The Real Signal # 51 - AirBnB Bubble Will Pop The Housing Bubble
Discover more from The Real Signal - Real Estate + Macro - By Scott Choppin
The Real Signal # 51 - AirBnB Bubble Will Pop The Housing Bubble
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.”
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
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
