Housing Bubble 2.0 - Are You Ready For This?

Tyler Durden's picture

The mind-numbing Case-Shiller regional charts below are presented without too much comment. As MHanson.com's Mark Hanson adds, the visual says it all.

Bottom line:

Q:  If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages?


A:  Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.

1)  Funny (and Demented) Seattle area Realtor anecdote regarding the potential for another housing Bubble: “House prices can’t be in a bubble because they are only 10% greater than the 2006 peak, meaning growth of only 1% per year since 2006. And 1% per year is not the Bubble type gains we saw back in the mid-2000’s”.

DOH! How do you argue with that? You don’t, you just turn the other cheek and pound a drink.

2)  Case-Shiller’s most Bubblicious Regions

Bottom line: If these key housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don’t happen in “isolation”.

Not shown in these charts of absolute index levels is the three-straight months of national yy price gain deceleration. Moreover, the CS captures prices up to 7-months old at the tail so conditions are already a lot different than shown here.



3) Notes & Observations on above chart:

• The bubblicious regions above all have one thing in common…STEM. As such, if the tech and biotech sectors hit a wall, which some believe has already begun, so will these housing regions.

• If these key housing markets hit a wall they will take the rest of the nation with them; Bubbles and busts don’t happen in “isolation”.

House prices have retaken Bubble 1.0 levels on the exact same drivers: easy/cheap/deep credit & liquidity that found its way to real estate. The only difference between both era’s is which cohorts controlled the credit and liquidity. In Bubble 1.0, end-users were in control. In this bubble, “professional”/private investors and foreigners are. But, they both drove demand and prices in the exact same manner. That is, as incremental buyers with easy/cheap/deep credit & liquidity, able to hit whatever the ask price was, and consequently — due to the US comparable sales appraisal process — pushed all house prices to levels far beyond what typical end-user, shelter-buyers can afford. Thus, the persistent, anemic demand.

• Bubble 2.0 has occurred without a corresponding demand surge just like peak Bubble 1.0. As such, it means something other than fundamental, end-user demand and economics is driving prices this time too.

• The end result of Bubble 2.0 will be the same as 1.0; a demand “mix-shift” and price “reset” back towards end-user fundamentals once the speculators finish up, or events force them to the “sidelines”.

• Lower prices will create demand, which the housing sector will always achieve one way or another…it’s what it does. Just like the anemic demand led the price crash of Bubble 1.0, which ultimately led to increased demand as prices stabilized lower.

• The Bubble 2.0 pop will also free up supply in the same manner as Bubble 1.0, just not as much from foreclosures. However, I do think people underestimate the volume of low-down mortgages originated over the past several years, and those with little to no equity in legacy loans or rising interest rate mods, which if house prices drop a few percent turn high-risk, especially when factoring in the 6%+ cost to sell. But, it doesn’t matter where the supply comes from — maybe the PE firms start to dump rentals — as it’s fungible.

• Sure the bubble could blow bigger. Maybe we get a double-bubble. Bubbles are strange things. But, when they begin to fall there is a lot of air under there because the downside has clearly been established.

Lastly, I am betting 2016 marks the high for house prices, as mortgage rates can’t go meaningfully lower, the unorthodox demand cohort is exhausted, and real affordability to end-user shelter-buyers has rarely been worse. In fact, I believe this is the year house prices go red yy.

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TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Jul 15, 2016 1:02 PM

"That which goes up, must continue to go up" - Ben "Bubbles" Bernake, Economic Philosopher

ParkAveFlasher's picture

"When you're high, you never ever want to come down" - W. Axl Rose, Economic Philosopher

Looney's picture


I betcha, when Yellen sees these charts she starts licking a defibrillator’s paddles.

CLEAR!!!   ;-)


eatthebanksters's picture

There is one big difference between then and now: fraud was rampant inthe securities market and created a liquidity crisis when credit markets froze up after thefraud was discovered.  


On secon thought there is no difference between then and now except the fraud this round has yet to be discovered.

new game's picture

ten year is the litmus test. at 1.4 to 1.5, add 200 basis pts to get 30 yr fixed; good guidline.

look at the ten year chart and do the math of declining P + I = x/month. x is same as 2 years ago except price(offset) went up. been charting this and it is to a tee in most stable market. MSP/St Paul, MN

so, therefor this goes til the ten stop falling.

and, that could go to sub 1.00.

therefor; bubble still inflating

old broker saying; ya buy a payment and get a home, lol, but so true.


HopefulCynical's picture

I wanna see the chart for Hongcouver. I bet it's unfugginbelievable.


PS: ParkAveFlasher wins the thread in 2.

MonteChristo's picture

Fraud is still rampant, it just happens to be throughout the government, which of course protects the banking sector and Wall Street donors.

All Risk No Reward's picture

Yellen is a stone cold economic assassin hired by the Debt-Money Monopolists. She's made... because she will fork you up and probably enjoy it.

exartizo's picture

"The market can stay irrational longer than you can stay solvent."

- paraphrased from the Inequitable Irrational Irreconcilably Irrevocably manipulated equities markets world wide.

PTR's picture

I betcha, when Yellen sees these charts she starts licking a defibrillator’s paddles.


CLEAR!!!   ;-)




"Lick it before you kick it" now has a new meaning.



DeadFred's picture

Looney, be respectful. Some of us dead people are sensitive about defibrillators. I bet you didn't know they cause burns did you? ZH is my safe space so please be nice.

robertsgt40's picture

I used to chew Double Bubble as a kid. Then  I moved on to Bazooka.  Oh, the irony 

abyssinian's picture

yeah so..... that means the stock markets will make new highs everyday for the next 3 years? 

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) abyssinian Jul 15, 2016 1:31 PM

God willing...

PTR's picture

Yup.  Just like Venezuela's.

AGuy's picture

The charts show a few regions where the housing market is tight. In the Northeast Prices are well below the 06-07 peak. I suspect people are leaving NY,CT,IL,NJ and a significant number or relocating the bubble regions shown the chart. During the 06-07 bubble prices were nuts everywhere.

That said, I do think the West Coast is primed for a tumble. I think the Web 2.0 boom is going to end, which is going to crush housing prices. I think in the South East prices are less likely to tumble, because the migration from the northeast isn't going away any time soon. I think another recession is going to speed up the Northeast exodus, as jobs vanish and taxes soar.


daveO's picture

Exactly. It's mostly damn Yankees moving into NC. As things collapse their southern migration increases. That's been the case for over 25 years. The only thing to prevent it would be bank closures. TPTB won't allow closures, as shown w/ BAC.

AGuy's picture

FWIW: I am soon to be one of them, but I am avoiding NC, since sooner or later its going to have the same issues as the North East. As all those Liberals move and demand more gov't services, its going drive up taxes and the cost of living. That's said, I am not really one of them, since I an not liberal, Love firearms, and going rural. I am just fleeing the north East.


Bay Area Guy's picture

Agree about the West Coast. When, not if, the tech bubble bursts, San Francisco in particular, will be in a world of hurt. Unlike the last bubble, SF has hitched its economic wagon very tightly to tech. They are no where near as diversified as they used to be. Adding on to that is the fact that pretty much every vacant or underused lot in pretty much every corner of the City is under construction with high, HIGH end luxury condos for all the tech hipsters means there's going to be a huge glut of high end property on the market all at once.

I think grad school taught me something about what happens when the supply of a good or service far exceeds the demand for that good or service.

I think the technical term was something like "oh shit".

Jack's Raging Bile Duct's picture

I'm confused by "Oh Shit". Do you mean, "Give us a bailout or there will be tanks in the streets", or something else?

Swamp Yankee's picture

Last time I saw this was in "The Big Short" but here there is no Margot Robbie in a bubble bath or Selena "hot damn" Gomez @ the casino table.  I like that one better.  -SY

E.F. Mutton's picture

“House prices can’t be in a bubble because they are only 10% greater than the 2006 peak, meaning growth of only 1% per year since 2006. And 1% per year is not the Bubble type gains we saw back in the mid-2000’s”.

Now I have a headache.

SeattleBruce's picture

What's worse is how many people will think, oh, that makes good sense, just before buying at the frothy heights.

Cabal Watch's picture

Since so much money has been dumped into the system since 2006, isn't it logical to think that prices could and should be higher than 2006 peaks?

daveO's picture

It mostly went to bank reserves. There are empty houses here that have been empty for years. One, which sat empty for 5-6 years, was bought by a 'flipper' recently. We're close to another top. 

Cabal Watch's picture

Was it empty because it was overpriced, or was it empty because there was no demand? Hard to imagine a top when houses are empty because there is a lack of demand. Seems to me like this is the beginning of a bubble, not the end of one.

HopefulCynical's picture

...isn't it logical to think...

You'd better cut that shit out, quick. Mr. Yellen will eat your brains if you go screwin' around with that logical thinking crap.

Singelguy's picture

It was likely empty because the bank that owned it was reluctant to sell it and realize the loss on their books. It is the same story everywhere. The banks are still holding mortgages on their books at 100 cents on the dollar when in reality they are worth no more than 70 cents on the dollar. If the banks were all forced to mark their mortgage portfolios to market value, the banks would be insolvent. All part of the scam.

canisdirus's picture

It's a weird bubble. Both demand and supply are low. Supply is limited by properties being kept off the market by banks, investors snapping them up, and nobody new can afford to buy in. The only real activity is trading between people with similar properties, flippers catering to these people, foreign investors, and people cashing out.

canisdirus's picture

They're simply holding houses in my area, though I can't identify who is doing it (Banks? Foreigners?). I live in a condo and over half the units are vacant, while my girlfriend lives in the suburbs and when we go for a walk I'll point out clearly vacant suburban homes (some just with weeds in places they wouldn't survive if the house was lived in, like in front of the front door and garage, simultaneously...others with boarded up windows and doors) that she claims have been like that for years. None have any MLS activity, so my suspicion is that they are owned by banks, but I couldn't be sure. We live in the Seattle area and her place is a very short drive from Microsoft (some of the most expensive real estate in the metro, outside downtown)... Housing is impossibly unaffordable here, in spite of our high pay due to the tech boom.

Ghost of Porky's picture

Nice pair of bubbles.

daveO's picture

The Grand Tetons, to remind us of the annual Jackson Hole meeting next month.

mgbkurtz's picture

It has to keep going up to feed the machine.  Don't hold your breath for a retreat.

buzzsaw99's picture

...as mortgage rates can’t go meaningfully lower

that greatly depends upon one's definition of meaningful.

Peacefulwarrior's picture

how bout "negative" as meaningful

dogfish's picture

I know three familys that still live in foreclosed houses since the crash.They have paid nothing not even taxes.Who picks up these expences?

N0TaREALmerican's picture
N0TaREALmerican (not verified) dogfish Jul 15, 2016 1:12 PM

Who are the taxpayers?   I'll take Marks for bazilion, Alex...

froze25's picture

NNot paying the taxes will lose them the house, they need to pay the taxes. Warn them.

dogfish's picture

They dont give a fuck just taking a free ride.

HopefulCynical's picture

If they don't own it they don't owe the taxes. Whatever bank holds the deed owes the taxes.

NoVa's picture

my firm has a free-loading "minority" from Prince George County Maryland living payment frr for 3 F'ing years.

my firm pays their property taxes through the servicer - can't stop it.  We have foreclosed but can't evict yet. 

nscholten's picture

Dude, its a fucking game.  As Ben said in 2010.  They are rectangular pieces of paper.

MonteChristo's picture

Why not sue the local government, maybe it's the Maryland State government for "taking" stealing your property. Only other solution is for others to take heed of your plight and don't rent in that area. It's a really bad area in any case.

nscholten's picture


Wrong... The bank is paying the taxes.

...in the distant past's picture

Make sure they have renters insurance in case their belongings get "stolen".  Or maybe their mortgage insurance will cover it.  Could they file a claim 10 years later?  


That reminds me of a story.   Three bankers walked into a bar...

astroloungers's picture

the same person that waters that big weed in the vacant lot down the street.