[spaceman_2020]

Everything has been fundamentally detached from reality, from stocks to housing.

Houses can sit empty without tenants for years but they’ll only go up. Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers. Commercial properties can bleed tenant but the prices will only be up.

In a world of shrinking growth , stalling productivity, and dying demographics, the market behaves like infinite growth is baked in.

It’s very clear to any observer that the markets don’t follow any rationality anymore.

[FredPret]

> don’t follow any rationality anymore

Anymore? When have markets ever been rational? Markets only line up with reality over the long term. You can point to any instant, and even any decade in time, and point major inaccuracies in the public's collective financial thinking.

> Houses can sit empty without tenants for years but they’ll only go up.

Do you have stats for how much of a problem this is? The problem seems to be vacancy rates that are too low, not too high.

> Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers.

This was a ZIRP (zero-interest rate policy) phenomenon and even then, was very limited in scope. Uber raised billions on a dumb business plan, yes, but that investment is tiny compared to the total amount invested in that period.

> In a world of shrinking growth , stalling productivity, and dying demographics,

Opinions should be based on facts, not over-excitement. Growth has been booming in real terms for centuries now. Many countries are in demographic decline, but overall we still have lots of net population growth for a long time. Productivity is not stalling, and is in fact skyrocketing all over the world.

https://ourworldindata.org/grapher/labor-productivity-per-ho...

> the market behaves like infinite growth is baked in.

Lots of people blindly pump their money into index funds every month. While this raises PE ratios to near-historic highs (not all-time highs mind you) it is by no means "infinite".

I find lots of great businesses with stock that sells for far more reasonable prices, given that they are off of the major indices.

Blind doomsterism doesn't help anyone.

[cycomanic]

> > Houses can sit empty without tenants for years but they’ll only go up.

> Do you have stats for how much of a problem this is? The problem seems to be vacancy rates that are too low, not too high.

No stats on my part, but I have some anecdotal evidence from Australia a couple of years ago. I definitely knew of several apartment complexes which were significantly empty, but advertised rents did not go down. The reasoning behind this was that banks used the previous rent for assessing value (which people used as capital for buying the next property). Because everyone essentially invested based on property price increases not rental income, it made more sense to leave the apartment empty and use the higher capital (based on a previous evaluation) to use for buying the next apartment, than to renting it out and not being able to buy the next property. L

[abigail95]

Australian east coast capital cities are the poster children for low vacancy rates and high prices.

The indicators you need to look for are politicians making it illegal to bid for a rental to obscure prices from market participants.

The percentage of capital gain vs rental income breakdown has been decreasing in Australia since interest rates started dropping 10 years ago.

Now it's going in the other direction, rents will outstrip capital gains because of higher interest - you'll have people saying that landlords are buying up houses and refusing to sell because rents are going up and they are just hoarding cash. You can't win against this argument.

[cudgy]

DR Horton (largest US home builder) is doing something similar right now. Instead of lowering the prices on their homes, they are including incentives by buying down the interest rates on the mortgages of their home buyers. This helps keep the prices of housing higher, which likely allows them to keep borrowing against their inventory, avoid credit calls, and await the Fed to lower rates and return to the good old days.

[spaceman_2020]

Cities have had to literally charge a tax to penalize investors who let their houses stay vacant. You think this would be happening if vacant investor homes was not a problem? [0]

> Many countries are in demographic decline, but overall we still have lots of net population growth for a long time.

Incredible strawman. Population has been growing in Africa and a handful of developing countries. That should have no bearing on valuations in western markets - these population growth centers are neither producers nor consumers of western capital goods/services.

> Productivity is not stalling, and is in fact skyrocketing all over the world.

In your own chart, labor productivty has been growing at a much slower pace since 2010 compared to the previous decades. This can be corroborated by other studies as well that show much more sluggish productivity growth in the last 20 years compared to the years before it.

This is a frustrating comment, filled with hand wavy platitudes about growth for centuries and booming population growth. It completely ignores the temporal component of market valuations.

0: https://vancouver.ca/home-property-development/empty-homes-t...

[wintogreen74]

>> You can point to any instant, and even any decade in time, and point major inaccuracies in the public's collective financial thinking.

Examples: today Halliburton and GE Health both posted numbers that be the market and saw big drops in value, while Spotify missed big time and swung to a loss, yet saw their stock price go up. Everybody points to potential but totally dismisses today's reality.

[FredPret]

The key thing to remember is “market” is simply a collective noun for “investor”.

It doesn’t have to follow any logical law. People can buy or sell at any time, for any reason, and the market price will move along with it.

[red-iron-pine]

At this point the average individual (aka retail investor) is functionally irrelevant for big moves like the one the parent poster made.

Large firms, often leveraging complex, autonomous systems, are the ones pushing around $20MM worth of stocks and moving the markets (or keeping them from moving). Jim the SE III dropping $30k in RSUs isn't doing to do anything except alter Jim's opinion on the capital gains tax.

[sharkweek]

I live in Seattle. There was a house on my street that had been torn down in maybe 2013-2014, that the owner of the lot sat on for a bit (it was one guy). He spent the next five-ish years slowly building a big, new house.

I’d laugh at how long it was taking him on a week-by-week basis while taking my dog on a walk. There it is, the house that will take almost half a decade to complete.

Well he finally does, and he sells the thing for close to two million dollars.

I then go look at comps during the same time period.

Because of his snail’s pace, he ended up probably making an additional 600-700k (or about 100k+ per year) because of how long it took him to build.

Jokes on me I guess!

[cudgy]

He still likely lost money. What if this guy did this process 5 times over the 5 years (build/sell) instead of sitting on a single property, taking his time?

[rcme]

Is the market acting like infinite growth is baked in, or is inflation simply out of control? And I’m not talking about CPI over the last three years. Stocks have been insane over the last decade. Real estate has been insane over the last decade. Neither of which is measured by CPI. So yea… the market is pricing things like the Fed will keep printing money to prop up assets it explicitly ignores in its inflation calculation.

[nemothekid]

>Is the market acting like infinite growth is baked in,

It's this. America has decided that:

1. The most important retirement/wealth vehicle is your home.

2. Home prices must only go up or your wealth will be destroyed.

3. The government should use it's power to uphold (1) and (2), which results in NIMBYism, all the tax breaks you see around mortgages, and of course the 2008 bailouts.

w.r.t stocks I largely think that was a ZIRP phenomenon, but stocks are allowed to correct somewhat.

[bumby]

You forgot the part where people use their home equity as a revolving line of credit, which exacerbates #2.

[red-iron-pine]

aka we got a head start and are now able to leverage that head start even further

[bumby]

I was thinking of it differently, more in terms of how debt-laden Americans tend to be. This is just another mechanism of perpetuating that.

It would be one thing if people are leveraging that equity to buy appreciating assets, but too often they are leveraging that debt for depreciating assets.

[bun_at_work]

The market kinda does have infinite growth baked in. To oversimplify more than a bit: The petrodollar system kind of ensures we export dollars to all countries who need to buy energy on the global market (not all, but a lot). That means the monetary supply has to go up or energy prices will skyrocket. So dollars are printed and the fed + treasury target a growth rate of 2%. Obv things are messed up right now, but that is how the system is designed. Infinite growth at 2% inflation per year.

E: To be clear I'm not claiming this is sustainable, only how the system is designed.

[DSingularity]

It certainly feels like money is going to lose its value eventually. Everyone is becoming wealthy by just clicking buy. When people start using that money, what will happen? Markups from exceed demand — inflation.

[XorNot]

Inflation of what though? Real estate is the only asset on the planet we can't just manufacture more of. iPhones, cars, clothes...all of that is disposable and near infinitely reproducible.

A person can't eat more then a very limited amount of food per day, regardless of their wealth.

So what's going to inflate?

[goawaythrwaway]

Why, the misery of poor folks, of course - as measured against a representative bundle of various non-value-producing traumas (i.e. Rich People Problems, in the common parlance.)

You see, when the "We" you reference in your second sentence - who I will actually refer to as "They" going forward (I hope this is not too presumptuous, if it is please notify me as quickly as you can after your 1st or 2nd eight-hour shift and I will update this) - Anyhow, the issue arises when They are no longer sufficiently motivated to infinitely reproduce these iPhones, cars, clothes, etc. for everyone to consume and dispose of. It should go without saying that this state of affairs is massively destabilizing for both We and They.

As the parent to your comment astutely observes, when "everyone is becoming wealthy by just clicking buy" (note: I will likewise be using the term "everyone" in the usual sense, as shorthand for "everyone I care about or know too well to assume financial standing directly maps to moral standing") then there is simply too much money sloshing around for it to continue flowing within the Banks as intended. It then, to borrow a phrase from esteemed economist Dr. Bonzo, begins trickling down to ever lower segments of the population. Obviously, this is Very Bad; and indeed, if this trickle-down continues it may eventually reach populations far below C-level.

That brings us to our current crisis. In the above context, you may think of the money-printer-go-brr approach of 2020 onward as a sort of Hundred Year Flood. What's worse, this flood was already largely concentrated in the lowest-lying areas it was ever intended to reach. Although We had the foresight to levy protective taxes on these areas, even these levees became overtaxed in the deluge and the usual trickle turned into a torrent. Suddenly, even the poor could afford to purchase some of the things they produced. Needless to say, this caused a dramatic decrease in the Productive Misery supply at exactly the moment when We demanded it most. Enter inflation.

Looking back on this disaster, one thing is clear: Though I'd always considered the phrase far too pessimistic to be true, a rising tide really does lift all boats. In fact, these days the yacht gets stuck in traffic so often, I wonder if a third one is even worth it.

[BeFlatXIII]

Real estate and stocks are both inflated from the 2008 money printing. Why didn't the QE from the '08 crisis cause visible CPI inflation? The money went directly to billionaires and banks who bid up prices on assets that banks and billionaires enjoy: stocks, yachts, and real estate. The C-19 stimulus money went to the pockets of ordinary citizens, who then increased demand for products regular people spend money on, causing inflation readily captured by CPI.

[Xeoncross]

The market is acting very rationally. If you print trillions of dollars out of thin air every year, there is more money and more demand. So everything else goes up in price.

Everything still costs the same relative to the amount of US dollars that exist. Wages just aren't keeping up with printing press.

[bryanlarsen]

Money printing (aka QE) stopped 13 months ago and money shredding (aka QT) started 10 months ago.

[Xeoncross]

Check the charts again, the new lending vehicles to banks just wiped out half the QT that we had gained last year.

Set the chart to a 1yr scale: https://fred.stlouisfed.org/series/WALCL

You'll see our QT was already paltry to begin with compared with the total balance sheet, now we're close to our ATH again.

Prices are the result of years of strong printing (since 2008) ballooning our cash vs asset ratio compared with what it was in the 90's or 00's. It takes time for the economy to react, but we certainly had a bull run decade since the printing started.

In 2018 they started the same slow sell off of assets, but then quickly surpassed it during the 2020 lockdown printing.

[rvba]

Markets dont follow logic because central banks pump incredible amounts of dollars via money creation.

Quantitative easing, 0% interest, massive inflation - are all just facets of the same problem - that central banks dont work for the common people.

Market looks irrational, but it is rational - money is "free" - so zombie companies can exist. Inflation just ruins the low and middle class, but who cares - it is convenient for governments.

Market was artificially pumped by quantitive easing. Also money is not free for normal people, banks earn interest and that interest comes back as inflafion.

Licence to create money out of thin air is like license to steal.

[kristianbrigman]

This is because money is trying to be two things at once - a medium of exchange, and a stable asset - and those are often in conflict.

If I just want to trade my bushel of corn for your chicken, money makes it easier - I exchange my corn for some money, and then I exchange that money for your chicken. I don’t care whether the money is ‘one fricasee’ or ‘ten million gorzebos’ as long as we both agree that’s the number attached to it. You can use something that is a real asset for this, but it actually doesn’t have to have any intrinsic value to be usable for this, as long as everyone agrees to use it.

However, there’s a time element - I can sell my corn, and then keep the money for a while, retaining the power to buy the chicken later. That turns it into a potential asset. During that time, the numbers attached to different items could go up or down - the time element makes arbitrage possible. Even for ‘useless’ assets.

Too much money held as assets can reduce its effectiveness as a medium of exchange - but improving the effectiveness as a medium of exchange can reduce its stability/value as an asset.

Also probably why there is a lot of contention over gold standards etc. - the gold standard improves its value as an asset, while potentially limiting its value as a medium of exchange - so it’s going to depend on which one you prioritize whether you will favor it or not.

[paulddraper]

> Licence to create money out of thin air is like license to steal.

Is the purchasing power of your savings account shrinking 6% a year from inflation, or it is shrinking 6% a year from bank robbers?

Same effect either way.

[vkou]

If I'm sitting on a mountain of corn/a pile of gold/a warehouse full of NVIDIA GTX 3080 cards, and someone else starts growing corn/digging up gold/selling 4080 cards, my savings' purchasing power is going to drop, but it would be disingenuous of me to complain that I'm being robbed.

[paulddraper]

There you are producing something, which is a worthy endeavor.

I think a closer analogy would be spreading a corn disease.

[cudgy]

“Houses can sit empty without tenants for years but they’ll only go up. Companies can be unprofitable for literal decades but they’ll keep finding funding and buyers. Commercial properties can bleed tenant but the prices will only be up.”

This is not sustainable over the long haul and is basically asset holders holding out for better days (e.g. waiting for the Fed to lower interest rates to recreate the frenzy). In the meantime, cash flows and operating profits are going to get hammered until those with the shallowest pockets can no longer keep up the charade, and the fire sales begin.

[Eumenes]

Why would an empty house not go up in value? If anything, if its unused, it'll likely require less upkeep/repairs.

[spaceman_2020]

It simply means that housing is being bought up by people who don't need their investments to return any cash flow.

Which is great if you're a wealthy oil tycoon from UAE or a Chinese billionaire. But not so great if you work in the city and want to buy a house for your family.

[yamtaddle]

Didn't look at a lot of long-term vacant properties during & after the '08 crisis, I take it?

Modern houses aren't meant to survive in most climates, without heating and air conditioning. They grow mold from trapped humidity, and the finishes fall apart from expansion/contraction.

And this is assuming they were properly winterized before being abandoned, and that they don't suffer any damage that allows outright water infiltration (say, wind damage or a tree branch falling and letting water in through the roof or siding) or vandalism.

I've seen some that were starting to have serious problems less than a year after being abandoned. Thousands of dollars of damage already accrued.

[EDIT] Now, keep the heating and AC running at minimal levels and have someone check in on it every few months, then fix any problems that are developing, and that's another matter—but that costs money, and isn't something I've ever seen done with long-term-vacant institution-owned properties.

[bluedino]

Abandonded houses are often stripped of copper, etc and have squatters, vandals, problems from not being maintained or lived in...

[Eumenes]

Abandoned? You know people own two homes and live in them seasonally w/o them being vandalized? Source: have a summer cabin that's never been rack sacked by vandals.

[esafak]

ransacked. Dictionary says it's from Norse: rann (house) + soekja (seek).

[wlonkly]

As perfected by the (Norse) Vikings!

[BearOso]

These are usually gated areas where it's mostly huge model homes and they since few live there, outsiders would be be obvious.

[98codes]

If it's unused generally but also kept up, sure. That's generally not the case for empty houses.

[wesapien]

If China didn't control the outflow of Yuan, then real estate everywhere would be much higher than it is because they will just park their wealth there far away from the hands of the CCP.

[fumar]

Does this mark an end for our society's principles? Are we do for a dark age? Are we in it or will there be an enlightenment or renaissance?

[spaceman_2020]

I don’t know, but it’s increasingly frustrating as an average person. Apartments around me keep appreciating in value every year, rents keep going up astronomically even when the houses stay empty.

My income went up, but housing in my area went up nearly 2x. I’m being priced out of areas I’ve lived in forever.

I feel like a social contract has been violated. Everything, from products to housing seems to be targeted at the “luxury” and “premium” segment. It’s like a omnipresent giant middle finger to anyone but the wealthy.

[crooked-v]

Housing prices keep going up in the US because, fundamentally, there's not enough housing and hasn't been enough housing built for decades [1]. In most big cities, this is a self-inflicted problem caused by bad zoning and by planning and permitting processes that can take years and add huge amounts to home prices. (This is a big part of the reason there's so much "luxury" housing; adding a superficial high-end gloss is one of the few ways to disguise the additional bureaucratic markup.)

Unfortunately, a huge number of people like to blame this entirely on evil developers and evil corporations and think that merely adding more regulation on those will make the problem magically go away.

[1]: https://www.cnn.com/2023/03/08/homes/housing-shortage/index....

[bink]

Housing prices are rising dramatically even where populations are declining and land is abundant. It's not as simple as saying there's a housing shortage due to zoning.

[kevinventullo]

Are you sure? Housing prices in my small Midwest hometown have risen by something like 1%/yr on average for the last 30 years.

[bumby]

Just curious, what's the population growth been like? If it's been declining, why would we expect housing prices to go up at all?

[nprateem]

House prices go up because they're now investments. Bring in land value tax and you'll quickly see a reversal.

[pjmorris]

I just went and looked up 'San Francisco empty residences'... it's somewhere between 40,000 and 60,000 depending on where you look. I then looked up 'San Francisco homeless population'... somewhere around 8,000.

I am not convinced of the narrative that there isn't enough housing.

[rilindo]

Those 40,000 - 60,000 "residences" are not necessarily available or even occupy-able. And the number of homeless is very like an under-estimate[0].

[0]https://www.youtube.com/watch?v=3xZXdXxYBGU

[jimbob45]

I wish this narrative would die. It's probably true that there's not enough housing but it's also true that AirBNB is sucking up many of the vacancies and apartment ownership consolidation is allowing owners to endure vacancies longer than they should be able to. You're simply never going to convince everyone that building more is the answer when there's such low-hanging fruit in front of everyone's eyes that you refuse to acknowledge.

[midwesternerer]

I don't understand why you are suggesting Airbnb isn't "fair" demand on the housing stock.

Also it is really hard to believe that Airbnb is a meaningful impact on housing prices outside of certain touristy locales. My suburban neighborhood has had 5+ offers on every house that has come for sale in the last year and there are no Airbnbs in the neighborhood and only two within a five mile radius.

The only real answer is to build more--not depend on the government to artificially constrict supply by regulating vacation rentals.

[bumby]

>The only real answer is to build more

I don't think this kind of dichotomous thinking generally holds with complicated real-world problems. They are almost always a confluence of multiple "answers".

E.g., yes, housing supply is probably part of the solution. But so may be integrating policies that disincentivize viewing something necessary (like housing) as an investment asset.

[contingencies]

You have pretty much articulated the feeling of anyone under 50 in Australia.

[OoOOo]

Absolutely agree with this assessment.

[akiselev]

If anyone honestly feels this way, I invite them to read The Republic for Which It Stands [1] by Richard White which is about the post-Civil War era and the Gilded Age. Everything from the political division to the growing income inequality looked a lot like today - worse even! - and the author specifically points out the similarities throughout the book.

This has all happened before, and it will all happen again.

[1] https://www.amazon.com/Republic-Which-Stands-Reconstruction-...

[etothepii]

So say we all!

[cuteboy19]

A zero interest rate phenomenon