‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes • Hacker News Board

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#61

Post by Ekaros » Fri, Apr 08, 2022, 8:33 AM UTC

MiddleEndian wrote: post #43

nitsuaeekcm wrote: post #10

Something funny about bubbles. I’ve heard it said that housing prices in 2005 were outrageous, so much that they could only possibly be justified if the population somehow banded together to stop most new housing from being built. Likewise I’ve also heard something about the dotcom bubble- that the valuations of tech firms in 2001 were outrageous. That the multiples given could only ever be sustained if American cons…

>so much that they could only possibly be justified if the population somehow banded together to stop most new housing from being built. This seems to have actually happened. Consider this simple recent example in Boston: https://www.universalhub.com/2022/board-rejects-apartment-bu... People protested to stop twenty-eight units from being built next to a train station on a commercial lot. The zoning board had a 3-2 v…

5 story building next to train station... And I realistically would expect at least 7-9 here. Maybe force them to build underground parking making it more expensive, but still, that is sort of area you should aim to densify in future.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#62

Post by kortilla » Fri, Apr 08, 2022, 8:36 AM UTC

throwawaycities wrote: post #38

There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001 until the housing market could no longer be sustained resulting in a complete collapse of the financial markets and banking. The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions…

> One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended.

This only sounds meaningful when you take it out of context. Leading up to that it was quite clear the government had effectively mandated for Disney to stop doing business. One day a business, one day not. It was on a trajectory to zero.

It only had a good day after the government decided “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.

The same for cruises, airlines, hotels, restaurants, museums, concert halls, doctors offices, etc. All sane businesses one day worthy of investment, the next day not.

There really aren’t parallels to what happened in 08 here. In 2008 it was a single sector imploding that happened to be the one with its tentacles wrapped around everything else. With Covid everything was failing because everything stopped.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#63

Post by heurisko » Fri, Apr 08, 2022, 8:40 AM UTC

kccqzy wrote: post #44

vl wrote: post #19

Earlier quoted context omitted.

But how exactly can you launder money through buying a house? If you buy, essentially you declare you have the money, thus question can be asked where you got it from.

With a mortgage certainly the bank will ask where your down payment comes from. But do all-cash buyers really get asked where the money comes from?

In the UK at least, solicitors will ask where the money came from to comply with anti money laundering regulations.

https://www.theguardian.com/money/2013/feb/20/cash-buyer-sol...

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#64

Post by AnthonyMouse » Fri, Apr 08, 2022, 8:48 AM UTC

refurb wrote: post #12

sien wrote: post #3

Paul Krugman described the effect memorably in 2005. https://www.nytimes.com/2005/08/08/opinion/that-hissing-soun... "Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone. In Flatland, which occupies the middle of the count…

This theory doesn’t work for one of the biggest bubbles of 2007, which was Las Vegas. It has nothing but surrounding land to build on. They built like crazy and still had massive price inflation followed by a bubble popping, prices dropped almost 50% and vast swathes of empty houses remained for years and prices only recovered to the peak in the last year or two.

That's not totally inexplicable. It takes time to do the construction so in the meantime the price goes up.

In a normal market the investors would predict the price coming back down when the construction catches up so it would only go up a little bit, since most prospective buyers would e.g. rent until they could pay less for one of the new units. More to the point, the bank would predict that and not give you a loan that size.

Pre-2007, banks weren't doing that. They were giving loans to everybody regardless of creditworthiness or risk because they were buying credit default swaps which create moral hazard. So unsavvy borrowers overbid on existing properties about to revert to their construction cost and you got a bubble in a place you normally wouldn't.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#65

Post by macmuras » Fri, Apr 08, 2022, 8:55 AM UTC

mannerheim wrote: post #54

alasdair_ wrote: post #50

Earlier quoted context omitted.

To be fair, it's still a yearly prize, for economics, awarded by the same Nobel Foundation that awards the other prizes, under the same rules as the other prizes. The laureates are announced at the same time as the other laureates, the awards are presented in the same manner as the others and everyone shows up to the same Nobel Prize Awards Ceremony. And if we really want to go full pedant, the award isn't called any…

'Sveriges Riksbank Prize in Memory of Alfred Nobel' is more or less a literal translation of the Swedish name, minus the part about 'in economic science' and whether or not you feel like translating the name of the Swedish royal bank. Anyway, even the Nobel Foundation explicitly says it isn't a Nobel Prize: > Not a Nobel Prize > The prize in economic sciences is not a Nobel Prize. https://www.nobelprize.org/nominatio…

It is an interesting detail, but I guess taht most most people will still refer to it colloquially as Nobel prize.

I think that point about the nature of the price doesn't diminish the point that was being made. As much as it is a call to authority, weight of opinion of someone rewarded with that price is bigger than random voice on the internet.

That being said I think this thread starting with unsubstantiated criticism of Paul Krugman ideas/opinions is not constructive and rather useless.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#66

Post by KaiserPro » Fri, Apr 08, 2022, 9:01 AM UTC

johnny_reilly wrote: post #42

sien wrote: post #3

Paul Krugman described the effect memorably in 2005. https://www.nytimes.com/2005/08/08/opinion/that-hissing-soun... "Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone. In Flatland, which occupies the middle of the count…

> Just pity the countries that effectively don't have a Flatland, like Australia, the UK and NZ. Ha! I see your "UK does not have flatlands" and I raise you Norfolk. V flat indeed

Oi think yew are mistakun boh. Narfuck dont have noe flatlands, oonlee the fens, en thas moostly linconshire boh.

Noel Coward and his fucking quips.

However, the fens is a sinking bog, so not great for building on, especially as its in the middle of fucking nowhere and 180 degrees of depressive grey most of the time.

but but but, its a good quote.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#67

Post by KaiserPro » Fri, Apr 08, 2022, 9:09 AM UTC

t_mann wrote: post #21

Interesting view and great data crunching. But I am amazed how one can write a long article purportedly about the causes of the 07/08 crisis without ever mentioning credit quality. By my impression, the prevailing view is that the crisis was caused by poor credit quality of some home buyers (I remember the term NINJA borrowers - no income, no job or assets). This was masked away in complex financial products (CDOs,..…

Over here in the UK this period is described as "the credit crunch"

The folk memory describes the cause as banks loaning money to people who patently couldn't afford it, mixing those loans up with mortgages that had passed sensible credit checks. They then homogenised shit mix loans as high quality bonds.

All was fine, until the foreclosing happened (repossessions), suddenly the bond repayments weren't as good, and pop, everyone started questioning how good their investments were.

sure it was triggered by the american housing market, but it wasn't really a bubble, it was large scale fraud, combined by hubris and a ratings system that was/is corrupt of crushingly incompetent

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#68

Post by refurb » Fri, Apr 08, 2022, 9:25 AM UTC

sien wrote: post #18

refurb wrote: post #12

Earlier quoted context omitted.

This theory doesn’t work for one of the biggest bubbles of 2007, which was Las Vegas. It has nothing but surrounding land to build on. They built like crazy and still had massive price inflation followed by a bubble popping, prices dropped almost 50% and vast swathes of empty houses remained for years and prices only recovered to the peak in the last year or two.

Erdmann adds to the thesis in a very valuable way by pointing out that people move out Zoned zone to Phoenix and other US metros. Sorry, I missed out some more of this. Erdmann divides US cities into Closed Access Cities (CACs), contagion cities (CCs) and Open Access Cities (OACs). The CACs were New York, Boston, the Bay Area and Los Angeles where building housing has become very difficult and where the prices are sh…

Interesting but to claim excess credit wasn’t the primary driver seems to ignore that credit was clearly in excess in it couldn’t be repaid, even when prices correctly slightly. That’s pretty much a definition of credit becoming available in “excess”.

And the categorization seems "after the fact". I mean if you look at prices and then lump cities into categories, you're not really predicting anything.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#69

Post by throwawaycities » Fri, Apr 08, 2022, 9:27 AM UTC

kortilla wrote: post #62

throwawaycities wrote: post #38

There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001 until the housing market could no longer be sustained resulting in a complete collapse of the financial markets and banking. The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions…

> One of my favorite things to highlight was that following the Fed receiving taxpayer funds to prop up the stock market Disney had their greatest single day stock gains in history all while every single theme park, hotel and cruise ship were indefinitely shutdown and every single movie production was indefinitely suspended. This only sounds meaningful when you take it out of context. Leading up to that it was quite…

> There really aren’t parallels to what happened in 08 here.

Well leading up to 2008 the banks were making record profits and had record high stock prices. However, they were under funded, over leveraged and couldn’t absorb their losses.

Similarly, in 2020 nearly all publicly traded companies were trading at all time highs, but in reality they were all significantly overvalued and the businesses themselves were all significantly over leveraged.

You are focused on the difference in the cause of the losses, rather than the historic valuations completely detached from business fundamentals (i.e. the bubbles), and the governmental responses to prop up bubbles. Taxpayer funds shouldn’t have gone to financing foreclosures and acquisitions for failing banks and they shouldn’t have gone to the Fed to propping up businesses record high stock prices.

> “maybe it will be less damaging to the economy to float all of the existing companies through this huge pause rather than let them all collapse and have everyone lose their retirement and their job simultaneously”.

The irony is you are using the very same political justification for the government response to the banks in 2008, and it only highlights my point how people will be all to happy to say thank you for allowing us to bailout your failing business and return it to record high stock prices.

Re: ‘Housing in ‘07 wasn’t a bubble” is a true statement that almost no one believes

#70

Post by notahacker » Fri, Apr 08, 2022, 9:29 AM UTC

olivermarks wrote: post #59

throwawaycities wrote: post #38

There is no doubt that the entire housing market was exploited to float the US economy and covered up a recession dating from 2000-2001 until the housing market could no longer be sustained resulting in a complete collapse of the financial markets and banking. The housing market didn’t “snap back” rather two unprecedented tax payer stimulus packages totaling just shy of $2T were given to the banks to finance millions…

Adding that although 'the Fed receiving taxpayer funds to prop up the stock market' happened, the USD as the world reserve currency allowed the Fed to create digital dollars ('money printer goes brrr' in wall street parlance) until eventually there are so many dollars in circulation we get inflation ...and here we are...one of the reasons the US now has a weaponized dollar and China and Russia are now openly challeng…

> one of the reasons the US now has a weaponized dollar and China and Russia are now openly challenging the reserve currency

Ah yes, people are just flocking to buy roubles as an inflation hedge, and there's definitely no war on.