Life in the Bubble

The current housing market defies logic.

As I see it, the baby boomers should have been retiring for the past ten years, and downsizing. The generations that follow them are smaller. So the demand for housing should be easing.

The need to live in large cities, where the housing shortage is extreme, should also have been declining, with the increasing feasibility of telecommuting. And the attractions of convenience that might attract people to the cities have also been declining: with the Internet, you can get all the entertainment you want anywhere; with Amazon, you can purchase anything you want, and have it delivered anywhere. The cities should be emptying out.

The cost of housing is also rising much faster than incomes. This should be pushing people out of the market, at least for larger homes.

Given all these considerations, housing costs should be declining. Instead, they are skyrocketing.

It seems to me it has to mean we are in a speculative bubble. And it is, sooner or later, going to pop, with devastating results.

We even already saw it happen, in 2008.

People are buying property on speculation. When housing prices dip, as they will, a lot of folks are going to stop paying their mortgages, and a lot of money is going to disappear.

The current COVID-19 crisis has almost shut down China’s economy. It may get worse. That is sure to have consequences for the world economy. This might be the shock that starts the run on housing.