In the ‘80s and ‘90s, chewing gum was an essential part of childhood, particularly the Bubblicious brand. For those not familiar, Bubblicious was best in class for blowing massive bubbles, the stuff of legends. On rare occasion, one of these bubbles would spawn two or even three smaller bubbles, growing simultaneously before your very eyes. These multi-bubble anomalies were even sweeter with an audience. Friends would gather in amazement and trepidation, loudly speculating on the duration of this larger-than-life phenomenon, all the while ready to recoil at any blowback.
Just as Bubblicious gum (with maybe a chaser of Mountain Dew soda) provided the magic elixir for my adolescent bubbles, low interest rates and a world awash in liquidity set the stage for financial markets and asset-value froth as an adult today. As market participants, we watch with a healthy dose of nervousness, wondering just how long we’ve got until the inevitable bubble-bursting cleanup ensues. Like my chewing-gum days of yore, we’re in a unique economic environment where multi-bubbles are blowing, some arguably feeding other bubbles. This period of ephemeral effervescence isn’t sustainable, and the inevitable deflating should be a scenario in your outlook playbook; it certainly is in ours.
Let’s take housing, for example. According to our estimates, home prices will rise 20% nationally in 2021 and a whopping 36% in Austin and Boise—clearly unsustainable. This boom has collectively been fueled by limited supply, a COVID-induced housing obsession, investors, and what we’ve dubbed the Great American Move. Remove the punch bowl of low rates, however, and housing’s ascent since spring 2020 likely reverts to a more normalized growth trajectory.
Which brings us back to the Bubblicious multi-bubble metaphor. In just the last year, the price and popularity of cryptocurrencies have exploded, with Bitcoin up 263% to $60,800 and Ethereum skyrocketing 831% to $4,300. On September 4, I ran an informal Twitter survey, attempting to gauge how the run-up/speculation in cryptocurrencies and non-fungible tokens (NFTs) might be impacting the housing market. The exact question went as follows:
In total, 385 votes came in. (I held the survey open for 72 hours.) To my amazement, 20% of respondents indicated yes, they had indeed used profits from crypto and/or NFTs to help with the down payment on a home purchase. Heading into the survey, my ballpark estimate would have been below 5%, probably closer to 1% or 2% if you’d asked me to place a bet. Yes, the Twittersphere likely understands and uses crypto/NFTs more than the general adult population, but still, 20%!
Trying to gauge crypto & NFT boom impact on housing market. Have you or someone you know used profits from crypto &/or NFTs to help with down payment on home purchase?
— Rick Palacios Jr. (@RickPalaciosJr) September 4, 2021
Since running the survey, I’ve had dozens of conversations with housing and mortgage industry executives, attempting to gauge just how big of an impact crypto specifically is having on the housing market. Here’s what I’ve concluded:
- The percentage of home buyers voluntarily documenting crypto accounts during mortgage underwriting has gone from almost 0% one year ago to between 5% and 10% today. This isn’t shocking given recent Pew Research Center estimates indicating 16% of Americans have invested, traded, or used crypto. Platforms such as Coinbase were noted most often during my industry conversations.
- Home buyers using crypto gains towards the down payment of a home are more difficult to gauge, with most lenders and builders I spoke with estimating the percentage at roughly 5% or less. On occasion, 10% to 15% was noted, namely in higher price points and/or communities skewing toward younger buyers more familiar with crypto.
While the above percentages appear low, all the housing executives I spoke with anecdotally estimated the percentage of home buyers using crypto gains toward the purchase of a home was higher. Why higher?
- Most home buyers don’t disclose crypto accounts, as it is voluntary and not required. Moreover, most lenders do not at this point have a consistent process for flagging accounts as crypto during underwriting given the industry’s nascent state.
- Most home buyers are liquidating crypto gains well ahead of purchasing a home for the funds to appear “seasoned” during underwriting (typically sitting two to three months in a traditional checking or savings account). This makes the process of deciphering crypto gains vs. traditional savings or liquidated stocks almost impossible, and generally not necessary for qualifying.
Clearly, the inflating of what many deem a crypto bubble has at the margin helped inflate other asset classes such as housing (which some argue is its own bubble). There’s a case to be made for many more mini-bubbles percolating beyond just these two; just google Everything Bubble.
Nobody knows when and how quickly the air will let out of today’s multi-bubble euphoria. However, just as a youth staring through the pink film of Bubblicious bubbles expanding in unison before my eyes, I know the ecstasy is fleeting.
Follow Rick on Twitter: @RickPalaciosJr