US Housing Bubble Enters Stage Two: Suddenly-Motivated Sellers

Authored by John Rubino via,

Housing bubbles proceed in fairly predictable stages.

Stage One is long and (initially) slow, fueled by excess central bank money creation or foreign demand or some other source of liquidity that encourages large numbers of people to buy houses. At first, sellers remember the peak prices from the previous bubble and aren’t willing to sell at anything less than that (in finance-speak, they’re “anchored” at the highest price they could have gotten last time around). So demand initially outstrips supply, causing home prices to rise, slowly at first and then explosively as increasingly-desperate buyers become willing to pay any price while mortgage lenders, seduced by fat fees and confident that they can securitize and offload any kind of dicey mortgage, lower their standards to include pretty much the whole of society.

Stage One usually ends with price spikes in the hottest markets so extreme that they generate headlines. Like these:

Phase Two of a typical US housing bubble begins when sellers read these headlines and note that prices are now above what they could have gotten in the last bubble. With the memory of how badly, during the subsequent bust, they’d wished they’d sold at the peak still reasonably fresh, they realize that they’ve been given a second chance to cash out, move to a cheaper, less-frenetic place, and coast on their real estate riches. So they call a realtor and list their house. As do a bunch of their neighbors. Supply, out of the blue, jumps.

That may be what’s happening now:

The housing shortage may be turning, warning of a price bubble

(CNBC) – The most competitive, tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.

The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s housing market. But it is just a start.

“This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters,” according to Alexandra Lee, a housing data analyst for Trulia’s economics research team.

The supply of homes for sale is still down 5.3 percent compared with a year ago. Still, all real estate is local, and some markets are seeing greater relief. Thirty of the nation’s 100 largest cities, including New York City, Miami and Los Angeles, now have more supply than a year ago.

Of course, the increase is a double-edged sword. Supplies are increasing because sales are slowing, and sales are slowing because prices are so high. In New York City, the median household must spend 65 percent of its income to buy a home, according to Trulia. In Los Angeles, it takes 59 percent.

“Among these unaffordable metros, San Diego posted the largest inventory growth—22 percent year-over-year,” wrote Lee. “Compare that with the same quarter last year, when that Southern California metro registered a 28 percent inventory decrease.”

Mortgage applications to purchase a newly built home plummeted nearly 9 percent in June compared with June 2017, according to the Mortgage Bankers Association. This suggests lower new home sales going forward, despite higher price

Stage Two’s deluge of supply sets the table for US housing bubble Stage Three by soaking up the remaining demand and changing the tenor of the market. Deals get done at the asking price instead of way above, then at a little below, then a lot below. Instead of being snapped up the day they’re listed, houses begin to languish on the market for weeks, then months. Would-be sellers, who have already mentally cashed their monster peak-bubble-price checks, start to panic. They cut their asking prices preemptively, trying to get ahead of the decline, which causes “comps” to plunge, forcing subsequent sellers to cut even further.

Sales volumes contract, mortgage bankers and realtors get laid off. Then the last year’s (in retrospect) really crappy mortgages start defaulting, the mortgage-backed bonds that contain their paper plunge in price, et voila, we’re back in 2008.

How far away is the climax of Stage Three? It’s too soon to tell, with just one quarter of trend-reversal data on-hand. But if you’re thinking of selling (or if you own a lot of bank stocks or are thinking of shorting such stocks), now might be a good time to start paying attention and taking the appropriate steps.


Amy G. Dala Drater Mon, 07/16/2018 - 12:07 Permalink

Say, Drater . . .that sounds like a great plan, but I got a question about the logistics of the "overseas" bugout location.  I know a few who are in Mexico, but they pop up over the border every180 days to punch their ICE ticket.  Not much of a "bugout" if you have to appear to authorities twice a year.

And correct me here, but my understanding is because of Dodd-Frank foreign banks won't allow Americans to open accounts or they will be subject to audit. 

Or, if you give up the passport all assets, liquid or otherwise, are taxed as capital gains.

Don't get me wrong, I like your plan.  But for my own benefit, pls clue me in on the fundamentals because if you found a hole in the gate, I am interested.

In reply to by Drater

salv0 Amy G. Dala Mon, 07/16/2018 - 12:45 Permalink

 I live in Africa I have had the same account with a foreign bank for going on a decade ,audit?? the banks are required to report to IRS-Treasury and you are required to file the proper paperwork.


Why give up your passport ?and punch their ICE ticket??, I have no idea what you are talking about I know hundreds who live all across several continents and most were contractors in Iraq ,Afghanistan or Kuwait the process is fairly simple most banks cooperate without a problem,I have not been back to the US since 2011 ,I earn  close to 7% on my bank accounts,the cost of living is less than 1/2 the US overall, rent and housing costs even less a 2000sq ft house near the beach 150-200K weather similar to the Calif central coast.


But than again it requires a lot of risk and a totally different mind set and planning ,I started my planning 15+ yrs ago

In reply to by Amy G. Dala

jin187 erkme73 Mon, 07/16/2018 - 11:39 Permalink

Can't wait for the crash.  Gonna clean up even more than I did last time, since I've been saving the down payments a year in advance.  Then I'll be renting out apartments in the quadplex roach motels I buy for 30k apiece, to the hordes of illegal Central Americans flooding the area for $500 a month cash per unit, no questions asked.  Don't have to worry about them tearing the places up(more) either, since ICE is just a phone call away.  I guess I'll have to start voting RINO after that, so the supply of illegals doesn't dry up.  After a decade or so of this, I'll change my last name to [preciousmetal]stein, and invest in a bank, so I can get the bailouts money on top of my slum money when they crash the banks again.

In reply to by erkme73

hannah erkme73 Mon, 07/16/2018 - 14:02 Permalink i was the one that bought your house buy i did it with a no down $125%loan so i didnt spend a dime of my money. i then took my money and bought a bigger bugout location filled with toys.....if the world is going to end...WHY BE DEBT FREE..........?


*also i wont make a single mortgage payment either ...hahahahahaha

In reply to by erkme73

Amy G. Dala Bastiat Mon, 07/16/2018 - 12:15 Permalink

Yes indeed, local.  I have to laugh at national RE stats.  What's the fucking point?  RE volume is too low to form a concensus on price.  What if only 10% of Boeing float turned over annually?  What would the price be then?

Money is still too cheap.  First house was 7%/30yr, 20% down.  Second house 5%/15yr, 20% down.  What is it now?  3.5%/30 yr 0% down?

In reply to by Bastiat

canisdirus Ron_Mexico Mon, 07/16/2018 - 14:32 Permalink

I could have done zero down without even resorting to soft money when I spoke with mortgage bankers late last year. Rates are rising, but standards are clearly declining. Plenty are already cooking the books. They also offered me annual PMI rates so low that I don't know why anyone would put down 20% in a hot market. We're talking like $1k/year on a $1M mortgage.

In reply to by Ron_Mexico

Utopia Planitia CJgipper Mon, 07/16/2018 - 13:46 Permalink

They do not.  I live on the Kommunist West Coast but spend a lot of time in the MidWest.  There are intelligent people on the LefTurd Coast but you never hear about them.  Because they are not frothing at the mouth and throwing feces full time.

Anyway, the Loud Mouth lefTurds think they can dictate reality by using their mouth.  One day they are going to find a 4X4 where their teeth used to be and even then they will not comprehend reality.  Hence they live in a false "twinkie land" that no rational human would want to enter.  And they think the entire world lives there with them. They are incapable of comprehending what a normal, rational life is. So yes, you would be wise to avoid them at all costs.

Enjoy your rational life in flyover!  We will continue to make lefTurds lose their minds and you can enjoy the show!  :-)

In reply to by CJgipper

Yen Cross Mon, 07/16/2018 - 11:01 Permalink

 It's all smoke and mirrors here in So. Kali.

  Big fat smile on my face with the Australian housing market melting down.

  This is why you keep your powder dry?

Ban KKiller Mon, 07/16/2018 - 11:03 Permalink

Sold 865 square ft. Condo in ABQ for 141900.00. Took six months because we started too high. Very glad to get rid of it. 

ABQ number one per capita in car theft. Not the point...

Ajijic next week for ten days. It's a bubble too.

hound dog vigilante Mon, 07/16/2018 - 11:03 Permalink

Stages Two & Three will take quite a while... Boomer housing stock --> roll-over to younger generations.  

This roll-over has been postponed for a couple of decades, and will take a looooong time to muddle through.

canisdirus hound dog vigilante Mon, 07/16/2018 - 14:49 Permalink

I was expecting there to be a decline in housing prices within 1-2 years of boomers beginning to hit retirement age (so starting around 4 years ago), but they are staying in their houses and the workforce much longer because they can't afford to retire.

If it has to turn over through death or waiting until they're forced to enter old age homes, it could be 10-15 years before any of that inventory starts changing hands. I'll be in my 50s by that point, so my entire life has been screwed over by boomers from my youth through until probably after I retire. Bastards.

In reply to by hound dog vigilante

Dragon HAwk Mon, 07/16/2018 - 11:05 Permalink

I live close to a town that isn't allowed to put up any more for sale signs because that would signal a distressed market.. yes there are laws, that regulate that.. of course the town has sky high taxes and the cops and building inspectors are all pricks and write tickets for any reason, and then they wonder why no one wants to live there.

besnook Mon, 07/16/2018 - 11:06 Permalink

it's an inflation driven bubble this time not bankster deceit like last time. this prices are not going to correct much when the buying stops.

besides, econ theory says buyers will buy in anticipation of inflation and higher rates. lol

real estate is still not up the same levels as 2007. this is ten years of pent up demand that may last a another percentage point or 2.