🧵The Next Great Housing Crash 🧵
1/
Housing Is America's most important asset.
Decades of savings are in the average American's home, and mere renovations are now major investments on the scale of what houses once were
It wasn't always like this. And It won't be much longer
1/
Housing Is America's most important asset.
Decades of savings are in the average American's home, and mere renovations are now major investments on the scale of what houses once were
It wasn't always like this. And It won't be much longer
2/
A Family friend showed us her cottage recently, as nice as it was it was unsound.
The ground had shifted & it was going to cost 150k to shore up the foundation.
"Back in the day I'd just let it go, but the way prices have risen round here I can't afford not to fix it"
A Family friend showed us her cottage recently, as nice as it was it was unsound.
The ground had shifted & it was going to cost 150k to shore up the foundation.
"Back in the day I'd just let it go, but the way prices have risen round here I can't afford not to fix it"
3/
This elderly widow has no construction experience and no physique to even do basic grunt work.
She'll simply pay 150k out of savings, or debt finance it, and the value of the property will appreciate enough she'll see a net return.
This is historically really weird.
This elderly widow has no construction experience and no physique to even do basic grunt work.
She'll simply pay 150k out of savings, or debt finance it, and the value of the property will appreciate enough she'll see a net return.
This is historically really weird.
4/
In the Notebook (Yes I'm citing Nicholas Sparks🖕)
Noah, a poor 24 year old veteran working as a carpenter/painter, buys a large manor in 1946 that has sat dead on the market 20+ years and restores it to woo his love
The only barrier to owning it was being able to fix it
In the Notebook (Yes I'm citing Nicholas Sparks🖕)
Noah, a poor 24 year old veteran working as a carpenter/painter, buys a large manor in 1946 that has sat dead on the market 20+ years and restores it to woo his love
The only barrier to owning it was being able to fix it
5/
Think of the scary movies you saw as a kid
Isn't it weird that in all these populous young American towns the nicest house in town was completely abandoned and no one tried to renovate or tear them down and build anything new?
Yet this never needs explaining. It was common
Think of the scary movies you saw as a kid
Isn't it weird that in all these populous young American towns the nicest house in town was completely abandoned and no one tried to renovate or tear them down and build anything new?
Yet this never needs explaining. It was common
6/
The Victorians massively overbuilt housing and they overbuilt the individual houses.
Multiple depressions and world wars destroyed the fortunes needed to build and keep these beauties.
Maintaining & heating them would bankrupt a person post-war. They had no market value.
The Victorians massively overbuilt housing and they overbuilt the individual houses.
Multiple depressions and world wars destroyed the fortunes needed to build and keep these beauties.
Maintaining & heating them would bankrupt a person post-war. They had no market value.
7/
Thus even as these gorgeous treasures sat rotting ordinary Americans were ordering kit homes out of the sears catalogue to be delivered by rail and assembled on empty lots.
Once your house isn't an asset, every additional square foot is just more expense.
Thus even as these gorgeous treasures sat rotting ordinary Americans were ordering kit homes out of the sears catalogue to be delivered by rail and assembled on empty lots.
Once your house isn't an asset, every additional square foot is just more expense.
8/
There is very good reason to think this process is already starting again.
Foreign money pouring into western real estate is already drying up thanks to the closing of China and Russia.
but the real story is (say it with me) demographics.
There is very good reason to think this process is already starting again.
Foreign money pouring into western real estate is already drying up thanks to the closing of China and Russia.
but the real story is (say it with me) demographics.
9/
2 in 5 US houses are owned by boomers.
75% of boomers own a home only 32% of millennials do.
As more than half of boomers die or downsize in the next 10 years, millennials home ownership will have to double.
That won't happen without a massive price correction
2 in 5 US houses are owned by boomers.
75% of boomers own a home only 32% of millennials do.
As more than half of boomers die or downsize in the next 10 years, millennials home ownership will have to double.
That won't happen without a massive price correction
10/
However its much worse than that.
housing prices have been driven by 15 years of record low interest.
houses in the west reached above 1 mil despite average income being 60k, because mortgage rates were down to 3%.
Now 7% in the US on that 1m is more than average income
However its much worse than that.
housing prices have been driven by 15 years of record low interest.
houses in the west reached above 1 mil despite average income being 60k, because mortgage rates were down to 3%.
Now 7% in the US on that 1m is more than average income
11/
We are facing 5-10 years of high interest rates
Massive spending around COVID combined with retirements and labour shortages mean the only way to keep inflation from running rampant is to heavily spike interest rates
All debt driven assets will probably collapse in price
We are facing 5-10 years of high interest rates
Massive spending around COVID combined with retirements and labour shortages mean the only way to keep inflation from running rampant is to heavily spike interest rates
All debt driven assets will probably collapse in price
12/
It is very likely housing has already peaked for the next 2 decades. It took 25 years inflation adjusted for Canadian real estate to return to its peak again after the crash of 1991.
Japan never reached the same peak.
A lot of people are set to lose a lot of money.
It is very likely housing has already peaked for the next 2 decades. It took 25 years inflation adjusted for Canadian real estate to return to its peak again after the crash of 1991.
Japan never reached the same peak.
A lot of people are set to lose a lot of money.
13/
A real possibility is that it just never recovers.
World pop growth is set to be negative by 2050, the west already isn't replacing itself.
boomers say "Well they'll just import immigrants"
But we're running out of immigrants
India is already at replacement fertility!
A real possibility is that it just never recovers.
World pop growth is set to be negative by 2050, the west already isn't replacing itself.
boomers say "Well they'll just import immigrants"
But we're running out of immigrants
India is already at replacement fertility!
14/
The stock of high net-worth high skilled immigrants who can meaningfully compete for housing is already near fully tapped.
I'm not talking about rich people, I'm talking about the people who are still lower middle-class in western societies.
The stock of high net-worth high skilled immigrants who can meaningfully compete for housing is already near fully tapped.
I'm not talking about rich people, I'm talking about the people who are still lower middle-class in western societies.
15/
The people who will still net contribute and drive economies are scarce now that the world is running out of adults...
Nations have to compete for them.
And trying to prop up impossible living costs and boomer assets doesn't make you competitive, quite the opposite.
The people who will still net contribute and drive economies are scarce now that the world is running out of adults...
Nations have to compete for them.
And trying to prop up impossible living costs and boomer assets doesn't make you competitive, quite the opposite.
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