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.
Here’s how we can tell if a speculative bubble is a bubble: everyone says it isn’t a bubble–the market has reached a “permanently high plateau” because valuations are now fairly priced, etc.
Housing globally is in a bubble which we’re constantly assured isn’t a bubble. As I discussed yesterday ( The Problem Isn’t a Housing Shortage, It’s the Concentration of Ownership by the Wealthy), this bubble is fundamentally an artifact of central bank and government policies that enrich the already-rich, who were incentivized to outbid each other with low-cost credit to snap up “investment properties” with their “surplus capital” that generate more income and capital gains that cash, which until recently was “trash” due to near-zero savings yields.
Many wealthy families collect multiple properties via inheritance, as second (vacation) homes or as long-term rentals. This hoarding is (as I explained) the only possible result of policies that asymmetrically distribute credit, and thus income and capital gains, to the already-wealthy rather than to the not-yet-wealthy. This policy-driven hoarding / concentration of housing in the top 10% is one factor driving rents higher due to artificial scarcity–a scarcity created by central bank and government policies, not the “market.”
(Regulations and bureaucratic friction that push the cost of new constriction to the moon are another factor, but that’s a topic for another post. I also want to stipulate that I am not talking about people of modest means who acquired rental properties by scrimping and saving their earned income and making sacrifices for decades–a strategy that is part of Self-Reliance; I’m talking about the already-wealthy who are seeking to “maximize returns” on their unearned “surplus capital.”)
A systemic driver of this bidding war for rental properties is the “Airbnb” model of monetizing individual properties to compete with hotels and resorts for lodging. This model is called short-term vacation rentals (STVR), and the already-rich have been pouring their wealth into STVRs for the past 15 years.