Facts that contradict the standard housing bubble story

Here I am doing a mix of quoting and paraphrasing the excellent Kevin Erdmann:

1. “Housing construction has been constricted in our most prosperous cities.”

2. “Home prices in many developed countries rose at least as sharply as inthe US.”

3. “…rent inflation has been persistently high for 20 years.”

4. “Growth in real rent expenditures generally had been declining throughout the supposed boom period.”

5. “During the boom, the relative income of the typical homebuyer did not decline.”

6. During the boom, homeowners were not “buying up.”

7. Homeownership rates, even at their peak levels in 2004, among age groups under 65 years old, were no higher than homeownership rates had been in the late 1970s and early 1980s.”

8. “…when taking into account all types of housing, the number of new housing units never even rose very far above the long-term average.”

Those are all from Kevin’s new and very important book Shut Out: How a Housing Shortage Caused the Great Recession and Crippled Our Economy.  The simple “housing bubble” story is not in fact as true as it might seem, as Kevin shows, and furthermore just look at how many parts of America now have home prices at or above their “bubbly peaks.”  I hope this work gets the attention it deserves.


That's not really surprising. Most subprime mortgages were not given to new recipients - something like two-thirds (or higher) were second mortgages, usually cash-out refinancings. That's from Bethany McLean and Joe Nocera's book on the crash, All The Devils Are Here.

It was more of a mortgage bubble than a housing bubble. In the 90's and early 2000's the congress force Fannie and Freddie and banks to make more risky loans. More loans for everyone. This wasn't something the president did or didn't do it was congress and congress did it to [posture for more votes. The problem was really a lack of education and intelligence on the part of congress who never understood the effects of their legislation and mandates.

One other point, the bubble was never fixed. Obama and congress used the "crisis" to suck up trillions of dollars in debt for their favorite projects and groups but fixed nothing. That unfinished business will come back to bite us and we will see another prolonged recession.

Surely we can distinguish between a national bubble and some actual bubbly markets, on a local level like south Florida, Las Vegas, Inland empire CA, Arizona.

Erdman is terrific and very right overall on most things, but if the word bubble has any meaning it has to apply to those markets at least

Right. A big issue I've been explaining since 2008 is that the Texans in the White House didn't understand the long lag time for new housing in California. If demand for housing goes up in Texas, new construction starts in a few months. So housing prices in Texas don't go up too much.

But in California, the lag between increased demand and increased supply can be quite a few years due to environmental and pseudo-environmental regulations. So a sudden increase in demand can take years before the market in California can respond.

It's NIMBY more than it is environmental reasons, although NIMBYs will milk that to full effect. Californians are pro-immigration nationally but locally they are mini-Trumpistas. Watch another apartment get shot down because it blocks someone's view or adds more traffic to the area as happens in Southern California. They save the endangered lizards and owls for places like Mountain View where that kind of political correctness plays better to that crowd.

How long will Californians be able to get away with the fact that their State is hilariously under-developed?

Not so sure. Tampa prices, e.g., are ~10% above the 2007 peak. Back in bubble territory?

Was Detroit a bubble in 1974, or did prices just go down?

The CPI calculator indicates 24% inflation since 2007.


So, that would indicate the Tampa prices are significantly below the peak of real prices.

What RIPM said, about real prices.

But in general, while I sympathize with the Sumner/Erdmann critique that bubbles don't exist, in the end I think they are being pedantic. A bubble is as much a state of mind as a mathematically precise thing. It's an argument over vocabulary.

If people are watching shows on TV about getting rich quick flipping houses, if your taxi driver brags about it, if home prices are exploding in a region and people are getting wildly overlevered and putting nothing down to buy....and then prices crash....that's a bubble. What else could it be? It doesn't matter if 10 years later prices get back to the bubble level. That period 10 years ago was a bubble. If it crashes again amidst similar activities, then it's another bubble.

Amazon was a bubble in 1999. All the hallmarks you describe.

Yes it was, along with most tech stocks. That was a bubble, even if now some of the companies (the ones that survived) are worth more. It was a bubble then.

Bucket loads of companies were valued at huge amounts that are worthless now. Seems pretty bubbly to me.

And again, we are mostly having a semantic argument. What happened happened, and to me it's common sense to call that a bubble.

A bubble is when people pay an unjustifiable price. There were definitely lots of bubble stocks in 1999. Amazon displayed all the earmarks of a bubble stock (price run up and crash), but standing here today, it is very easy to justify buying Amazon stock at its 1999 peak before the crash. No bubble.

Your (and my) pattern recognition software is constantly sending us false positives here. Some people see nothing but bubbles. The implicit arrogance is both widespread and impressive.

Amazon is perhaps an exception if you look out 10 years from 1999. Tech stocks in general were in a bubble in 1999. Amazon went from $110 in April 1999 to just over $8 in April 2001. Is that a bubble (popping)? Does it matter what we call it?

Now it's much higher. Many tech stocks aren't, and many are kaput. I choose to call the events of 1999-2001 a tech stock bubble. We agree on what happened, you can call it what you want. Lots of tech companies were at unjustifiable prices (in 1999). I feel the same about real estate in 4-5 regions in the US from 2006-2009 (but not real estate nationwide, that was not a bubble to me).

I am not one of those people who sees 'nothing but bubbles'. For me it's a high bar, but it has been cleared a few times.

Yes, lots of false positives. But some true ones. It's not all or nothing.

Erdman strikes me as unbalanced. Not mentally, but his tone is like that of a prosecutor who only considers one side of the argument. If housing prices increased, you can reason from a price change and say, all things being equal (since supply did not decrease), there must have been a 'bubble' at the time (since the bubble popped, housing has reflated, so we're back to near bubble levels, but that does not contradict the fact that a bubble existed around 2006).

Bonus trivia: buy Freddie and Fannie Mac penny stocks. See my post at Seeking Alpha as to why. Clue: one of Tyler's free market students is now in charge. Maxine Waters hates these state sponsored agencies and will probably vote to privatize them. And last but not least inside trading is not against the law if you're in Congress, and do you recall how Bear Stearns went up 10x over a weekend? After it was supposedly, like Fannie and Freddie, 'bust'? Same same.

This is exactly the problem with what Erdmann writes.

Betting money on Maxine Waters' vote; what could go wrong?

I bought the Kindle edition and will give it a read, even though I have no idea what it means for a story not to be as true as it might seem.

After Kevin Erdman's book, no discussion of monetary or macroeconomic policy is complete without an understanding of the housing market picture.

Environmental Policy.

None of these facts contradict the housing bubble story. It seems it contradicts the story on the right - the big lie as Barry ritholtz calls it.

We had a debt deflation bust. These facts aren’t related to the debt issues that caused the bust. constrained supply would make the pricing all the more probe to lead to a bust as the high prices might accurately reflect demand but - but demand isn’t nessariky ability to pay.

4 is misleading. We spend much more on housing than we did in the past. In this case the absolute level was already at historic highs so stating growth is slowing is misleading at best.

6 is very true.
They certainly do not contradict the fact we had a debt deflation bust.

There was a home price bubble. In some places, average home prices sunk ~40% by 2010. The immediate cause was a ~5% mortgage foreclosure rate caused by: (i) unemployment, (ii) troubled banks unable to offer refinancing to troubled homeowners, they just sold the debt to someone else.

For a while mortgage-backed securities were a hot investment, the day after everyone ran for the door. Banks sold their money-losing mortgage portfolio to companies whose business model is to buy a dollar of debt for a few cents, repossess the property, wait a a few months/years, sell it at a higher price. The important detail here is that mortgages where just another item in a long list of non-performing loans and money losing investments.

I think the story about "too much building or too much lending to low-income people" was created to oppose any kind of income support to unemployed homeowners in default. This is just an small part of the story which is oblivious to investors simply running away from mortgages in a moment of panic.

In many markets, as housing construction goes, so goes the economy. Why housing demand suddenly plummets is a mystery, even to the excellent Kevin Erdmann. In my low country home, housing demand plummeted in 2008 and housing construction with it, which meant the entire housing sector, including construction labor, lenders, brokers, appliance and furniture retailers, even restaurants that catered to those in the sector, suffered a great depression that lasted almost eight years. And then, just as suddenly, housing boomed, with new construction everywhere and with housing prices spiking to almost pre-2008 levels. And then, last summer, housing once again plummeted, not to the extent of 2008, but anyone with eyes and ears can see the carnage that lies ahead. Boom and bust. Boom and bust. That's the mark of an economy that relies so heavily on housing, and on population growth to support it. Population growth: we can't live well without it. One reason, a significant reason, the bust of 2008 lasted so long is because so many were locked in to where they were at the time and couldn't move: if one can't sell her house, one cannot move. How many blog posts did I read here about the need for people to move, to move where the jobs are, to move where the housing sector is robust. Moving: it's the gift that keeps on giving in an economy that relies on housing. Go west, young man. Or south, or east, or north. It's the cheap path to prosperity. Name one significant innovation in housing construction during the past 25 years. 50 years. Tech may get all of the attention, but housing construction is what drives the overall economy. Here's a paradox: global warming and sea level rise will produce a boom in housing, as millions move to higher ground.

Cowen's latest in Bloomberg is a criticism of Senator Harris's proposal for tax credits to renters who earn less than $100,000 per year and pay more than 30% of their income in rent and utilities. The point of his criticism is that the proposal will make matters worse (i.e., higher rents) because it will increase demand but not supply (and induce renters to seek higher priced housing). To increase supply, Cowen supports the proposal in California that would take the N out of NIMBY. Cowen is correct in his economics, but not his politics. The current tax bidding war aimed at low to moderate income taxpayers is in large part a response to the tax bidding war aimed at upper income taxpayers in the last Congress, a war that the upper income taxpayers won. Critics of Senator Harris would have more credibility if those same critics had taken a similar stand against the tax bidding war aimed at upper income taxpayers, a bidding war that bequeathed another $2 trillion in debt on future generations making it that much harder for future generations to solve other problems bequeathed to them (e.g., global warming). I suspect that the current tax bidding war aimed at low to moderate income taxpayers will be lost for the same reason all such wars are lost: there's not enough money it it for the friends of upper income taxpayers. In the meantime, what's the solution to the housing "crisis" in California? Convergence. Move. Paradoxically, solving the housing "crisis" in California is counter-productive.

For those who think housing is on solid ground, U.S. home sales fell 6.4% in December.

It wasn't a housing bubble...it was a debt bubble.

That is why they never learn.

The floods (Think Noah!) of easy credit caused increased housing demand which naturally (the study confirms the researcher's firm grasp of the obvious) drove up prices because houses don't "grow on trees" - regardless of evil, back-handed ploys to keep out poor people.

Dr. Shiller reports the USSA (United Socialist States of America) is in its third sharpest housing price run-up in history. The 2006 top ranks the first.

It all makes sense when we remember these people think they are our moral superiors.

Here they blame housing markets/supply to distract attention from the guilty parties.

Ergo, they consciously, or unconsciously, ignore the other side of the equation: here the massive liquidity with which central planners/command/control do-gooders flooded housing markets.

Bush's mortal sin was, despite warnings from a miniscule number of "Cassandras", not stopping it because everybody was making money and so the fit hit the shan, as it always does.

Note to do-gooders: even if there were rapidly expanding housing stocks, the US aggregate repayment capability did not expand. In relative terms GDP expansion and disposable incomes stagnated, or declined, while housing prices went up like ICBM's pushed by trillions fueled with huge liquidity from too easy credit. See FHLMC/FNMA asset growth stats. See annual increases in max loan amounts FHLMC/FNMA would buy.

US Home Ownership Rate increases signaled the bubble: 1965: 63.4%; !992: 64.2%; 2000: 67.5%; 2004: 69.2%; 2006: 68.9%.

FHLMC/FNMA: sharp increases in max. loan purchase limits helped inflate the bubble: 1992: $220,000; 1999: 240,000 up 19%; 2000: $252,000 up 5%; 2001: $275,000 - up 9%; 2002: $300,000 up 9%; 2003: $322,000 - up 7%; 2004: $333,000 - up 3%; 2005: $359,000 - up 8%; 2006: $417,000 - up 16%. Crazy, man!

Even more triggering than the truth, as I type I'm sipping cofeve from my MAGA cup.

Just on the methodology, how did he figure out #5 and #6 when so many of the loans were stated income loans (liar's loans). If you used the incomes that were just stated, but never verified, on the loan app you would of course come to this conclusion.


"I hope this work gets the attention it deserves." So do I.

Komisch - a person playing sock puppet whack-a-mole manages to get another sock puppet player to play along. Or it is the same person unable to stop playing with themselves? - hard to tell at this point, really.

And here is a bit of help - include a link, it adds to the verisimilitude. Particularly because the German term for what one builds on is 'Bauland' or 'Baufläche' due to German zoning concepts. And the property where building is done is referred to as 'Baugrundstück' or 'Bauplatz' - https://de.wikipedia.org/wiki/Bauland

Oh look, another wingnut trying to blame the crash on too much regulation.

It wasn't a housing crash, that assumption was contrived to justify the bailouts. The crash was caused by oil shortages and oil at $140/barrel, and the crash ended when oi hit the 40-50 dollar range. Te conclusion is unavoidable by looking at the data and watching the recovery. Almost all the recovered jobs for three yeas after was in the oil extraction industry.

Sounds like correlation not causation.

It seems to me the these "contradictions" are entirely consistent with Robert Schiller's book, Irrational Exuberance, Second Edition, published in 2005.

So maybe be careful where you are getting and forgetting your "standard bubble story."

IIRC, Shiller spotted the rise of RE in "jet set cities" in that volume.

Of course you have to read your "contradictions" critically. For instance:

5. “During the boom, the relative income of the typical homebuyer did not decline.”

6. During the boom, homeowners were not “buying up.”

These can be true even as the median price for a neighborhood exceeds the grasp of the median worker in that neighborhood.

You just import more affluent buyers to desirable regions. Or you have investment buyers coming in to what had been quiet owner occupied streets.

What happened to owner-occupied housing in 2005?


"Between 2005 and 2015, the number of owner-occupied homes in California shrunk by nearly 64,000 units, according to the Public Policy Institute of California. Meanwhile the number of renter-occupied homes increased dramatically. California now has 450,000 more homes used as rentals than it did a decade ago. Compare that to the 1990s, when the number of rented homes grew by less than 120,000 while the state added 700,000 homes owned by the people who live in them."

So .. I don't think these eight points are so great. They might be true, without being enlightening.

The link for this one is


This is going to go straight into the 'counterintuitive, because untrue' canon, yes?

9. Housing starts most recently reached an annualized rate of 1.23 million (the post-recession high is 1.35 million). This isn't even close to pre-recession levels when housing starts were topping 2 million a year from 2004-2006. https://tradingeconomics.com/united-states/housing-starts. Per the supply constraint theory of the great recession, this suggests that home prices should now be exploding.

10. While the housing price index is now higher than it's pre-recession peak (see https://fred.stlouisfed.org/series/CSUSHPINSA), when adjusted for inflation, home prices are still significantly below their pre-recession levels (see https://fred.stlouisfed.org/graph/?g=1JnP).

9. Rent is the measure of supply and demand for shelter, and rents are rising sharply. In 2004 and 2005, rent inflation and rental income as a portion of domestic income were declining because supply was expanding more.

10. Prices are low relative to rising rents because mortgage access has been cut back, increasing yields for those who can invest in real estate. Now income to housing is claiming a higher portion of domestic income than it did in 2005 even though the market value is relatively lower.

There is no housing "shortage." There's lots of cheap housing and empty land all over the planet. The idea that we would no longer have a housing "shortage" if we just let everybody build whatever and wherever is magical thinking.

The supply of nice houses with good neighbors close to economic centers is finite. Demand for nice houses with good neighbors close to economic centers is not. If we built 30 story x 30 story buildings with 900 square foot apartments all over, around, and under Silicon Valley and priced them at $50K/unit, then it would no longer be "nice housing." It would just be a collection of Cabrini-Greens and Grenfell Towers located near Silicon Valley. And the billionaires and millionaires would move to another comparatively low density area priced so that only hip, smart people can afford to live there.

Good one.....

I think that part of what is going on is that the "housing bubble" was driving by non-recourse or near non-recourse mortgage laws in a few big states (California, Florida), that skewed incentives to maximized upside gain without sufficient regard to downside loss, which fueled unreasonably priced real estate compared to fundamentals (secondarily, securities regulation of the risks in the secondary market for second mortgages which was tax favored was weaker than the regulation of risk in the mortgage insurance industry which was disfavored from a tax perspective). This also spilled over into markets like Nevada where predominantly CA investors acted as if CA rules applied, even though they didn't, because they were sloppy and CA real estate culture seeped into place to which it was ill adapted. The collapses in these select state markets was economically significant enough to take down the national mortgage lending financing system. And, the collapse of that system produced the Financial Crisis more generally that had a national negative effect in industries unrelated to housing (like manufacturing in Appalachia and the South) because the financial industry is national in scope and impacts. So, even though real estate bubbles per se were localized and select, the chain reaction from these bubbles crushed the national economy. If you look merely at national averages the concentrated dysfunctional in a handful of key state real estate markets is diluted beyond recognition. But, in the key state real estate markets with non-recourse or near non-recourse mortgages, the phenomena showed all of the classic traits of a bubble since the Tulip Bubble we read about in Economics textbooks.

Ideally, non-recourse laws should keep the banks and their mortgage underwriters honest by incentivizing them to accurately assess the properties they are loaning against and ensure that their risks are adequately hedged.

Housing/mortgage financial bubble caused by Gov't intervention is just another example of where we are today & how we got here. The Fed has assured that Gov'ts don't fail & neither do the Banks or BigBiz.
'Privatize the profits & Socialize the losses'... Joseph Stiglitz/2010 based on original meme of Andrew Jackson/1834.

Somethings change, some just stay the same...………………..

Shareholders of a number of major financial institutions suffered severe or complete losses and the financial sector as a whole has not been a particularly good investment over the past 20 years or so.

Helping someone with easy credit to afford a house, just makes it harder for the next in line to afford it.

Easy credit mean easy bankruptcy...

Figures don't lie but.. Statistics can be misleading. Unless you are a real estate expert you might miss important points. The worst problems were in certain geographical areas like Atlanta and Florida. Also Texas and Arizona. As a proxy for areas affected by RE collapse, try using bank failures from 2007 to 2012 to identify geographical areas and then analyze those areas. Most of those failures were due to bad real estate lending and Fannie and Freddie failure. ie, bad real estate loans and concentrations in Fannie and Freddie preferred stock. And it wasn't necessarily price that counts but number of loans and RE purchases, i.e. , magnitude or frequency.

Compare new housing production relative to population in Ontario and California. Ontario will show an increased in the late 90s and steamed right through the recessions (Y2K & 08) not missing a beat. Just prior (06?) to the recession housing production in California peaked just above Ontario production. Then of course crashed. Ontario has continued. There have been short "burps" when no new "holes" are present. But the building cycle being long, construction in the later stages continued through the recession, powering through. Ontario is currently 20 years into a 7 year building cycle.

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