i’ve said it before and i’ll say it again i’m no economist but the recent movements in housing are worth some speculation from someone like me who has spent the better part of the last two decades working in the housing economy as a developer provider and advocate what’s happening with homeownership and rental housing in terms of homeownership the worry is that the bottom is dropping out of the market while rents seem to be skyrocketing why did this happen and where is all headed in light of the federal reserve pushing up interest rates in response to inflation here’s my speculation about where this all came from and where it might be going first we have the headlines like the one in the dai ly mail is america on the verge of a house price collapse prices could crash by up to 20 and homes are overvalued by as much as 72 expert warns the daily mail seems to have found the sweet spot for scrollers and clickers tell the story in the headline and bullet points the story goes into detail about what has been happening in some of the markets that saw big spikes in singlefamily housing prices like boise idaho the daily mail published a map based on data from moody’s with the “most overvalued places in the us” i have found similar data in every city i have looked at during my review of permits price and population market after market showed the same pattern relatively stable singlefamily home prices then a significant even massive increase in transaction price i looked at austin and based on the federal reserve bank of saint louis’ fred data this is what the spike looked like there was it a supply and demand issue based on the fred data i found that austin saw steady population growth during the period from 2015 through 2021 when growth slowed during that period throughout the metropolitan statistical area msa the ratio of new people to permits for housing fell steadily across typologies singlefamily and multifamily however singlefamily permits issued exceeded the number of multifamily permits issued except for 2021 housing prices during the period across the msa were relatively stable increasing between 5 and 9 percent consistent with national trends i looked at the relationship between permits issued and population growth and indeed there were more people coming into the msa than permits being issued a pretty clear case of a supply and demand imbalance but why all the demand in 2021 the conventional wisdom over the last year assessing the aftermath of the buying frenzy is that many people especially employed professionals working remotely had three things in abundance during the pandemic time money and freedom lots of people were working from home in their cramped apartments they weren’t spending lots of money and maybe even getting more with government largess and suddenly they realized they didn’t have to live where they worked people thought “the time is now” the theory goes so people jumped into the market and stoked competition among buyers for housing when considered across the years of data 2021 is truly aberrant it was as if a sleepy donut shop had tour bus of rich tourists pull up in front of it no donuts were left and the owner was left with a pile of cash except in 2021 people were buying houses and engaging in bidding wars the problem is that they didn’t consider what was coming inflation there was a sugar high but the hangover began when the idea that the asset would hold the value disappeared its pretty simple people overpaid for an asset with a lot of debt the shortterm frenzy meant paying too much and watching the fed start shutting off the cheap money spigot the free fall began for buyers who want to live in boise and raise a family there for the next 20 years this may not matter over time things will change inflation will get back to normal they’ll refinance and someday sell at retirement this classic model of longterm investment means that what happened in 2021 won’t matter so much in 2041 when the buyers send their kids to college but for people now realizing that maybe the boise or austin move wasn’t all that great it’s going to be a long decade before the lines cross and the possible sales price exceeds the balance on the mortgage this eventuality may not be a big deal either provided that the household keeps its jobs and growing income if the mortgage is fixed the household will benefit from the lower interest rate but if as fed chairman jerome powell hinted in jackson hole there will be “pain” in the form of layoffs and downsizing the household may face foreclosure or a forced sale how big will this “crash” be i don’t know but it could be disastrous especially because quantitative easing – lower interest rates and more money – will be off the table in 2023 in fact the opposite will be the case and government bailouts will be impossible lots of people may be up a tree without any firemen to come to the rescue how about rental housing axios asked why rents are soaring pretty much everywhere in the us and to its credit it concluded yes it is supply and demand keep in mind that rents fell in most markets especially the big ones during the pandemic i wrote about boston’s big tumble from 2020 through 2021 the press often doesn’t do much thinking before writing stories about “skyrocketing rents” this was the case as rents climbed back to where they were if we give people posting at media outlets the benefit of the doubt they’re mostly working for click mills and what gets clicks is “skyrocketing rent” stories not data driven analysis that shows that indeed things are getting back to normal and that 900 apartment that was 1300 is now 1300 again however when it comes to rentals there was a backlog of production or at least a lag that happened during the pandemic that glitch is now manifesting itself in less supply as demand and mobility return but what happens when the “pain” of fed induced recession hits the market rents are likely to fall again when demand falls and people’s ability to pay higher rents drops as well i would guess that vacancies will increase and for a while prices will still stay high how long that lasts is anybody’s guess but it will be uncomfortable when laid off renters search for a cheaper apartment and can’t find one as usual local political juntos will intensify their demands that eviction be banned that rent controls be imposed and that further fees fines and taxes be imposed on new development of housing exactly the wrong things to be doing in such a mixedup housing economy politicians usually with terminal cases of sally field syndrome “you like me” will not be able to resist the accolades and praise they’ll get for standing up for the “little guy” facing foreclosure or eviction not with financial help but rules and price controls all of this unfortunately will speed what i’ve predicted as the eventual government takeover of large parts of the housing economy see prediction for 2030 a government take over of rental housing this will be accelerated because as we saw with fiats banning eviction government doesn’t consider housing private property or an asset but something akin to sunlight or wind it can be taken and used to generate benefits for the public without any expense or costs in other words if people can’t find a place to live the government will just mandate that they have one even if one doesn’t exist or can’t be paid for you’ve been warned that sound coming from inside that horse on the beach isn’t indigestion