We’re in the social media age in the real world and in markets. Here’s why it’s a dangerous place.

In general, markets are the best way to find the truth about anything. Tech companies can sell a good story but one day it finally comes time to make money and that’s when the salesmen are separated from the great companies.

More broadly, a rising economy can sustain all kinds of flimsy business models because money is cheap. We’re in the stage now where bluffs are being called.

A big one is the housing market, which is at the crux of the real economy and the low-rate world. Prices shot higher during the pandemic and now with borrowing rates jumping, the market is quickly cooling. What happens next is a key cog for the economy.

Memories of 2008 linger and that’s sparked a cottage industry around speculating on a ‘collapse’.

Here’s an example from today:


Sounds compelling right?

Well let’s go through those one-by-one.

1) 20% of listings reduced prices in the past month

Declines in home prices are declines, right? What’s to argue there?

The reality is that normally, about one-third of US homes reduce prices before selling, so 20% is actually a sign of a tight market. Mind you, that number has crept up quickly and is worth watching but homes are generally priced optimistically, that’s nothing new.

Home price reductions

2) Mortgage demand lowest since 2001

Again this is true but it’s deceptive. In the US, refinancing a mortgage is something that’s easy to do. The vast majority of mortgages aren’t for buying homes, they’re for refinancing the home you’re currently in. Over the past two years it’s been a bonanza. The combination of QE and ZIRP has made it cheaper than ever to finance. So everyone who was paying +4% on a mortgage could call up a broker and get something cheaper. Why wouldn’t you?

Now that rates are above 5% that activity has dried up, naturally. That tells you plenty about mortgage rates but little about housing.

3) Interest rates doubled

Sure, but that’s old news. Moreover it obscures that mortgage rates started at an extremely low level are only slightly above the highs of the past 12 years and still very low on a long-term view.

US 30 year fixed

4) Refinance demand down 75% YoY

I covered this in point #2. Refis are down because rates are up, simple as that.

5) Inventory up 10% since March

In fact, inventories are up 35% since March. That sounds bad, right? Again, this is a story of inventories falling to multi-generational lows in an extremely tight, extremely hot market.

Does this look like a housing market that’s flooded with inventory?

US housing inventories

So what happened here?

The author of this viral tweet, who is trying to sell ” industry leading commentary on the global capital markets” is doing a great job selling something for $899/year. By fearmongering about a ‘housing market collapse’ with grossly-distorted facts, he’s not doing a good job of informing anyone of anything.

The problem is that even if I — with a far greater reach than he has — dispels this tweet point-by-point rebuttal, it’s not likely to get anywhere near as many views.

The social media era is about grabbing attention. Much of what is elevated by the social spotlight is along these same lines. Fear sells. But fear is a liar.

Here’s how I see US housing unfolding.

/ eur 

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