Last Time this Happened, the Housing Market Collapsed

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“The ultimate bubble signal.”

The most expensive home listed for sale globally is in Bel Air, a neighborhood in Los Angeles. Its main house is a 74,000-square-foot monstrosity. Among the special attributes: a 30-car garage. The compound, being erected by speculative builder Nile Niami, has an asking price of $500 million.

Seven of the world’s 10 most expensive listings are in the US. Four of them are in Los Angeles, including lesser abodes, such as a 38,000-square-foot mansion with a 5,300-square-foot master suite, several guesthouses, and staff housing, for $150 million.

Other countries have cool stuff for sale too, such as Pierre Cardin’s 13,000-square-foot “Le Palais Bulles” (“the Bubble Palace”) on the French Riviera, listed for about $450 million.

More supply of speculative super-homes is coming, including this gem, according to the New York Times: “Real estate agents and developers say a home under construction in Bel Air is likely to have more than 50,000 square feet of living space” and “the world’s largest safe.” It will be listed for “around $300 million.”

For the first time ever, there are now officially 27 residences listed for sale globally with price tags above $100 million, according to Christie’s International Real Estate. That’s up 42% from last year, and up 125% from 2014!

Some super-priced homes are offered only privately, rather than through public channels, to avoid the hoopla that this sort of QE-wealth-effect creation brings. “Brokers say,” according to the Times, that with those “whisper listings,” the total “could easily top 40 or 50.”

But last year, only two homes in that 9-figure price category actually sold, according to Christie’s: a house in Hong Kong acquired by Alibaba’s Jack Ma for $193 million, just as Hong Kong’s housing bubble has begun to implode; and a townhouse in London that went for $132 million. In 2014, only five sold. In the prior three years combined, only eight sold. And now there are perhaps over 50 for sale….

How did we get here? Seven years of global QE and wealth effect, instigated by Ben Bernanke.

On Friday, he himself introduced Fed chair Janet Yellen to the audience. She then said that the Fed’s bailouts and money-printing gyrations engineered by her predecessor during the Financial Crisis were “nothing short of magnificent.” “Ben was immensely courageous,” she said. “America owes him an enormous debt of gratitude.”

So maybe “America” doesn’t owe him that sort of gratitude, but the richest people in the world do. Their homes and other assets have shot up in price during Bernanke’s reign when what he called the “wealth effect” had become official Fed policy.

When a regular guy sells a home for $200,000 that he bought for $100,000, he pockets a profit of $100,000 (less after fees and expenses) thanks to the housing “recovery” that the Fed’s money printing caused. That’s great for the regular guy. And it’s not great for home buyers or renters. But when a not so regular guy sells a home for $100 million that had doubled in price, he walks away with a profit of $50 million.

That’s how the “wealth effect” works. The more you have, the more you get. And the very top got by far the most. So yes, those folks owe Bernanke and now Yellen and all the other central bankers obsessed with QE, ZIRP, and NIRP, in Yellen’s words, “an enormous debt of gratitude.”

“It’s just a new world in terms of what people are building and offering for sale” – that’s how Dan Conn, chief executive of Christie’s International Real Estate, explained the phenomenon to the Times.

Now these folks see the writing on the wall, and they figure it’s a great time to sell, and so they put these things on the market to sell at peak wealth-effect prices, just when speculative builders are building and putting on the market even more nine-figure monuments. But there are apparently not a heck of a lot of buyers, and so these nine-figure homes for sale have piled up to record levels.

What might that mean? According to the Times: “Many say the sudden surge in hyperprice homes – often built and sold by speculative investors – is the ultimate bubble signal.”

And when was the last time this sort of pile-up happened? In 2007 and 2008, just as the housing market was beginning to spiral down and as the Financial Crisis was beginning to mature. So now, the same signs are popping up once again.

While overall home prices were still soaring in the first quarter, at the top 5% of the housing market, the bubble has begun to deflate, with prices down 1.1%, according to Redfin. In some cities, the very top end is starting to take some hits, including in Manhattan where a luxury condo boom has turned into a glut, and where prices have begun to sag. Read…  Another Condo Bubble Bites the Dust

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  60 comments for “Last Time this Happened, the Housing Market Collapsed

  1. nick kelly
    May 29, 2016 at 11:58 am

    The bankruptcy of Urbancorp in Toronto is getting messier. At first the main man tried to put just eight of his subsidiaries into CCCA (our Chap.13)
    Now he’s decided that the rest of the 25(!) are so intertwined with the first that all must be sheltered.
    This outfit has 1000 units under construction and a long history of unsatisfied customers.
    Trump Tower (not owned but managed by Trump) has also just filed. Before the filing the owner was trying to get both Trump name and management removed. Among those suing are some ‘mom and pops’ who ponied up 700K to acquire a room or suite for a share of the rent.
    Alas, rents have been below projection (never contractual, of course) and expenses higher.
    Question: I was a Trump fan of sorts years ago, read Art of the Deal (aka Art of the Spiel) as a young realtor. I still give the guy credit for chutzpa (sp?) and sharp real estate instincts.
    What I don’t get is how someone who has publicly said that he has no interest whatever in anything resembling culture is supposed to be associated with ‘class’
    Isn’t there a socio in socio-economic?

    • rich
      May 29, 2016 at 1:14 pm

      “What I don’t get is how someone who has publicly said that he has no interest whatever in anything resembling culture is supposed to be associated with ‘class. Isn’t there a socio in socio-economic?”

      Trump’s done very well with one ‘class’ of folks:
      Donald Trump: “I love the poorly educated.”

      As for the not so poorly educated and more cultured, perhaps they are starting to see The Donald for the hustler he is:

      “Bookings at Trump Hotels are down big time: they have decreased 59%compared to the same period last year on Hipmunk. It seems that customers willing to spend $500 a night on a Trump Hotel room may not be fans of Trump the political candidate.


      While overall Hipmunk hotel bookings have been on the rise year-over-year, that has not been the case with bookings of Trump Hotels. “

      • memento mori
        May 29, 2016 at 2:54 pm

        I think Trump is irrelevant in the big picture.
        What matters in the end is the perception that Trump will cut taxes whereas Clinton will increase them. That is how Bush junior was elected and he was in no way smarter than Trump.
        The problem with selling RE now is what do you do with the money proceeds. There is no alternative investment that is less risky out there. Even if you keep it in cash, in a severe RE crash the banks might go under and you might just get bailed in. Better keep that hard asset imho. Maybe by some farm land with water, it is the ultimate life insurance in the end if your trust in the system is very low.

        • jerry
          May 29, 2016 at 4:42 pm

          RE will decline maybe 50%…. demographics. The Baby Boomers are over and let the down sizing begin, throw in government debt, so extra taxation. Its over!

        • tommy
          May 29, 2016 at 5:52 pm

          ever heard of physical gold?

      • Intosh
        May 29, 2016 at 5:11 pm

        There are stories showing that Trump supporters are in general more well-off. Here’s one of them:

        Goes to show that being wealthy doesn’t necessarily mean being cultured or open-minded.

      • robt
        May 30, 2016 at 2:42 pm

        Ha. Pretty well all the people who built the wealth of America were poorly educated, grade school or less. But they were smart.
        Now all the educated guys have left a bankrupt empty shell.

    • Petunia
      May 29, 2016 at 1:26 pm

      A few comments about Trump:
      I took a look at a one bedroom apt in Trump Tower in New York City when the building was first being marketed. The apt was nice but not anything great. The building was all shiny gold, glass, and mirrors, very flashy but not classy. I expected to be wowed and wasn’t at all. The $150K asking price was 3X what similar apts in Manhattan went for at the time. He sold them all.

      I lived in Florida when Trump put the first $100M house for sale in Palm Beach. We all thought he was insane. An ocean front office building across the inter coastal had just been sold for $16M and every other Palm Beach estate was selling for less than $6M. It took awhile but he got $95M from a Russian buyer. I still can’t believe it.

      Trump also bought Mar a Lago for practically nothing, at a time when Palm Beach was experiencing a severe downturn, and had been abandoned by the big money.

      He may have some misses but he also has some great hits.

    • May 29, 2016 at 2:27 pm

      Thanks, Nick, for the update on Toronto RE!!

      May 30, 2016 at 5:49 pm

      It is only paper notes.

  2. Ehawk
    May 29, 2016 at 12:12 pm

    The Fed created this bubble, so are they going to let it crash and reset?

    If trump becomes president then it’s against his personal benefit to crash the real estate no??

    Can someone explain?

    • Petunia
      May 29, 2016 at 1:33 pm

      I don’t think Trump is any less greedy than the Clinton’s, but he differs in one significant way. He seems to care about what happens to this country. As a New Yorker I have watched him forever. He was always very interested in making money, but he also did things with an eye to improving the city. I could never say that about the revered senator. This is the reason I think he will be better than the Clintons.

      • nick kelly
        May 29, 2016 at 3:05 pm

        Outside of her two-bit real estate venture ‘White Water’ investigated for 4 years in vain by Kenneth Starr- she’s never been a developer.
        And later, it would not be appropriate for the Secretary of State to do much for New York City.
        BTW: the Clintons were almost broke when he left the White House- and the Obamas won’t be far off. Of course, both would have no problem accessing credit, but that would be against earnings after leaving- speeches, books, etc.
        Compared with the Bush dynastic wealth and influence neither family moves the meter’s needle. They are, in terms of real money alone, by US standards, nobodies.
        One gauge of the difference in influence: Clinton dodged the draft by being a perpetual student. Bush got PAID to dodge the draft by getting into the Texas Air National Guard, despite having no flying experience. And then went AWOL from that, with no disciplinary action.
        Of course Bill will have pulled in some bucks by now, but nothing that changes the foregoing.
        Then there’s Putin whose wealth is estimated at 40 billion, from nothing before office. Now THAT is graft!

        • david
          May 30, 2016 at 2:29 am

          lot of people went to jail over whitewater. relevant documents went “missing” for their case…..which mysteriously were found 2 years later by a worker ……in the whitehouse. with Hillary’s fingerprints on them. Just how do documents for a real estate case in Arkansas end up in the white house?

          McDougals that went to jail for not testifying against the Clintons…pardoned by Bill.

        • nick kelly
          May 31, 2016 at 4:53 pm

          She went to jail (McDougal) and was held in chains in jail on the orders of Starr until the ACLU complained. The people who went to jail were re: McDougal-he owned a bank and had all kinds of real estate projects- the Clinton’s two- bit White Water being just one of them.
          How could documents about the Clinton’s one two- bit development (they built one house) end up where they lived (White House)
          No idea.

      • VegasBob
        May 29, 2016 at 3:21 pm

        I lived in Washington, DC during the entirety of the Nixon Watergate fiasco from 1972-1974. I saw the daily revelations, the Ervin hearings, the news reports, and all the Nixon Administration lies.

        I had never thought it possible that any president or candidate could be more dishonest than ‘Tricky Dick’ Nixon until Hillary Clinton ran for office. Frankly, I believe Hillary Clinton is so fundamentally dishonest that she makes Tricky Dick Nixon look like an altar boy.

        Even though I’m a registered Democrat who almost never votes for Republicans, I am probably going to vote for Donald Trump. I’m not sure Trump is any better than Hillary but he could not possibly be any worse.

        • nick kelly
          May 31, 2016 at 4:57 pm

          Specifics? Because you won’t have trouble finding them on Trump. Read book: ‘Trumped’ by his former casino right- hand man John O’Donnell

      • Nicko
        May 29, 2016 at 4:19 pm

        Stock market returns under democrats are always better than GOP, for that reason alone I pray Clinton gets in, not least to tackle climate change, invest in renewable energy, and build upon Obama’s successes.

        Luckily, voting demographics and trends strongly favour a DEM win. Trump gets media attention, but dig into the numbers, he’s an underdog.

        • Geniuses
          May 29, 2016 at 7:16 pm

          Guess why, because democrats like to blow stock market bubbles this one will likely crash soon and hand Trump the white house

      • grunevald
        May 29, 2016 at 8:22 pm

        The difference is deeper. C got their wealth from favours, contributions, protections in the political system: ie dependent. T got his wealth from shrewd deals in the economic system: ie independent.

        • Binky
          May 30, 2016 at 2:15 pm

          I.e mafia, you mean, using money inherited from pimps and mobsters.

  3. Paulo
    May 29, 2016 at 12:25 pm

    Brave man, Nick, admitting you once admired Trump.

    Vancouver and Tornoto’s housing market is ready to blow. When it happens I plan to cut and paste the hand wringing comments into a post for Wolf Street, although I am sure we could sit down over a brew (or two) and write them now.

    I cannot believe those ‘nesting shows’ like The Property brothers from Toronto. My wife watches them. For me, it is like watching aliens it seems so out of place with reality. When she blows there will be some very unhappy folks, for sure.

    When the big-players lose their shirts, like Trump did in the past, it will be quite satisfying as far as I’m concerned. I find that level of ostentatious consumerism quite disgusting. Such wealth disparity is wrong, pure and simple. It will be like a McClendon driving school out there.

    • Tyler from Grand Rapids
      May 29, 2016 at 2:48 pm

      McClendon driving school………. ouch

      Well played though

    • nilesh
      May 30, 2016 at 9:16 am

      One Thing is for sure i can say is Canada is in deep shit…Their govt & central bank does not know how to handle problem, and just following footsteps of US FED. They sold their gold holdings. Two pillar of economy oil and mining is already broken (by shale oil and China slowdown) and The only remaining sector thats holding entire economy is Housing…….and when it burst….man !! god bless all in canada. Its big trap….perfect recipe for DISASTER. and probably cash holders are going to loose as there will be bail-in/bail-outs and massive devaluation of CAD$.

      • nick kelly
        May 30, 2016 at 6:47 pm

        The C economy is a bit broader than that. Did you know that in some years Ontario has overtaken Michigan in car production. Sure they are subsidiaries but they are built here. Magna a parts co is a Canadian co and employs 35,000.
        I could rattle on but this stuff is all available on- line. Quite a software presence. lots of ag, by far the biggest supplier of pulses (peas, beans, lentils) the main food of India’
        Enough wood exports to the US to have it constantly complaining. etc. Ditto beef.
        And then there is the shock absorber- a 70 something cent dollar.

        But you are correct the downturn in those commodities is a problem, and some RE is overpriced.
        But if you want to see somewhere where this is much worse: Australia
        No commodity has the importance to Canada that iron ore has to Aus, which has fallen 75 %, not 50.
        The ongoing shoot- out in FE ore makes oil look tame. New mines like Gina Rinehart’s that broke ground years ago are just starting to ship.

        There is no comparable manufacturing sector, in fact car production will soon halt entirely. (yes Aus I know you have some)
        RE in Sydney makes Vancouver, Canada look cheap.
        The banks’ only real business is mortgages.
        Canada’s biggest customer is the US, Australia’s is China ( mostly iron ore)
        From a banking/real estate perspective it resembles Ireland pre-crash but much bigger.

      • nick kelly
        May 30, 2016 at 6:55 pm

        I just noticed yr comment about Canadian banks and possible losses to depositors? Bail ins?
        The Canadian banks are generally recognized as the most solid in the world. In the Depression several thousand US banks went under taking deposits with them. No one lost a dime in a Canadian bank.

        Most of the reason for their strength is that they are a cartel- there are only five of any significance. They have been unsuccessfully and expensively shorted, mainly by US guys for a few years now and, as usual, just reported record profits.

    • nick kelly
      May 31, 2016 at 5:03 pm

      And there’s that show ‘Income Property’ where the guy is always telling people that if they put in this suite they will get X rent, as though rents could never fall.
      Where I live they are beginning to build new houses with legal suites and people can use the projected income to qualify for mortgages.
      But…it’s projected.

  4. dave
    May 29, 2016 at 12:34 pm

    I made a comment a while back about seeing all the movie star homes up for sale so its not just the hyper expensive homes that are for sale. the writing is on the wall. its just a matter of time. we are all more aware of what the future will bring. its time to sell, not buy. clear up debt, so what money you do have will last a little longer. preserve capital.

    • Petunia
      May 29, 2016 at 1:59 pm

      When I worked on Wall St. I had access to the list of VIPs with credit lines at the firm. The list contained many big name Hollywood types. Most of these celebrities buy homes for cash with money they borrow from Wall St. It may be that some of these credit lines have been called in and they need to start paying up.

  5. May 29, 2016 at 1:20 pm

    In the Seattle area supply for single family homes is so tight as to be nearly nonexistent which is exactly how it was when we were looking to buy in 2006 and 07. We finally found a nice house in Lake Stevens and took possession in Feb.07.. A year later or so you could have built a bonfire out of the For Sale signs that could have been seen from the moon..
    Luxury one bedroom apts. are renting for $4500 per month in Seattle, or were, because now I’m hearing expensive rental inventory is backing up and yet more and more rental/condo units are dotting the skyline.

    • frederick
      May 29, 2016 at 2:07 pm

      4500 a month for any one bedroom apt is lunacy anywhere İMO people sure are schmucks pardon my greek

  6. Petunia
    May 29, 2016 at 1:42 pm

    The bad news in the Miami condo market has started to pile up. I have seen several articles on the subject this past week. The South American money has dried up and the flippers can’t get out without selling at a loss.

    • frederick
      May 29, 2016 at 2:09 pm

      That sounds like VERY good news to me Petunia and its about time This insanity had to end eventually

  7. ke
    May 29, 2016 at 3:33 pm

    Funny, as a kid I worked for this guy that bought trophy homes, burned them down, collected the insurance, rebuilt and sold. At the time, I couldn’t figure out why the insurance companies kept paying. Nice to live on Bob Hope course and watch the rat pack circus though.

    So long as people focus on what they do not have, there will always be a snake oil salesman selling false promises. Now we have a scientific community, which knows next to nothing about plants, selling green energy for empty buildings, with no fixation of CO2.

    What next, a constitution of, by and for robots, for “wealth” redistribution?

    Writing laws to give yourself an exemption and having the cattle vote on the sex of the candidate as recourse is quite the racket.

  8. Ptb
    May 29, 2016 at 3:53 pm

    Given that mortgages are about as conservative as they’ve ever been since 2008, there won’t be a collapse. Probably a flattening or correction because prices have been rising since 2010. But, inventory is still about 35% below norms.

    • Nicko
      May 29, 2016 at 4:23 pm

      Agreed, no crash, just a gentle slowdown. Housing builds are still increasing.

    • VegasBob
      May 29, 2016 at 4:43 pm

      Wells Fargo just came out with a 3% down mortgage.

      It won’t be long until no-doc subprime NINJA loans are back…

      • Mandy Lifeboats
        May 29, 2016 at 6:50 pm

        I blew my chance to buy in early 2012 here in Las Vegas. Owner wanted way over value, and I didn’t want to pay it. Place sailed past that price plus $70K since. Feel estupido.

        I think they’ll be able to keep it up for many more years but since I haven’t been right about anything yet, lower prices must be coming any day now.

    • nick kelly
      May 29, 2016 at 4:55 pm

      I think Wells just came out with a 3% down. Better than Aus and even Canada (when we had a zero down for a brief period. But historically 3% is very loose.
      Trivia: back when 5% dwn first came in Canada via CMHC insurance they were quite virtuous about it. For example- if it was a 5 % new home, the builder couldn’t include fridge and stove. They were portable so if the buyer sold them, he would only have 3 % down.

    • Genius
      May 29, 2016 at 7:22 pm

      Read Jeremy Grantham’s letter, housing is now quickly approaching full blown bubble territory, it’s likely the real reason why Yellen is suddenly in a hurry to raise interest rate

      • hidflect
        May 30, 2016 at 11:39 am

        Just looked him up. He really knows his stuff. I’ve bookmarked

    • Matt McKean
      June 5, 2016 at 1:08 am

      As a veteran mortgage banking exec. you are both right and wrong. Mortgages are more conservative because incomes and assets must be clearly documented. However, the underwriting algorithms have allowed much higher DTI’s than 10-15 years ago. Many homebuyers “barely” qualify at interest rates well below those in the great depression. This has “crowded” the bottom of the market, driving the lower end up, but incomes have not grown on the macro level to grow the median price significantly going forward.

  9. jerry
    May 29, 2016 at 4:44 pm


  10. Gian
    May 29, 2016 at 8:05 pm

    Geez, why all the doom and gloom over housing bubbles and their subsequent crash. Whether they are man made or sent from the heavens who cares? I was able to pick up a slew of SFR’s in 08-09 and have been collecting rent ever since, recouping my investment and then some. From my perspective, a real estate crash is a welcome opportunity to increase one’s wealth. If you’re over-extended, upside down or cash poor, too bad! A wise man learns from the mistakes of others, a fool, only from his own.

  11. ML
    May 30, 2016 at 1:47 am

    One has to be able to afford to borrow, or want to. If the market is slowing and prices falling then that is because the supply of people that can afford to borrow or want to buy that type of property is drying up.

    There will always be a demand for property (real estate) provided the price is right for the people who can afford to borrow or want to.

    Cash buyers are in a different league. And not everyone wants to borrow to buy a home when renting is cheaper, more flexible and carries less responsibility for upkeep and maintenance.

  12. nhz
    May 30, 2016 at 4:50 am

    I doubt the price of these super-trophy homes is related to the performance of the biggest chunk of the housing market. People buy those homes mostly with ‘easy money’ thanks to the FED (stock market gains and all kinds of scams benefiting company owners). For the average home mortgage rates / conditions and the job market / income security are FAR more important.

    Here in the Netherlands the housing bubble is now 25 years old and has gotten a new life thanks to lunatic rates. ABNAMRO, officially a state bank so undoubtedly acting on instructions form politics, has lowered mortgage rates to below 1%. You can still get 103% mortgages here (no down payment required, there’s even options for free extras when you ‘buy’ a new home!). Mortgages below 275K get a free put option from the government (all downside risk for the taxpayer) and half of the mortgage is paid by the taxpayers as well because of the most generous income tax deduction in the world. The real rate for ‘owning’ a home is about 0.5% (which is way below real inflation). All kinds of idiots are partying again in flipping homes, even more than in 1999 or 2007. Record numbers of old and new homes are empty (why bother with these low rates and constant price gains?) while rents are rising at feverish rates and government is paying top dollars for homes for the flood of foreign migrants. Many ordinary civil servants in my city are living in millionaire homes that were worth just $25-50K 25 years ago. The leverage is unprecedented, many current buyers have zero skin in the game. There is no way this bubble is going to deflate without crashing the whole financial system. And I guess some of the politicians understand this, so their only hope is to delay the day of reckoning and try to fill their pockets as long as the game lasts.

    Never underestimate what bankers and politicians will do to keep this bubble growing, their political (and probably now also their real) life depends on it and they happily throw all savers and renters under the bus for a little more playing time.

  13. bud
    May 30, 2016 at 7:38 am

    Stage sets, imaginary numbers, future prospects, faith in the system, systemic growth, assured profit are all based on the illusion that ‘one’ is well protected and that no change can do harm to that kingdom.

    Perhaps the Rothschild family fall outside the boundary of the laws of diminished returns, but the rest of us do not.

    An upside down pyramid can not stand against the forces of nature, nor can a system where the masses have been reduced to ‘one’ supporting the rest.

    Earthquakes come with no warning, when this house of cards folds, no one is protected this time. 10,000,000 homes and no one is paying rent. Police don’t answer the phones. Your insurance company filed for chapter 7. Your bank funds can’t be transferred. You have no cash to buy food or pay your real estate taxes, and the ‘card machine’ ignores your cries and no one accepts a check. There is no gas. Your phanseyphone is useless. But you have your mansion, BMW, and RCA stock options to keep your sprit alive. If you think 29 was a test run, you ain’t seen nothing yet.

    • Nicko
      May 30, 2016 at 7:50 am

      Too much doom and gloom. Consider somewhere like South Africa, huge unemployment and inflation, currency weakness…yet they soldier on. Point being, things aren’t really that bad, and just maybe the glass is half-full…not half-empty.

      • Thomas Malthus
        May 30, 2016 at 4:41 pm

        Keep in mind no country has truly collapsed yet.

        Collapse = when the electricity goes out — forever.

        When the grocery stores empty – forever.

        When the global supply chain goes down – forever.

        That is what is coming.

        There will be no place to hide

      • nick kelly
        May 31, 2016 at 11:36 am

        I agree with too much doom and gloom but I wouldn’t point to SA just now. I think it could be heading for very big problems soon.
        A bunch of the doctors here (Nanaimo, Canada) are SA. Got out while the getting was good. Too bad for SA though, where they were trained.

        Let’s hope it’s not the next Zimbabwe

    • nhz
      May 30, 2016 at 7:51 am

      “10,000,000 homes and no one is paying rent”

      You mean 10 million homes and no one is paying the mortgage? Because that’s more likely to happen IMHO especially if rates ever go up to normal values. So the same people who were responsible for much of the current mess (by buying homes they really cannot afford) will win again.

      Don’t know about the US, but in my country most of the cheap rentals are for people on social security etc. who just spend some money they get from the government on rent. The ‘free’ rental market is tiny here and mostly used by people with significant cash (for who it is very UNattractive nowadays to buy). So not paying the rent is in general far less likely than not paying the mortgage.

      At least in my area the problem will be solved before 2100 because by then the whole province will be below water, according to the latest (pretty solid) projections. Guess by that time the government will still be spending billions every year to keep all those mortgages for underwater homes above water ;-(

      • bud
        May 30, 2016 at 11:57 am

        No, I mean exactly what I printed. 10,000,000 and no one pays the rent. Lets see how Blackrock does with that dilemma. Sam Zell knows and is dumping property. So is Balfore Batty (of the UK) who got the Navy to sell them thousands of homes built with US taxpayers money for the cheap…and no one seem to know it.

        A mortgage, you will do all you can to save the investment. A rental, in the USA is a time bomb because the renters are gouged and angry, loosing their jobs, and a large portion are people who lost their homes in the last RAPE.

        As for NICKO’s comment, well you will just have to see what is in that glass of yours as it seems as of now, it is Kookaide.

        • nhz
          May 30, 2016 at 12:22 pm

          “A mortgage, you will do all you can to save the investment.”

          Then maybe the US is different indeed, although I keep reading about nearly 100% mortgages where the ‘downpayment’ comes from ‘charity’ (more likely a kickback from the previous owner or developer).

          For recent (last 5-10 years) buyers in my country there is no investment at all in their home. They just are paying rent to the bank, but at a FAR lower rate than real renters. Officially they are on the hook for the principal of course, but you can’t draw blood from a stone. Most of the people who are buying now should not be being a home at all.

          And although the Netherlands has ridiculous renter protection laws (e.g. it is extremely difficult to throw somebody out even if he doesn’t pay the rent or demolishes the property) in reality people who don’t pay the rent have a far bigger risk of ending on the street than those who don’t pay the mortgage.

    • Thomas Malthus
      May 30, 2016 at 4:43 pm

      Trade Off: Financial system supply-chain cross contagion – a study in global systemic collapse
      Jun 17, 2012 12 Comments by David Korowicz

      This new study by David Korowicz explores the implications of a major financial crisis for the supply-chains that feed us, keep production running and maintain our critical infrastructure. He uses a scenario involving the collapse of the Eurozone to show that increasing socio-economic complexity could rapidly spread irretrievable supply-chain failure across the world.

  14. chris Hauser
    May 30, 2016 at 12:29 pm

    WHATEVER YOU HAVE, YOU HAVE TO CARRY. if you can’t, you drop it, or it drops you.

    yes, a 500m house won’t sell. won’t. something having to do with utility…..

  15. JimTan
    May 30, 2016 at 12:48 pm

    Also, lets not forget the corruption/money laundering component of high end real estate. High end real estate, art, and jewelry are unregistered assets ( at least in the owners home jurisdiction ) and a good way to hide money. Someone receiving a $50 million dollar bribe might look for $50 million dollars in real estate to park the money. Prices in these highly specialized markets skew in directions proportional to the amount of ill-gotten gains available.

    One developer, Thomas Kramer, basically jumpstarted the entire Miami real estate market in the 1990’s by laundering $200 million in untaxed money from the owner of the German currency printing firm Giesecke & Devrient:

    There are many other examples of this including the NYTimes investigating owners of apartments in the high end Time Warner Center building. If high end real estate prices skew higher from a demand to hide money, then this demand must be continual for prices to remain high.

  16. NotSoSure
    May 30, 2016 at 8:38 pm

    The problem with any “Last time this happened …” analysis is that unlike last time, the CBs are all too ready to unload their bazookas again and again.

    • Captain KurtZ
      May 31, 2016 at 11:30 am

      Here’s a problem with that – the CB’s can’t print trade, in a deflationary collapse.

      They have ginned the pump, pulled demand from the future, over the last seven years with all the free credit, QE, NIRP, etc…. The worlds’ systems of commerce are filled to the gills with debt, in the form of bonds (up from 70 trillion to 100 trillion since 2008). Debt service is BIG demand killer.

      That doesn’t even take into account the notional value of the swap market, represented at its worst by DB. When they collapse, maybe brought on by Brexit, or another Grexit question, then the lack of trust in the Eurozone will lead to a collapse, a freezing up of the financial system….

      Underlying trade is so weak anyways, this shock will end the global trade scheme….

      You might want to have a little potato garden out in back. Our forebarers down on the farm always knew that starvation loomed.

      It’s part of the human condition.

      • nhz
        May 31, 2016 at 1:48 pm

        I’m convinced the current worldwide housing bubble is ultimately unsustainable, but it may be one of the latest Ponzi’s to collapse. Debt service a problem, really? With the lowest interest rates in centuries, debtors are laughing all the way to the bank. And with ever increasing home values, who worries about a principal that should be paid off?

        There IS a free lunch for every home debtor, thanks to central banks and politicians. They all know it, the future of all players depends on continuing on the current track with ever lower (more negative) or at least zero rates and ever rising home prices, until even the last renter has got a mortgage for life (that’s the plan I guess). I even read again here about people who are taking out additional mortgages thanks to increased homevalues, so they can service the ‘debt’ without spending any real money. Many ‘homeowners’ with big mortgages are living the good life again, at least here in Europe.

        Savers and future pensioners will be sacrificed first, but even with pensions this is a future problem because they will happily plunder the pension funds for the current gold-plated boomer pensions and promise the situation will be solved thanks to a roaring stock market and double-digit yearly investment gains (even many workers believe this BS, ‘there is plenty of money in the retirement funds, no need to cut pensions!’).

        There is no way back from the current disastrous policies, so the CB’s will print into oblivion. Extend and pretend can continue for a long time. I doubt the system will really collapse before a large chunk of the sheeple are seriously getting hurt by the consequences, and at the moment a huge chunk of the population is benefiting (in the short run) from these disastrous policies.

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