Chris Rupkey, FWDBONDS Chief Economist, discusses the increasing price for houses in Florida and home pricing trends around the nation.
- Prices in Florida up we saw in Case-Shiller dramatically. The question is, are we in a kind of housing bubble that you should be worried about? Let's bring in the chief economist from FWDBONDS Chris Rupkey. It's good to have you here. And when we talk about bubbles, I mean, no two bubbles are alike. The bubble we saw in 2007-2008 was because of unsustainable values. What should we consider when we look at the rapid increase in housing prices in Florida? And is it the kind of bubble where if you're buying right now you could get burned?
CHRIS RUPKEY: Yeah, I mean, that's the issue here. I mean, Greenspan always said you can't recognize a bubble in time because you don't know it was a bubble until things crash, which doesn't do people a lot of good. This bubble is a little bit different. Housing prices have lifted down in Florida since the bottom in 2011, a solid 10-year advance here.
And I think it's not just the worry that prices might crash. It's also the fact that this is harming homebuyers. It's harming would-be consumers. It's harming workers. It's become so costly to buy a house now that that is detrimental to the economic outlook in and of itself.
- Chris, how long do you expect this problem to persist when we try to put this into perspective for our viewers? Is this something that we will be dealing with for the next several months, for the next couple of years? What do you think that outlook looks like right now?
CHRIS RUPKEY: I guess every other bubble we've had, there's been a slow climb in prices that get faster and faster. And there's a real upward arc in prices. This one, it still looks like there's an upward arc in prices. It accelerated a little, the home price gains, after the Fed crushed rates to zero back in March 2020.
But you know, the thing that alarms me is the advance in prices by 20% in one year. It's something we've never really seen before. We might have seen it when we had hyperinflation in the late 1970s, early 1980s, but we haven't seen it for a good 40 years. And I don't know what it means. I mean, for me, I would be afraid of prices falling back 7% or 8% in the next year.
I guess the scary thing for me is that you were talking about what happened if the bubble bursts. We never really know. There's only been two times where the housing bubble has burst in the last three decades. And each time, it was due to a recession because you always ask yourself, who would sell their home if prices dropped 10%?
The only one who's going to sell their home is if you're unemployed like in a recession, and you can't make the mortgage payments. So it's difficult to see a burst here without a new recession and joblessness. But you know, anything can happen. I'm a little bit afraid-- 20% gain in one year. Wow, that's-- we've never seen it, and it scares me.
- In fact, when you talk about that, one thing, though, as someone who grew up in South Florida and knows a little bit about-- my dad was a real estate lawyer, so we lived through those boom-bust cycles that South Florida has been through. You go back to the 1920s. It takes a good hurricane, and they're done. But I'm thinking 19-- well, I wasn't alive in '26, but look at the history.
But here's the deal. You got an aging population in the United States that's moving to Florida for tax advantages. And that's a different scenario than in the, say, last five decades. Isn't that enough to sustain at least prices in Florida? I get what you're saying about the other parts of the country, but Florida in particular seems to have an ability now to recover.
CHRIS RUPKEY: Well, the baby boom is 57 to 75 years old right now. They were moving to Florida a decade ago when home prices in West Palm Beach and Boca Raton dropped 50% from the highs. So I don't know if that's enough to-- to rescue Florida. I would say it's not just Florida. It's more mature markets. Well, actually, the Boston area in New England is always seeing a boom and a bust before as well. And they're a long way from the sunnier climes, obviously.
But it's almost every area of the country, even places like Indiana, that's seen a real acceleration of prices. So I think it has something to do with the pandemic. It's made people question what they're doing. And it's made people perhaps reach a little bit to buy that house here. Maybe it's the Fed's extraordinary liquidity. I don't know. I mean, you know, once they start pulling back the liquidity and raising interest rates, mortgage rates go up, it's still possible, it seems to me, that home prices could drop 5% to 10% in this extraordinary period.
- Chris, let's switch gears here a little bit and talk about the other big story. And that, of course, is the jobs picture, that weekly jobless claims number that we got out this morning better than expected, lots of hype going into tomorrow morning's number. What's your assessment of the labor market heading into tomorrow?
CHRIS RUPKEY: Gosh, it's hard to figure. I mean, the problem is regardless of what payroll employment does, the job openings data suggests that there's millions and millions of jobs that employers need to be filled. So there's something a little head scratching here about this labor market recovery. Jobs are still-- behind the unemployment rate of 5.2%, the employment level is still not back to normal prior to the pandemic. So we've lost about 5 million jobs there.
Sometimes, I think those 5 million jobs down from the best of best times late in 2019 before the pandemic, sometimes I think we're closer to full employment simply because we've lost 5 million jobs because people have dropped out of the labor force. If you look at labor force dropouts since the pandemic, it's running about 4 million people.
So payroll-- I mean, employment levels are down about 5 million, but 4 million have dropped out. So are we closer to full employment? And and-- and perhaps it's true that employers can't find work because it's actually a tight labor market. And the Federal Reserve officials are misreading this.
The other thing about the dropouts, you know, a lot of times, politicians will say we've got to bring those people back into the labor force. These dropouts in this short recession are very different because of the baby boom generation. Out of 4.9 million people dropping out since the pandemic, 3 million were over-- were 65 years and older.
So what I'm saying here is that maybe this was going to happen anyway. And the 10,000 baby boomers turning 65 every day, they're deciding just like, "I'm out. I'm done." So maybe the labor market is tighter than we think no matter what happens with payroll employment tomorrow.
- Chris Rupkey is the chief economist at FWDBONDS. I just got to put a plug in for South Florida. If you do wind up moving there, the best thing about it is Shorty's barbecue on Dixie Highway down near Dadeland. It really is tops.