Three Things I Think I Think – Housing Bubble 2.0, Passive Investing And Hyperinflation

Here are some things I think I am thinking about:

Is the Housing Market a Bubble (Again)?

I’m starting to see a lot of chatter about a housing bubble 2.0. So I went on Twitter and asked people what they thought. There were tons of smart responses if you want to review them. Ben Carlson also wrote a nice piece about the state of the housing market. I think Ben gets the big picture right. Basically, this isn’t that much like 2006 because:

  • The buyers are mostly high creditworthy wealthy people.
  • There hasn’t been a big building boom. In fact, supply is tight.

There’s a lot more to the story, but that’s the basic gist of what’s going on.

I’d only add that the current price boom seems to be more about COVID than anything else. In other words, I think that future demand has been pulled into the present because of COVID. So, as things normalize we might see some give back, but I’d be surprised if prices fell much past the trendline trajectory of prices from 2012-2020. In other words, the torrid pace of appreciation is unsustainable, but that doesn’t mean the same downside risks are present that existed in 2006.

If you held a gun to my head I’d bet that home prices ease up some in the coming years and rents actually rise a bunch. I’ve noted in recent weeks that the buy-to-rent ratio is fast approaching its 2006 levels, but this can correct in 3 ways. House prices crash. Rents surge. Or a bit of both. I’d guess that we’re gonna get a bit of both with much more emphasis on the rents surging piece.

Passive Investing is Wrecking the World (Again). 

Every few years we get one of these articles about how passive investing is gonna wreck the world. I’ve written A LOT about indexing myths. So my head explodes a little bit every time this narrative keeps popping up. Regulars know that I am hyper focused on operational realities of the financial system. It’s pretty much my whole focus – understand things at an operational level. And discussions about “passive” investing tend to be based on somewhat basic misunderstandings. For instance, “passive investing” cannot even be a thing since everyone must deviate from the one true passive portfolio (the Global Financial Asset Portfolio). More importantly, everyone can’t be a passive (I should say less active) investor because passive investing relies on active traders and market makers to make the markets that allow passive investors to be passive.

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Disclaimer: The content in this article is provided as general information only and should not be taken as investment advice. Article content shall not be construed as a recommendation ...

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