Posted:June 19, 2025
Categories: Real Estate, Housing, Monetary Inflation, Inflation
Early in my career, I learned that to understand the ever-changing dynamics of the financial markets, I needed to read. I needed to read a lot. Since that revelation, I have read as much as possible, given the time available. At some point, instead of trying to absorb everything, I focused my reading on specific analysts or authors for research. This helped me concentrate, understand, and apply that knowledge, knowing where each analyst or author came from. When one differed from their view, this was a trigger to try to figure out why and if that mattered to my worldview and how I managed portfolios. When two or three did the same and agreed, this was even more interesting. Finally, I also attempted to read from those who had differing viewpoints from my own and from each other. While intellectually challenging, testing my beliefs against contradictory opinions produces some of the most rewarding research and reading experiences. I try to learn new things every day. But I am the first to say that I certainly do not, and never will, have all the answers.
Housing Market
Recently, while visiting friends and family in Iowa, alarm bells went off when three of my regular research sources published similar articles within hours of each other on the U.S. housing market. All three sources shared similar opinions that the housing market was extremely weak, with the supply of homes vastly exceeding demand. They mostly argued that the current state of the U.S. housing market has shifted significantly, favoring buyers over sellers, primarily due to a combination of historically high prices and reduced demand.
Owning a property and casualty insurance business in a seasonal residence destination affords me valuable insight into the housing market. I noticed this trend approximately 6-12 months ago, with a steady decline in new calls and requests for insurance quotes from new homebuyers. This has increased significantly in 2025.
I’m also acutely aware that, due to factors in our debt-based monetary system, a significant portion of the population in certain areas of the country is “priced out” of the market because of the enormous rise in housing prices over the past 15 years and the stickiness of interest rates following the inflation of COVID. Despite the notion that today’s market has become a “buyer's” market, many unfortunately find themselves unable to afford a home.
Dual Housing Bubbles
To illuminate this issue, take a look at the following charts from an article published by Wolf Richter. This article was incredibly illuminating to me, as it highlighted the vast difference between the impact of the 2008/09 Global Financial Crisis (GFC) on housing prices and the significant rise in housing prices resulting from low interest rates following the GFC, as well as the effects of monetary inflation of the past 15 years accelerated by the COVID-19 pandemic. The figures below show the average price of a single-family home, condo, and co-op in selected housing markets. It tracks the “raw,” not seasonally adjusted, mid-tier Zillow Home Value Index (ZHVI).
Selected Housing Markets
I’ve included a sampling of markets below, geographically from West to East.
San Francisco
The bubble in the early 21st century is evident in San Francisco, but the current bubble we find ourselves in dwarfs the first.
Figure 1: San Francisco
Source: Wolfstreet.com
Austin
Austin has seen a significant drop in prices recently, more so than any other city.
Figure 2: Austin
Denver
You can’t even see the GFC in Denver; it’s almost as if there had never been a bubble in this city, relative to the current housing bubble. Prices have more than doubled.
Figure 3: Denver
Kansas City & Chicago
In the middle part of the country, prices continue to rise, as seen below from the Kansas City and Chicago markets.
Figure 4: Kansas City
Figure 5: Chicago
Atlanta
Atlanta is also showing strength. Home prices have doubled since the peak of the GFC to today, like many other markets.
Figure 6: Atlanta
New York & Boston
No slowdown in New York as prices continue to rise, but the GFC is most clear in this chart out of all the cities. Boston also shows strength.
Figure 7: New York
Figure 8: Boston
Tampa, Orlando, and Miami
Here in Florida, we certainly experienced the GFC bubble as seen in the charts below. But a trend appears in all of these charts. “Housing Bubble 2” dwarfs the first.
Figure 9: Tampa
Figure 10: Orlando
Figure 11: Miami
The Trend
It’s very easy to see the trend. We experienced a housing bubble in the early 21st century, followed by a subsequent bust. The government bailed out the financial sector, including the banks, infused capital into the monetary system, and drove interest rates to 0%. With the cost of capital essentially zero, many institutional buyers entered the market at times, purchasing entire neighborhoods. Additional monetary stimulus was introduced in 2020 and 2021 to support the recovery from COVID-19. In the meantime, those who locked in low-interest-rate mortgages refused to sell, driving housing inventory down and prices higher. The result is where we stand today. Prices have risen so much that a vast majority of buyers are priced out of the market.
Monopoly Money
U.S. home prices have historically been remarkably stable, increasing annually by 4.4% since 1928. Since 1975, home prices have risen by 5.3% annually, with only seven negative years, five of which occurred in succession from 2007 to 2011. Since 2015, home prices have returned 6.9% annually (Damodaran, 2025). Homes are real assets that tend to perform well during periods of monetary inflation, when the government is highly stimulative through low interest rates and primarily by increasing the supply of dollars in the system.
Imagine a game of Monopoly where, instead of Park Place and Boardwalk, you have New York and Boston. Instead of Atlantic Avenue, Ventnor Avenue, and Marvin Gardens, we have Tampa, Orlando, and Miami. You get the point. Now, picture that halfway through the game, the banker decides to double the supply of Monopoly money. The banker also declares that each property will be auctioned when a player lands on it, rather than allowing the player to buy the property. Suddenly, everyone is twice as rich, and we have an open real estate market. What will happen to real estate prices? Naturally, prices will rise when properties are auctioned. We all have so much more money! Now, imagine that the supply of dollars in the United States increases through actions taken by the Federal Reserve following the GFC and the COVID-19 pandemic. What happens to real estate prices? They rise.
The Path Forward
The path forward is highly unknown. Are we sitting on a bubble that’s about to burst? Maybe, but it’s more nuanced now. Much of the leverage in the system following the GFC was concentrated in the banking sector. Today, banks are not nearly as leveraged as they were in the past. Instead, following the GFC, the leverage was pushed onto the government’s balance sheet. Popping this bubble would mean a sovereign debt crisis. Interest rates tend to rise in a sovereign debt crisis. While not out of the realm of possibility, I believe we’ll see more monetary inflation as governments kick the proverbial can down the road.
A large percentage of the population is sitting on low-interest-rate mortgages with no need to sell their homes. This is a recipe for higher prices. Mortgage rates have been stuck around 6.5% to 7%. Looking back historically, a 6% mortgage is much more “normal” than a 3% rate, which many locked in during the last decade. A recession would bring home prices down. As would a forced sale en masse by institutional buyers. Finally, lower, long-term government bond interest rates would help buyers perhaps the most, such as the 10-year US Treasury rate. However, bringing down the 10-year has been extremely difficult to do. For now, we’ll have to wait and see.
References
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