I keep seeing headlines about possible housing crises in the pandemic. I decided to do a little meander around some housing indicators to see if one’s brewing.
Obviously there was a housing crisis before the pandemic. But I’m wondering if the production crisis is causing one in finance/whether the capitalists are going to care about it.
TL;DR: don’t think so, but it’s interesting to sniff around.
Just for fun I went back and skimmed Engels’ “The Housing Question.” I didn’t find much of relevant to today. The dislocations he’s talking about there had to do with the transition between agricultural and industrial modes of production. The preface is pretty fun.
Okay, on to the wonk.
The REIT stuff?
The other day ‘Housing crisis' was trending on twitter. I think it was because of this piece citing data that recessions come with downturns in housing prices. But it ultimately argues that housing prices won't be affected now (the source is a real estate group, though).
At first I thought the piece didn’t take into account the relationship between housing and real estate finance. My instinct was to look at the Real Estate Investment Trusts (known as REITS) that track lending in the real estate markets.
The Vanguard REIT Index ETF, which trades on the whole market, is down 13.4% on the year, but forms a little V jumping up in the last couple weeks.
I thought maybe we should watch these investment trusts, since these are the people who are making money on real estate, which can have so much influence on financing.
But friends recommended this wasn’t the best idea, since the stocks aren’t a good indicator. They’re defensive and passive.
Can’t pay won’t pay
Then I read about the increases in forbearance, which is when people don’t pay their mortgages. This went up more than 4% since the crisis hit, and increasing 1% just one week.
Among people who have a harder time paying their mortgages (capitalists call them ‘risky’), that number went up 1.6%.
I guess the Fed’s also going to help with this, but it’s a big problem:
when homeowners go into forbearance, servicers must still advance payments to mortgage-bond investors. They will eventually be reimbursed by federal agencies or by Fannie Mae and Freddie Mac, but could face cash crunches while waiting. The issue could be especially acute for nonbank servicers, which don’t have deposits or other sources of liquidity that banks do.
Okay, so there might be a crunch when it comes to mortgage banks and people not paying mortgages.
This guy says in the Financial Times that there's going to be another housing bubble, but doesn't really give an argument. He points out that the Case-Shiller Home Price Index has gone up 59% since 2012, which, indeed, is true.
But the same index was this high in 2006. It crashed, sure, but there was subprime mortgages underneath a ton of securities that cratered banks.
As the FT says, there have to be 'shenanigans' involved in the HPI increase too for there to be a bubble. There has to be something systematically over-valuing housing stock.
The only such 'shenanigan' he points to is that Airbnb hosts have bought tons of properties are going to default on their mortgages. But is that enough? I'm not sure.
I mean just look at the Housing Market Index survey. Builders rate whether there’s building happening across different kinds of residences. Nothing’s overvalued here. That survey is way way down. The current single-family sub-index declined to 36 from 79 in March.
Maybe there’s a bubble bubble and people think there’s a bubble but there isn’t one?