Zeihan on Geopolitics - What's the US Housing Market Doing? + LIVE Q&A || Peter Zeihan
Peter Zion explains the current state of the housing market, highlighting the aftermath of the COVID-19 pandemic and the subprime crisis, which led to a significant drop in new housing builds and a surge in housing prices due to increased demand for quality living spaces outside cities. He notes that while new house builds have remained stagnant, the housing stock has doubled, and sales have decreased by 40%. This shift is attributed to both political and economic factors. Politically, the fiscal policies of recent U.S. administrations have led to increased government borrowing, driving up mortgage rates. Economically, demographic changes, particularly the aging Baby Boomer generation, have influenced credit markets. As Boomers retire and begin to liquidate savings, the capital available for housing decreases, while their homes gradually return to the market, increasing housing availability but at higher credit costs. Zion emphasizes that real estate trends vary significantly by location, and local market conditions should be considered.
Key Points:
- Housing market affected by post-COVID dynamics and subprime crisis recovery.
- New builds stagnant; housing stock doubled, sales down 40%.
- Fiscal policies of recent U.S. administrations increased mortgage rates.
- Demographic shifts, especially Baby Boomers retiring, impact credit markets.
- Real estate trends vary locally; local conditions are crucial.
Details:
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4. 🏡 Post-COVID Housing Market Trends
- The housing market faces record low numbers of new builds as builders recover from a previous oversupply and misjudged the duration of the COVID-19 pandemic. This has created a significant supply shortage.
- High demand has emerged as people migrated to regions offering better quality of life, often outside major cities, causing an unprecedented rise in housing prices.
- Record housing sales have been recorded, yet the number of available housing units has drastically fallen, leading to substantial price surges.
- Young adults, particularly those in their 20s, are finding it increasingly difficult to enter the housing market due to these soaring prices and limited supply.
- The supply shortage exacerbates affordability issues, pushing potential first-time buyers out of the market and into renting longer, which could have long-term demographic implications.
5. 📊 Political and Economic Impacts on Housing
- New house builds have remained constant, with no significant change over several years, indicating a stagnant growth in new housing developments.
- The stock of houses on the market has doubled, suggesting an increase in available properties potentially due to reduced purchasing power or economic uncertainty.
- House sales have decreased by approximately 40%, highlighting a significant drop in demand, possibly influenced by economic conditions or policy changes.
- Political factors such as government housing policies and economic factors like interest rates and employment rates are impacting the housing market dynamics.
- For example, changes in government housing policies can affect affordability and accessibility, while interest rates directly influence mortgage costs, affecting buyer decisions and market activity.
6. 💰 Fiscal Policy and Rising Mortgage Rates
- The 30-year mortgage rate in the United States is intricately linked to the government's borrowing costs, particularly the 10-year treasury note, impacting homeowner expenses.
- Historically, excessive government spending has resulted in increased borrowing costs, as seen during the Obama administration's fiscal policies, which were significantly expanded by Trump and Biden.
- Future projections suggest that if Donald Trump fulfills his campaign promises, the U.S. could experience unprecedented federal deficits, which may lead to significantly higher costs for housing and borrowing, similar to economic situations in Argentina, Venezuela, or Greece.
- Such potential federal deficits highlight the importance of fiscal responsibility to prevent massive hikes in living costs for average consumers.
7. 👥 Demographic Shifts Affecting Credit
- Mortgage rates have roughly doubled since the first Trump term and are expected to increase further based on federal fiscal policies.
- Individuals aged 20 to 45 are net absorbers of credit due to raising children, building homes, and lower income levels.
- As individuals age from 45 to 65, they become net contributors to the credit market as borrowing decreases and income increases, leading to savings for retirement.
- The Baby Boomers have shifted from being net absorbers of credit in the 1960s-80s to net contributors from the late 80s to 2010-2020, impacting credit costs.
- The demographic transition of Baby Boomers has shaped the credit market, particularly affecting housing credit dynamics.
- Current trends suggest that younger generations may face higher credit costs due to increased mortgage rates and changing fiscal policies.
- Future projections indicate that as Millennials age, they may follow similar credit absorption and contribution patterns as the Baby Boomers.
- These demographic changes have profound implications for credit markets, influencing everything from interest rates to housing market dynamics.
8. 🚪 Dynamic Changes in Real Estate
- Two-thirds of the capital market stakeholders have retired, leading to a reduction in available capital across sectors, including housing, which could impact investment opportunities and housing development projects.
- The oldest Boomers, born in the late 1940s, have started to pass away, releasing their houses back into the market, potentially increasing housing supply.
- Boomers have historically not downsized or moved into alternative living arrangements, keeping housing supply tight. This trend is now starting to change as more Boomers pass away, which may lead to more housing availability but less demand for new construction projects targeting older populations.
- Despite increased housing availability, rising credit costs and mortgage rates have made purchasing homes more expensive, affecting affordability, especially for first-time buyers and younger demographics like millennials.
- The real estate market is highly local, meaning trends and conditions can vary significantly between regions, indicating the importance of localized market strategies for real estate professionals.