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The Real Signal # 51 - AirBnB Bubble Will Pop The Housing Bubble

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The Real Signal is a weekly newsletter - curated and written by Scott Choppin - that highlights macroeconomic trends in the real estate market - focused on real estate development and investments. We are "signal from the noise" in real estate + macro.
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The Real Signal # 51 - AirBnB Bubble Will Pop The Housing Bubble

Sep 2, 2023
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The Real Signal # 51 - AirBnB Bubble Will Pop The Housing Bubble

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The AirBnB Bubble Popping Will Pop The Housing Bubble

“This is how bubbles collapse: the "vital few" 4% sell at whatever the market will bear, pushing prices down, and the 64% awaken to the rapidly narrowing window for locking in bubble capital gains.”

What's often forgotten about real estate is prices are set on the margin. The Pareto Distribution is a handy tool for understanding how an entire neighborhood's home prices are re-set by a mere handful of sales.

The Pareto Distribution is often summarized as the 80/20 Rule. The 80/20 rule can be distilled down to 80% of 80% and 20% of 20% to the 64/4 Rule: the "vital few" 4% exert outsized influence over the 64% mass. So 4% of sales can re-set the valuation of 64% of all neighboring houses.

So 40 houses selling for around $450,000 will re-set the valuation of 1,000 nearby homes from $800,000 to $450,000. This is why an apparently modest number of fire sales of money-losing STVRs will dissolve the floor under bubble valuations.

The STVR bubble was entirely an artifact of 1) historically absurdly low mortgage rates and 2) post-pandemic price-insensitive "revenge spending". Both are over. There is no way the bottom 90% can afford homes at today's bubble valuations, so the pool of buyers is limited to the top 10% already-wealthy, whose appetite for owning "surplus capital" rentals vanishes once the lofty weekly rates and low vacancies reverse into high vacancies and collapsing rental rates.”

Source: @Econimica on x.com

The collapse of the STVR bubble will topple a line of dominoes as corporate owners will awaken from their fantasies and realize they better sell now to lock in their gains before they vanish. Wealthy households who "land-banked" properties for capital gains and places to park "surplus capital" will also awaken to the the need to lock in gains by selling.

This is how bubbles collapse: the "vital few" 4% sell at whatever the market will bear, pushing prices down, and the 64% awaken to the rapidly narrowing window for locking in bubble capital gains. This rush for the exits triggers a strike in buyers, who realize there is no way to know how low valuations will fall, and so waiting for a bottom makes much more sense that playing "catch the knife," i.e. buying as a bubble deflates, hoping you don't get burned by prices falling after overpaying.“

Source: ZeroHedge

Article Here


Rising Percentage of Home Buyers Choosing To Rent

“Due to higher mortgage rates, 13% of home buyers nationally switched from wanting to buy to choosing to rent. Given where rates are, I'm pleasantly surprised that figure isn't higher.

Only 9% switched in the Southeast but 20% or higher did in Southwest, Texas, and Northwest.”

Scott Choppin Note: Please pay attention to the percentage of buyers switching from buying to renting both in SoCa and NorCal. While I don’t have the specific total numbers from the JBREC report, I speculate with high confidence that California leads the nation in total percentage switching.

Source: @JBREC on x.com


Federal Government Current Interest Payments

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