Housing: "Permanently High Plateau" Calls
Bloomberg reports the U.S. Housing Market Looks Headed for Its Worst Slowdown in Years.
The U.S. housing market -- particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas -- appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.
That was my position a week ago, well ahead of Bloomberg and others. Some are still unsure.
- “This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.
- “Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.” That means “we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years******.**”
- Dustin Miller, an agent with Windermere Realty Trust in Portland, said he’s trying to manage sellers’ expectations, something he hasn’t had to do since the end of the last housing boom. One customer, a baby boomer moving to a new home across the state, expected to have buyers fighting over her house. She got one bid, below her asking price. “Buyers want to shop and take some time, as opposed to having to rush and throw offers in,” Miller said. “It’s the market correcting itself. At some point, you hit a peak of momentum, and then things level off.”
Gently Decline Theory
That makes two plateau calls in one report. Here's the "gently decline" thesis.
“The rate of home sales, new and existing, has probably peaked,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “But it’s not going to roll over. It will gently decline.”
In San Jose, California, inventory was up 12 percent in June from a year earlier. It rose 24 percent in Seattle and 32 percent in Portland, Oregon. Those big jumps are from low numbers, so the housing crunch is still a serious problem.
Why is it a "serious problem" unless one believes in the plateau thesis or the gently decline thesis.
Permanently High Plateau
Irving Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached "a permanently high plateau". His subsequent theory of debt deflation as an explanation of the Great Depression, as well as his advocacy of full-reserve banking and alternative currencies, were largely ignored in favor of the work of John Maynard Keynes. Fisher's reputation has since recovered in neoclassical economics, particularly after his work was rediscovered in the late 1950s, and more widely due to an increased interest in debt deflation after the late-2000s recession.
Fisher vs. Keynes
Fisher's debt deflation theory is a far better explanation of the Great Depression than anything coming from Keynes or Ben Bernanke.
And if central banks followed Fisher's full-reserve banking request, there never would have been a housing bubble or a great financial crisis.
Yet, here we are, with modern-day theorists yet again proposing the "permanently high plateau" thesis.
- Housing Prices Hit "Breaking Point" Leading to Collapse in Demand
- Apartment Construction in 2018 Expected to Decline 11% After Strong 6-Year Run
- Existing Home Sales Decline Third Month Despite Rising Inventory
- Real Hourly Earnings Decline YoY for Production Workers, Flat for All Employees
- Housing Starts Unexpectedly Plunge 12.3% in June, Permits Down 2.2%
Mike "Mish" Shedlock