an instant if the Fed is forced to stop monetizing the federal govt debt. 

Seer's picture

No matter what the Fed and Govt do it'll eventually collapse because there are REAL physical resources required, and that many resources necessary to construct, maintain and operate houses are imported.  We can play funny-money all we want with our own toys, but when we start playing with others' toys (imports) it then costs.  The rest of the world is starting to get tired of allowing us to have PHYSICAL things for near-free.

Again, it's all summed up in this phrase: can't push on a string.  "Want" in one hand, ...

smartstrike's picture

Armstrong says that money will move out of bonds into stocks.

Seer's picture

It'll slosh back and forth until we hit a frequency (fewer and fewer players left) that results in complete dislocation of the markets.

Everyone's broke and we're gambling here, BIG TIME.  No new wealth is getting created.  Margins are getting hammered.  The computers are taking over because any "gains" require very short-duration trades, so short that a human would not have time to react (one man's computer beats out the other man's computer- all on black, rolls red; game over; no one left to play/bet against).

Bottom line: this is greatest height on the ladder of hubris that we could ever imagine to reach; there's nothing here except a lack of oxygen...

DR's picture

Physical real estate itself isn't enough of a hot potato to be of interest(transaction costs will kill ya) but I can see the possiblity of a ponzi developing in the securitization of properties.  These could be engineered to show a yield for quite a while even if the underlying assets are deteriorating.

Cosimo de Medici's picture

Such an odd fascination with TV "talent".  I swear if you stuck Janet Napolitano inside a box and had her read the news, there's a not inconsiderable percentage of men who would get a woody watching her.  Maybe "Freddie" is right after all about this TV thing.

knukles's picture

francis, you'd rather be sitting on her....

BTW, so Yahoo is partnered with CNBS, right?  So now Laura is on Yahoo.  What ever happened to RT?  Like the Borg, "You will be assimilated"...  More like subsumed in the info business, aka co-opted.
Like the TP and Repub neo-cons...

What a wonderful world....

neutrinoman's picture

Lauren probably realized that she'd be less fringe and taken more seriously on Yahoo than on RT, which seems to be some Putin crony outfit. Notice she's no longer showing off her legs or wearing skimpy outfits. She wants to be taken seriously, people.

And most of her potential audience is not as sophisticated as you, you manly and intelligent ZH readers, who can take skimpy outfits, great legs, and crypto-Austrian economics in stride, and be edified and aroused all at once! =)

Assetman's picture

Regardless of the reasons LL left RT, the lady has been reduced to 5 minute snippets on a giant platform of content.  She has much more value doing 15-20 minute interviews and providing her own platform.   At Yahoo, she like finding a needle in a haystack... and then not really liking the needle.

If she REALLY wanted to taken seriously, she should have jumped across the pond to CNBC Europe, or to Canada's BNN.


neutrinoman's picture

Yes, I can't disagree. Maybe Lauren hopes to expand her gig at Yahoo into something bigger. I hope she doesn't sell out or get lost in a dead-end.

Someone call Marissa Mayer! I am woman, hear me roar!

Dear Infinity's picture

Everyone who was at one point championing the powers of the printing press going back to 1913, is now standing in awe as they watch the limits of HFT /ES melt up... yes, it appears that even the robots backed by infinite amounts of binary money can't keep this sucker above 1500.

Meanwhile, the folks at & are showing the diversion between paper price and physical premiums for -- mouse over the prices in the chart and you'll find that when ever prices move lower, premiums simply go up.


Reflexivity at its finest

francis_sawyer's picture

It amounts to the attempt [in Argentina now & various other places in the past] to enact PRICE CONTROLS...


All it ever does is create 'scarcity'...

NotApplicable's picture

When people tell me about gold and silver falling, I always ask them if they can find any at the so-called price.

If they answer yes, then I tell them that it won't be that way much longer, as the more prices drop, the less people will make available.

"Market scarcity" is an oxymoron, as noted by Jean-Baptiste Say.

johnnymustardseed's picture

Problem is republicans will not admit it....from Stockman The “debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.”

Duke Dog's picture

Yeah, I wonder where Stockman was three decades ago??? Fucking Douchebag!

Bicycle Repairman's picture

Stockman figured out the mistake earlier than nearly all Republicans.  He saw the data and changed his mind.  Unusual for a member of the political class.

smartstrike's picture

The assumption was that 'tax savings' would go into productive capital investments(Laffer Curve). But thus is not what happens. Money ends up chasing bubbles and capital appreciation while the government goes bust form debts. Its a two-edged sword.


neutrinoman's picture

That has nothing to do with the Laffer curve. Debt bubbles as we've had since the 1990s didn't exist in the 1980s, because interest rates were so high.

What Stockman actually discoverd in the early 80s was that the spending cuts that he found out could be implemented were not as big as they had expected. They did signficantly restrain spending, however. Deficits decline or turn to surpluses when (a) the economy is strong and tax revenues are high (as in the mid-60s or the late 90s) and (b) spending growth is restrained (as in the 1950s and early 60s, and the late 80s and late 90s). The difference between then and now is that the interest groups and Congressional power barons that determine spending are far more entrenched now. In the early 80s, the "imperial Presidency" still had real meaning, although it was already weakening. Congress was more easily cowed. And, we had real political parties then, with the discipline to implement a program. Our "parties" today are vehicles for special interests.

Unfortunately, Stockman has turned his early 80s realizations into a one-trick pony, to rail against Republicans and get on TV. It's gotten tiresome. He's not as bad as Bruce Bartlett, however, who knows a lot about budgets, but little about economics. He's always rolled out as the "intelligent Republican dissident" or some such.

Seer's picture

The ONLY doctrine that has failed, and it's the KEY one, is the need for there to be perpetual growth (on a finite planet).

The US went over the edge back in 1970/1971 when it went off the gold standard (bankruptcy) and peaked in oil production.  Everything that has happened since then has been a smoke-and-mirrors attempt to hide this reality: we're STILL broke AND most of our trade deficit is due to now needing to import oil.  Not that it really matters, but this was all accelerated (set on max contortion) in the early 80s during the Reagan administration when the financial sector was unleashed and became purely transaction-based/motivated; the "success" (or nod to the banking lobbyists?) only picked up steam from there, with the repeal of Glass-Steagal being another "now top this!" event in hurling us toward the abyss.

bobthehorse's picture

I don't see another housing crash.

The market is still scraping along the bottom.

I see a Japanese-style economic nuclear winter.

Get out your snow boots.

Jeremy Roenick's picture

Stockman had better watch his @ss.....   Such reckless spewing of the truth will get drones dispatched to your house....  Not towing the economic hopium line comes at a severe price....

eatthebanksters's picture

so JR...what are your current thoughts on Patrick Marleau?  LOL!