Interest rates drop slightly, sparking a surge in mortgage applications, but a financial expert warns of an impending housing market crash in certain U.S. regions due to a unique bubble driven by inflation, unaffordability, and a flood of incoming inventory. Get the facts first on Morning Wire.
Chapter 1: Why are mortgage applications surging despite high prices?
Interest rates dropped this week to their lowest point since October last year, sparking a 20% surge in mortgage applications. While housing remains unaffordable for many, some real estate experts say we're on the precipice of a market crash, but only in certain regions of the country.
In this episode, we speak to a former Wall Street analyst and financial author about why this housing bubble is unique and what he expects to see in the near future. I'm Georgia Howe with Daily Wire Editor-in-Chief John Bickley. It's Sunday, March 9th, and this is a weekend edition of Morning Wire.
Chapter 2: What makes the current housing bubble unique?
Joining us to discuss what he's calling the weirdest housing bubble ever is financial analyst and five-time author John Rubino. John, thanks so much for coming on.
Oh, sure, Georgia. Good to meet you.
Chapter 3: Why are first-time homebuyers struggling now more than ever?
Nice to meet you, too. So you had a recent Substack where you said that we are living through the weirdest housing bubble ever, and you outline a few reasons for that. Particularly, you point to the age of first-time homebuyers. Can you unpack why this is such a unique time for homebuyers?
Yeah, normally the way a bubble works is that the price of something starts going up and it keeps on going up and eventually people get so excited by the rise in price that they experience FOMO, fear of missing out, and they start piling in and you get a lot of action as the price goes up.
But houses have become so unaffordable that the market is kind of frozen, even though prices are just insanely high. And a normal person, especially a normal young person, cannot afford to buy a house in the United States right now. And the median age of homebuyers now is in the 50s. It used to be 30 or so, 30, 35-year-olds. And now the only people who can afford to buy a house
are basically people who are at their peak of their lifetimes of earning and have a lot of money saved so you've got a market where even though prices are at an all-time high the amount of deals being done the amount of homes being bought are at 1990s levels even though we had 50 million fewer people in the 1990s that's the level of home buying and selling that's going on right now
And what are the reasons for that? One thing that comes to mind is there's sort of some consolidation among older people buying multiple homes and younger people buying none.
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Chapter 4: How does inflation impact the housing market?
Well, kind of that explains what's happening. But the reason it happened is inflation. We basically debased the currency. That means the price of things when measured in dollars goes up. And houses are one of the financial assets, because you use debt to buy a house, which makes it a financial asset. So house prices have gone up faster than the salaries of most people have gone up.
So houses get more and more unaffordable with time. And that's not a function of houses changing in any fundamental way. It's the value of the currency going down. And what this does is it benefits the people who were there at the start of the inflation, basically baby boomers, my generation. We own a lot of the financial assets.
We own the houses, we own the stocks, and we own the gold, and all of those things are going up dramatically. So we're getting richer. While the younger generations are being impoverished because they can't even afford the basics of adulthood right now.
You know, if you're a 30 year old and you want to start a family and buy a starter house, good luck unless you make a quarter million dollars a year, you know, and very few people at the age of 30 do that now. So we have basically screwed over younger generations while enriching the already rich. And that's what inflation does. And that's why it's so insidious.
Now, housing market is a perfect example of that. So where we go from here, though, I think is the really interesting part of the story, because people are starting to put their houses on the market now. but they're doing it at current prices, which means nobody can buy them. So inventory of homes for sale is starting to pile up in a lot of formerly hot markets like Texas and Florida.
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Chapter 5: Is the housing market about to crash in certain regions?
You're seeing a lot of people try to sell their houses, but there are no buyers. And so what happens then normally is that the people who are trying to sell their houses, some of them pull the house off the market in disgust and others cut their prices.
And this sets off a panic in which people who really need to sell their houses basically have to sell them for whatever they can get for them and prices plunge. And so we're headed for a time like that. As inventory builds up dramatically in a lot of formerly hot markets and people get ready to start panicking.
And are we seeing delisting rates climb? Is that where that comes in?
Yeah, delisting rates are starting to climb. And that's a sign that we're topping now, that all the things that happen normally at a top are beginning to happen. More listings coming on the market, more delistings as people can't sell their houses. Oh, and there are also a lot of price cuts. You go to Zillow and you'll notice that a lot of houses have already been reduced.
Now, you and the Wall Street Journal highlighted that there are some very significant regional differences in the real estate market. For example, Florida and Texas have an overabundance of supply, whereas other places have a persistent shortage. What's causing that?
Well, there's just been a lot of action in Florida and Texas and a few other states. Those are the places that people have been moving to and where a lot of houses have been built in response. You know, there's a tremendous number of new houses in the process of being built there right now.
So, in other words, the bubble markets, the really hot markets, are the ones that break first and where the real action is.
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Chapter 6: What regional differences exist in the current housing market?
Now, is the migration of people moving to those states slowing?
Yeah, it's slowing, but it hasn't stopped yet. People are still moving to states that they perceive as better run, and they're moving out of states that they think are badly run. That's continuing, but it's slowing down because nobody can afford to buy the houses in the hot markets that they're moving to now. For the past...
20 or 30 years, if you sell your house in California, you could pretty much go anywhere and buy a really nice house. But now, home prices are starting to equalize. They're going up. Even in, well, Nashville, for instance, is a super hot market in Tennessee. And a lot of other Tennessee cities are starting to boom. And that always leads to higher prices.
And in Florida and Texas, a lot of the formerly affordable neighborhoods aren't affordable anymore. So it's harder and harder to move to these places. Fewer and fewer people are doing it. And again, that's topping behavior. You know, once we reach the point where that rolls over and people actually start leaving the formerly hot states, that's when the real estate market really tanks.
Newsweek put out an article calling Austin, Texas ground zero for the market downturn. First off, can you explain what you've seen there? And also, do you think other hot cities are going to follow? And how long will that take?
Yeah, Austin has basically been the hottest city in the country for the past decade or so. But inevitably, the pendulum swings too far. And Austin is now unaffordably expensive. And the prices of houses are starting to go down there. I don't have the exact number, but I think it's something like 15% from the peak. Prices are down in Austin.
And there's an old saying that in a bull market, prices go up on the escalator. and in a bear market, they go down in an elevator. In other words, they go straight down when they start to fall. We're heading for that in a lot of hot real estate markets where prices just start to gap down. Austin is definitely one of those places.
Some places, for instance, Ohio, prices there just aren't that expensive. It's not going to plunge there, but in a lot of other places where Home prices are wildly unaffordable. They're going to tank. 30%, 40%, 50% declines are going to seem normal at some point in the next couple of years.
Now, you argue that the traditional boom-bust resolutions aren't going to suffice this time around, in part because other costs are going up. What's unique about this bubble?
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