The Long and Winding Road

Earlier I announced that I’m going to retire this newsletter as of May 31, 2027 (one more year). Housing is very interesting now and I’m excited about my final year of writing about the housing market. I’m also looking forward to some extended adventures!

Note: for new and renewing subscribers: the amount will be prorated through May 2027.

I’ve been writing about housing for almost 30 years. I started my blog in January 2005, and I was very bearish on housing including calling the top for house prices at the end of 2005 (as inventory increased sharply) and then in early 2007, I predicted that the housing bust would take the economy into a recession.

In December 2006, my friend Doris "Tanta" Dungey started writing for Calculated Risk. When some people say that here are few women bloggers in finance and economics, I remind them that Tanta was the best of all of us! From December 2006, until she passed away from ovarian cancer on Nov 30, 2008, Tanta was my co-blogger.

If you want to understand the mortgage industry, read Tanta's posts (here is The Compleat UberNerd and a Compendium of Tanta's Posts).

In December 2007, most analysts were still dramitically underestimating the probably losses for lenders and financial institutions. Here is an article from the WSJ quoting a crazy blogger: How High Will Subprime Losses Go?

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Many people thought I was crazy. But losses for lenders and financial institutions ended up over $1 Trillion. And if you look at the post the WSJ referenced, the first paragraph starts: “Within the next couple of years, probably somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes are worth.” That happened.

However, in 2009 I became more optimistic. For example, in February 2009, I wrote: Looking for the Sun (Note: that post shocked many readers since I had been very bearish). A few years later, in early 2012, when many people were still bearish on housing, I called the bottom for housing: The Housing Bottom is Here.

Then I spent a number of years arguing against the recession callers, and the new housing bubble calls. A few examples:

In 2015, I wrote The Endless Parade of Recession Calls

For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.
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I disagreed with that call in 2011; I wasn’t even on recession watch!

And I updated that post several times.

And on housing, over eight years ago, in January 2018, I was quoted in a Bloomberg article:

Bill McBride, who runs the Calculated Risk blog and also called the crash, doesn’t think home prices are inflated this time around. Unlike in 2005, lenders are acting responsibly and the Wild West of real estate speculation hasn’t returned, he said. There is less to speculate on, too. Compared with the overbuilding that preceded the bust, today’s pace of construction isn’t fast enough, he said.

“Lending standards are still pretty good,” McBride said, and he doesn’t expect mortgage rates to “take off” in the short term.

And in December 2018, I disagreed with Professor ShillerA comment on Professor Shiller’s “The Housing Boom Is Already Gigantic. How Long Can It Last?”. My conclusion:

No big deal, and definitely not a “gigantic” boom in house prices.

In 2021, I wrote:Is there a New Housing Bubble?

The lack of wild speculation doesn’t mean house prices can’t decline, but it means that we won’t see cascading declines in prices like what happened when the housing bubble burst.
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From a historical perspective, house prices are high. But lending standards have been solid, and we haven’t seen significant speculation - so I wouldn’t call this a bubble.

And also in 2021, I started this real estate newsletter.

In September 2021, I wrote Household Formation Drives Housing Demand. This was the first in a series of posts (also several from housing economist Tom Lawler) about household formation, and that rents would probably be under pressure for a few years (that has happened).

In early 2022, I wrote Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust. I suggest looking at the late ‘70s - early ‘80s period instead.

[W]e should expect something similar to the what happened in the late ‘70s - a decline in real house prices seems likely, and I also expect some decline in housing starts and new home sales. With solid lending, nominal prices should be sticky downwards, and I don’t expect national declines in nominal prices.

If I’ve been mostly correct on housing it is not because I have a crystal ball, it is because I’ve pay close to attention to the many factors that impact the housing market from demographics, to inventory, to mortgage rates and much more.

I’m excited about the coming year, and I’ll have some short and medium term outlooks, and provide important data sources and recommendations of some excellent housing analysts.

Best to all, Bill