The Most Splendid Housing Bubbles in America: “House-Price Inflation” in all its Glory. March Update

Dollar’s Purchasing Power Swoons, but CPI ignores house price inflation.

By Wolf Richter for WOLF STREET.

House prices rose by 11.2% from a year ago, the biggest increase since the peak of Housing Bubble 1 in 2006, according to today’s National Case-Shiller Home Price Index for January.

The index is a good measure of “house-price inflation” because it’s based on the “sales pairs” method, comparing the sales price of a house in the current month to the price of the same house when it sold previously, thereby tracking the amount of dollars it takes to buy the same house over time.

But house price inflation is not included in the Bureau of Labor Statistics’ Consumer Price Index. While about one-third of CPI is based on housing costs, it tracks rents exclusively, rather than home prices. Even the CPI for “Owner’s equivalent rent of residence,” which accounts for about 25% of CPI, is based on homeowners’ estimates about how much their house would rent for. This CPI for “Owner’s equivalent rent of residence” ticked up only 2.0% year-over-year (green line), compared to the Case-Shiller Index, which soared 11.2% (red line).

The Case-Shiller Index was set at 100 for January 2000. So the national index value of 236 indicates house prices have surged by 136% since January 2000, including the plunge in the middle, which CPI for homeowners has risen only 72% over the same period. But for many cities prices have surged far more, as we’ll see in a moment.

So you know what’s going on here: the costs of homeownership are surging, but only a portion are included in our inflation measures, turning CPI as an estimate of the loss of the purchasing power of the dollar into a sad joke.

Los Angeles – the #1 most splendid housing bubble:

Prices of single-family houses in the Los Angeles metro rose by 1.0% in January from December and by 10.8% year-over-year, according to the Case-Shiller Index. The index value for Los Angeles of 321 indicates house prices in the metro have surged by 221% since January 2000, more than tripling in 20 years, thereby making Los Angeles the most splendid housing bubble on this list. Earlier today, I discussed the different trajectories of condo prices and house prices by price tiers.

All charts below are on the same scale as Los Angeles. As we go down the list, the amount of white space above the price area grows, showing that since 2000, the other metros have experienced less house price inflation than Los Angeles, though there was plenty.

San Diego:

The Case-Shiller index for the San Diego metro rose by 1.4% in January from December and by a whopping 14.2% from a year earlier. Prices have more than tripled (+202%) since 2000:

Seattle:

House prices in the Seattle metro jumped by 1.4% in January from December and by 14.3% year-over-year, making it the second fastest annual house price inflation among the Splendid Housing Bubbles here, behind Phoenix (15.8%, below):

San Francisco Bay Area:

This is where condo prices fell back to 2018 levels, but single-family house prices rose 0.2% in January from December and 9.5% from a year ago, having nearly tripled since 2000. The Case-Shiller Index for “San Francisco” covers the Bay Area counties of San Francisco, San Mateo (northern part of Silicon Valley), Alameda and Contra Costa (East Bay), and Marin (North Bay):

Miami:

In the Miami metro, house prices rose 1.2% for the month and 10.4% year-over-year. Though they’re up 173% since 2000, they remain just a tad below the crazy peak of Housing Bubble 1:

Portland:

In the Portland metro, house prices rose 1.1% for the month and 10.6% year-over-year:

Washington D.C.:

House prices in the Washington D.C. metro rose 0.8% for the month and 10.7% year-over-year, having surpassed the peak of Housing Bubble 1 late last year:

Boston:

In the Boston metro, house prices rose 0.8% for the month and jumped 12.7% year-over-year:

Tampa:

House prices in the Tampa metro rose 1.1% for the month and 11.9% year-over-year:

Denver:

House prices in the Denver metro rose 1.0% for the month and 10.0% year-over-year:

Phoenix:

House prices in the Phoenix metro jumped 1.5% for the month and 15.8% year-over-year, making Phoenix the market with the hottest annual house price inflation among the Splendid Housing Bubbles here, ahead of Seattle (14.3%) and San Diego (14.2%):

New York City metro:

House prices rose 0.9% for the month and 11.3% year-over-year. As I discussed earlier today, by price tiers, there were big differences, with low-tier house prices surging by 14.9%, but condo prices remaining in the same tight range for three years. The Case-Shiller Index for New York City covers New York City and numerous counties in the states of New York, New Jersey, and Connecticut. What a wondrous spike over the past six months:

Las Vegas:

House prices in the Las Vegas metro rose 0.9% for the month and 8.5% year-over-year:

Dallas:

House prices in the Dallas metro – counties of Collin, Dallas, Delta, Denton, Ellis, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant, and Wise – rose 0.8% for the month and 9.2% year-over-year, and are up 110% since 2000, meaning house price inflation totaled 110% over the past 20 years. In the remaining handful of cities on the 20-city Case Shiller Index, the 20-year house price inflation has been less than 100%, which makes Dallas the last entry on this list of the most Splendid Housing Bubbles:

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  270 comments for “The Most Splendid Housing Bubbles in America: “House-Price Inflation” in all its Glory. March Update

  1. WES says:

    The only “graft” missing is one showing the Fed’s money printing!

  2. Phoneix_Ikki says:

    Every one of those charts remained me of Camel humps. With the statement below though and Uncle Jerome telling the public they are willing to get inflation run a little hot and doing everything in their power to keep those interest rate low low low. I am having a hard time imagining a scenario how home price will adjust down in a big way. It’s insane to have 10-11% in couple of months but it seems like in the last couple of years, we have been on this pattern of once it goes up it stays up type of climate and us bubble watchers looking like real idiots. I really want to believe and hope there will be a crash or major price adjustment but I think I probably would have better odds at this point betting aliens will invade us first before this insanity is ever over..

    “But house price inflation is not included in the Bureau of Labor Statistics’ Consumer Price Index. While about one-third of CPI is based on housing costs, it tracks rents exclusively, rather than home prices. Even the CPI for “Owner’s equivalent rent of residence,” which accounts for about 25% of CPI, is based on homeowners’ estimates about how much their house would rent for. This CPI for “Owner’s equivalent rent of residence” ticked up only 2.0% year-over-year (green line), compared to the Case-Shiller Index, which soared 11.2% (red line).”

    • WES says:

      Before I found out I was being transfered to north Africa, I started hearing jokes about whether to rent a one hump or two hump camel from Hertz!

    • 5 Deep Logic says:

      Phoneix, remain hopeful!

      I posted the below response to one of your comments yesterday, on another of Wolf’s great articles, but maybe you did not see it.

      “Based upon my recent research … the rapid technological advancements in 3D Printing of homes, buildings, walls, fences, pools, etc, will soon have a major impact on the costs of same.

      It appears, said impact will be … significant reductions in the cost of new construction, thereby, causing significant decreases in the value of currently constructed/improved real estate.

      I believe … you will soon be able to afford a reasonably priced “decent place to buy to raise a family without being in debt forever …”

      It appears … 3D printed construction has several advantages over traditional construction, to wit, lower initial construction costs, much faster construction, more design options, stronger, more weather and fire resistant, lower maintenance costs, lower insurance costs, lower property taxes, less stress regarding all the aforementioned, etc.

      I believe you would be wise to be patient.”

      • Anthony A. says:

        How do you achieve lower property tax?

        • 5 Deep Logic says:

          Anthony, the below definition was obtained from Investopedia.com.

          “Assessing Property Tax
          Different property types have various types of tax assessed on the land and its structures. For example, vacant land will have a significantly lower assessed value than a comparable piece of property that is improved, and as a result, it will have lower property taxes. If there is access to public services, such as sewer, water, and gas, the land assessment might be higher. If the assessor feels that the land has the potential to be developed, it could lead to a higher assessment and more taxes for the owner. The amount that a property is taxed comes from a percentage of the assessed value of the property.”

          Therefore, regarding 3D Printed homes … since the overall cost to build 3D Printed homes is less, property taxes, if assessed appropriately, will also be less.

          As more and more homes, are 3D Printed for lower and lower costs, comparable improved real estate values should continue to decrease if assessed appropriately, and subsequently so too should property taxes decrease, unless the taxing authorities are able to increase the millage rates.

          A millage rate is the tax rate used to calculate local property taxes. The millage rate represents the amount per every $1,000 of a property’s assessed value. Assigned millage rates are applied to the total taxable value of the property in order to arrive at the property tax amount.

        • Anthony A. says:

          Thanks, I looked up 3D printed homes and found out that it’s quite a neat concept. I didn’t realize that this technology existed for framing a home with concrete. It would certainly save on labor that would be used in traditional wood framing, especially if the cost is really that significant in the finished home price.

        • cybersandiego says:

          5 Deep Logic:
          I looked up 3D Printed houses. They are almost 200K for less than 1000Sq.ft. Why are they considered cheaper?

      • Mike H says:

        Most of the inflation is in the lot price, not construction. But I still agree that housing costs will decline. Long term, cities will be obsolete (enabled by telecommuting, shopping, and home entertainment) and we will sprawl into the countryside. Birth rates are down considerably (Covid and generational values shift) so McMansions built over the last 30 years will be anachronisms.

      • Phoneix_Ikki says:

        Yup, still hopeful because of this site and others that are counter to the mainstream, lemmings narrative and can back it up with real data analysis. This is my support group here, it’s good to know there are others like minds individual that share the same view as myself. Call it cognitive dissonance, confirmation bias whatever you will…but when 2 + 2 not adding up to 4 like what we are all seeing with this housing and stock market, the stubbornness in me just won’t allow me to fall in line and turn into another FOMO buyer. Perhaps this time might truly be different but as I have always said before, at some point you kind of have to question what you get for what you’re paying for. Paying $800-$1M for a taco tuesday crapshack in a crappy school district is not exactly my idea of value.

        • 5 Deep Logic says:

          Phoneix, what you describe as your “stubbornness” may in fact … be wisdom.

          Example … I live on the North Florida coast. About five years ago, I purchased a vacant lot, for 98+% … less than … the same vacant lot sold for in 2006.

          Yes, that is correct, 98+% … less than … the same vacant lot sold for in 2006. It is also high and dry, and will not require flood insurance, if improved.

      • jon says:

        Also, there is no scarcity of land in America ( other than coastal areas ). So I guess over time cost of houses should go down because of technological advancements.

  3. Depth Charge says:

    Jerome “Weimar Boy” Powell sees no sign of inflation anywhere. In fact, he tells us he stands at the ready to “provide more support” if necessary. Why has this economic terrorist not been arrested?

    • Phoenix_Ikki says:

      Jerome “Weimar Boy” Powell..I like that nickname. Truth of the matter is, when people look back at history, he will somehow be view with rose tinted glasses as another champion and savior to the system, much as people still idolize Greenspan or Milton Friedman. Yet these characters have created untold amount of damage to everyday Americans and people around the world that arguably makes Trump’s transgression pale by comparison.

      • Depth Charge says:

        No, he will not be treated kindly by history. No central banker who causes hyperinflation is.

      • Memento mori says:

        Why are you putting Friedman in the same category as Greenspan and Powell, Friedman was a great economist and wanted the abolition of the Fed till the end.

        • rhodium says:

          Friedman believed that the only responsibility of a corporation was to maximize profits. Low interest rates and money printing so far have been good for corporations who seem to wholeheartedly support what the fed is doing. When’s the last time you heard one speak out against the fed? There’s probably an army of lobbyists begging for the fed to backstop federal spending so they can get their bailouts from their bought out congressmen and keep ramping their stock to infinity. Was Friedman dumb enough not to see the extent to which perverse incentives would lead to what we have now? Or would he slap Jerome on the back and say well done, an excellent wealth transfer. Either way, that makes him just another tool of the corporatocracy.

        • doug says:

          Friedman and the chicago school were/are wrong about much.

        • Phoneix_Ikki says:

          I think the fact that you mentioned Friedman being remembered as a great economist proves my point about some of these terrible people in charge of power and ideas will remembered in a positive light regardless of how much damage they indirectly inflict to the general public.

          Sure Friedman was never a FED chairman but keep in mind Greenspan was influenced by his thinking. If you want to talk to about how much harm Friedman inflicted on the world, especially South America, just go read Shock Doctrine and you get to see exactly how much “positive” influence him and his Chicago boys unleashed to the world.

        • Nate says:

          Friedman, the great libertarian, invented the income tax withholding scheme in WWII.

          He was part of the problem, not the solution.

          Friedman did everything in his power to help crush Germany. Despite now being a member of the pro-free market Chicago school, Friedman helped create the withholding tax which libertarians consider the most destructive tax of all.

          From 1941 to 1943 Friedman worked on wartime tax policy for the federal government, as an advisor to senior officials of the United States Department of the Treasury. As a Treasury spokesman during 1942 he advocated a Keynesian policy of taxation. He helped to invent the payroll withholding tax system, since the federal government badly needed money in order to fight the war.[37] (Wikipedia)

    • timbers says:

      “We won’t take the punch bowl away” because it creates millions of jobs.

      Fed Weimar Girl Mary Daly of the San Fran Fed.

      • Stan Sexton says:

        It just creates gobs of new millionaires and billionaires.

        • polecat says:

          Yes, until the ice melts in that ‘Bankster of banisters’ commode .. leaving what’s left as a putrid, bubbly, stinking financial bacterial soup thats waaaay past healthful consumption for anyone sane enough to smell it!

        • polecat says:

          Bankster of “banksters” ….

    • Old school says:

      Housing market $38T plus stock market $51T is being supported by $11T of monetary plus fiscal magic money in 2020 – 2021. Value of it all is determined by a handful in DC. Scary times.

      I do like Munger’s thoughts on stocks, but it’s probably true for a home. If you buy stock in a great company, it’s OK to hang on to it even if it gets over valued.

  4. Ron says:

    As house prices increase so do taxes perfect way to get stimulus money back

    • Jdog says:

      RE taxes are State, Stimulus is Federal

    • Bobber says:

      Actually, there isn’t a direct correlation. Real estate taxes are based on the government budget, so RE taxes increase only when the local government budget increases. Housing prices are simply a way to allocate the RE tax across the population.

      If your property appreciates the same as others in the area, the appreciation will not necessarily increase your RE tax bill.

      The wealthy home owners win again!!

      • Harrold says:

        If the mill rate stays the same, your taxes will increase in tandem with property appreciation.

        • Cookdoggie says:

          Harrold, the mill rate is simply an apportionment factor, a way to allocate out the total pie to everyone. It isn’t fixed from year to year.

          What Bobber said is correct, and so many people don’t understand this concept. His explanation should be auto-inserted anytime a comment about property taxes appears on this forum. That’s also why property taxes won’t necessarily decline if housing prices crash. Your taxes will only go down if your house value sinks more than others in your district. And in years with huge price spikes like now your taxes won’t necessarily go up, unless your home value goes up a larger percentage than others, or your voters approve increases to your govt’s budget.

  5. Anthony A. says:

    We are retired living on a fixed income (SS + savings). Over the years we have bought 9 houses due to work moves. We are in the last one and glad we don’t have to replace this one. We are in a 55+ community of 437 single family brick and hardiplank homes north of Houston, Texas ranging in size from 1,700 – 2,800 sq. ft. These homes were selling in 2020 for ~ $125 – 130/sq. ft. and probably sill are in that range. We are in a fairly high cost of living area.

    We lived in Thousand Oaks, Ca in the 1980’s. The NEWLY BUILT home that we bought there in 1987 cost $229,000 and was 2,600 sq. ft. Today that house is $1.4 million on the real estate websites. We left Ca in 1992 and during that period, there wasn’t any big run up in price when we sold.

    What’s going on now with speculators will end, and maybe badly.

    • Phoenix_Ikki says:

      “What’s going on now with speculators will end, and maybe badly”

      I sure do hope so but in a country that’s aggressively fostering moral hazard as the norm and hold gangster capitalism as the ultimate gospel couple with power to create as much money as possible out of thin air by the FED…I am not holding my breath and each day my hope for that to happen dwindle ever more so

      • Jdog says:

        It is very easy to take on debt. Especially when you believe what you are buying is skyrocketing in value.
        It is very hard to pay that debt off.
        This bubble like all bubbles will pop, because it is based off poor fundamentals. NO one is paying these prices because they are committed to living in these houses regardless of its future value.
        They are paying these prices because they expect prices to continue to increase making them money.
        At some point, that will fail, and they will realize they are holding a million or more dollars in debt, on about a hundred thousand worth of lumber, drywall, and cheep particle board cabinets, on a postage stamp lot…

    • ru82 says:

      The housing bubble had a lot of speculators and a huge excess of housing inventory. This time we probably have the lowest inventory ever and lowest rates ever.

      The city I live has about 150k people. City-Data says the median priced home was $272k in 2019. I took a look at the inventory yesterday. Right now there are only 2 homes for sale under $270k. There are only 120 homes for sale and 100 are new construction. So a city of 150k only has 20 detached resale homes for sale. Now there are about another 100 condos’s/duplexes for sale. Thus everything is going over asking price.

      All the new contraction homes are over $400k and are the 3000 sq ft McMansion. No starter homes anywhere.

      So I do not see inventory getting any better anytime soon?

      • ru82 says:

        I do see a lot of apartments being built.

        I think a home builder pinned the current housing environment recently on a earnings call.

        Owning a home will be a luxury. That means many people will have to live in apartments…etc. Why…we are seeing asset prices like homes go up but income is not rising much.

  6. Avraam Jack Dectis says:

    .
    If house prices go up ten percent but the price of money goes down ten percent, does the monthly payment or anything else important to the consumer change?

    But if interest rates then bounce up, fewer people will be able to buy at current prices and those that have to sell will take a loss.

    So a lot of risk.

    Not a good time to speculate.
    .

  7. LessonIsNeverTry says:

    One way market due to forbearance/moratoriums, with low supply and ample subsidies. Perhaps shocking it isn’t going up faster.

    All extended until at least mid-June. Feel sorry for anyone trying to buy.

  8. red pill economics says:

    The Fed has been targeting higher stock and housing prices since (at least) 2010. I would add that the Fed has been blowing bubbles since at least the mid 1990’s: 1) Dot com (tech) bubble, 2) housing bubble 1.0, 3) everything bubble. The first two bubbles burst, as asset bubbles always do. Some think “it’s different this time.”

    What the Fed did and why: supporting the recovery and sustaining price stability

    By Ben S. Bernanke
    Thursday, November 4, 2010

    “This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action.”

    “Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance.”

    “Lower corporate bond rates will encourage investment.”

    And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

    “Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

    http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html

    • Depth Charge says:

      “Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

      Higher income my rear end. What a bald-faced lie, typical of these scvm. Wages have been falling. Bernanke should be near the front of the guillotine line.

    • James Charles says:

      “And so with Princes of the Yen, that cover was blown. And I think people were not happy about it. Also, the other thing, particularly in America, they didn’t like is that the original edition, 2001, I don’t think you’ve read this. Because it came out first in Japanese, 2001. And it had a chapter about my meeting with Alan Greenspan, when I met Alan Greenspan, and we discussed my paper that he had read four years earlier, which he remembered extremely well. And from the somewhat surprising things he said, I concluded certain things. And it’s written up in this chapter. And this was predicting the conclusion was– well, the Federal Reserve is going to do the same thing as the Bank of Japan, which is intentionally create a massive asset market bubble driven by bank credit creation, which is going to create, when it blows, the biggest financial crisis, a global financial crisis. And that’s, of course, the 2008 crisis, which Alan Greenspan did create.”
      https://www.realvision.com/rv/media/Video/9086e3c7668e479ebebbd0f5396e70f7/transcript

    • Jdog says:

      The Fed supports the banking system. The banking system loans money based on asset values. The higher the asset values, the more money the banks are able to loan, and the more money they make.
      It is therefore profitable to inflate asset values.
      This means in reality, perceived asset values are not necessarily in line with intrinsic asset values.
      There are two basic problems with artificially inflating asset values.
      The first is, that once it begins, it tends to gain momentum until it becomes an irrational mania.
      Second, over leveraging tends to cause ever diminishing returns in productivity, making it mathematically unsustainable.
      This means that at some point in the cycle, a crash is necessary in order to wipe unsustainable debt off the books, and to revalue assets, at which point the cycle can begin again. Many debtors get wiped out, the banks get bailed out, and ever more wealth gets transferred from the working to the upper class.

      • Jonas Grimm says:

        And then, once the rich have accumulated sufficient wealth, they are eaten by the starving poor, irrespective of any efforts on their part to maintain their status and wealth. This last step is erratic and hard to predict, but moves with the weight of a nation when underway.

        Either that, or wealth is then destroyed as the rich fritter it away in wars between themselves.

    • Swamp Creature says:

      Just look at the source “The Washington Post”, and you know that everything said is a pile of Bull S$it.

    • aj says:

      there is no increased spending, people are fearful and hoarding cash, the velocity of money is at a historic low

  9. katie says:

    What should I do in Denver to get back into a home? Try to buy a home in the bidding wars against the new transplants that are flocking here or rent and ride out this storm? And for how long if renting?
    I have 60 days until the rental I’m in goes up for sale. It’s value is now over $700k. As a nurse I cant afford it.

    • Wolf Richter says:

      Look, if everyone goes on a buyer’s strike for six months and doesn’t look at houses, and doesn’t click on real estate ads, and doesn’t look at real estate sites, the whole schmear would come down. Then you’d have SELLERS getting desperate and out-price-cutting each other.

      It’s the silly buyers with FOMO out the wazoo that are causing this.

      • Depth Charge says:

        Agree with this, Wolf! These buyers are greedy and banking on appreciation.

        • Earl says:

          Saw an interesting comment recently that real estate is the easiest access to conventional markets for illegal money because it’s not scrutinized like investments into stocks, bank accounts, or even cryto currencies..at least in the US. Most of the markets at the top of the list are entry cities closest to foreign investment..interesting

        • Ethan in NoVA says:

          They’re getting tons of appreciation though.

          The government is adding tons of money. The proles get small amounts but further up the chain people are getting tons of money from this stimulus.

          With the housing prices jumping so much I feel like I need to look for another job that pays better. I’ve heard competition is pretty strong for those with skillsets in demand.

        • Depth Charge says:

          “With the housing prices jumping so much I feel like I need to look for another job that pays better. I’ve heard competition is pretty strong for those with skillsets in demand.”

          Which is why I am drastically raising my rates this year. 50%. I’m not going to get left behind. If people can pay that much more for a house, a car, an RV, etc., they can sure afford to pay me that much more. My rates will reflect what it costs to buy a house in this environment.

      • Mark says:

        True, but what are the odds of a buyer’s strike, Wolf?

        Katie, personally if you are not an owner now, I would find another rental and wait it out for a bit. I don’t think we’re going to see anything like a 40% 2007 crash, but 10-15% seems reasonable and on a $700K property that would equal $100K savings.

        • katie says:

          I sold a home in late 2017 – lived in it for 5 years and was investment (big house in top school district here but too big for one person 4,000 sq ft) I was planning to buy in March 2020 and then covid hit so renewed lease for 1 year. Now prices are higher and inventory even lower.

      • F-This says:

        Wolf, I’m in the Bay Area and I’ve thought of the strategy you mentioned. How can a group of buyers come together and beat this market by refusing to play. This needs to be a collective effort, similar to Reddit/game stop. We can beat them at this game. Maybe I need to start a movement?

        This week, my husband and I decided to tap out of this insanity for the sake of our own sanity. We’ll pull back in later this year. Right now, I refuse to make a purchase based on fear and FOMO! I’m hoping others will join us in our effort to flip the middle finger to this madness!

        • Jesibo says:

          I’m in!

          Just told our realtors last night we are not going to see any houses during this insanity.

          Have been looking for years with increasing purchase prices but every time we save a bit more, prices go up by 5x more.

        • Ethan in NoVA says:

          The problem is some people are making easy money and don’t care about the high prices. The prices aren’t high if you just made a million or two in stocks/crypto.

          It would be fun to get a buyer strike going and a renter strike, but not sure how you can get everyone to play along.

      • cas127 says:

        Wolf,

        I wonder if buried somewhere in the Case Shiller stats are the *transaction volumes* supporting the price index numbers from yr to yr.

        It is one thing having 500k sales propping up LA home prices, quite another if it is just 5k.

        The former bespeaks depth of demand at a highly elevated price, the latter bespeaks thin, brittle price support.

        Since Case Shiller uses matched-pairs (wisely for certain purposes, but perhaps less so for others) I imagine that the transactional *volume* used to generate the price level is perhaps low (only “matchable” current sales get used).

        Again, if the volume used to measure price is thin, then the reported price is likely brittle (because fewer sales means weaker representation of overall demand/supply).

        Annual home sales in CA post 2006 were maybe 60% of the volume of the 2006 peak, although I’m not sure of 2020 numbers.

        And I don’t have metro by metro volume stats.

        • Wolf Richter says:

          cas127,

          The number of “sales pairs” is the volume indicator, meaning how many sales in the current month were matched with a prior sale and qualified for inclusion in the index. A sale has to pass some hurdles before it is included, for example it cannot be a sale between related parties.

          In the current month (January) for Los Angeles, in terms of houses, 8,507 sales pairs went into the index, up 21% from January a year ago. And in terms of condos, 3,864 sales pairs went into the index, up 24% from a year ago. January/February are seasonally the slowest months.

      • buda atum says:

        Yeah, Wolf. We’ll just tell everyone to stop buying for six months, and don’t click on real estate ads, and don’t look at real estate sites so the “whole schmear would come down”.

        Stop buying everyone, and ……!

        There. We tol em. Lol.

        • qt says:

          But think of the realtors commissions!!! What will happen to this group of wonderful people?

        • Anthony A. says:

          @qt: what I used to say when I lived in California when the housing circus stopped for a while was that the RE agents will just go back to playing tennis every day.

      • Bob Jayco says:

        While a nice fantasy, it won’t ever happen. Even if those looking for a primary residence all got together and did what you suggest, you don’t think the corporate and investment buyers wouldn’t swoop in and outbid you anyway?

        A house is a moneymaker and with so few places to make a profit on investment these days they have become a financial instrument for the moneyed set and I don’t see this changing.

        Once housing became a financial device the game is over and while people will still buy houses to live in the fact is that there is so much profit in rentals and appreciation that things have changed and they ain’t going back.

        Even a housing crisis like the last one only gave a short-term break, but interest rates were a lot higher and who bought all those houses? Blackrock and others.

        • Wolf Richter says:

          Bob Jayco,

          If 20% of the potential buyers walk away, the market would spiral down in a New York minute. Maybe 10% walking away would be enough to change the psychology of the market.

        • SamG says:

          Is the declining sales of homes due to interest rates, lack of interest or just that so few homes are coming on the market?

          It seems that anything, almost anywhere is selling very fast with over-asking prices so I don’t understand how sales are declining unless there is just nothing more to sell.

          Perhaps more people are less inclined to move right now until things settle down a bit.

          I don’t see lack of interest and in fact feel like there is a rush out of cash into a hard asset to offset inflation.

        • Pea Sea says:

          “Even if those looking for a primary residence all got together and did what you suggest, you don’t think the corporate and investment buyers wouldn’t swoop in and outbid you anyway?”

          Outbid you on what? You’re not bidding, that’s the point. Your bid is zero, and so is the bid of everyone else participating in the strike.

      • The problem is sellers holding two or three houses, off the market. Nothing feels better than sitting on an asset and watching it grow. Wouldn’t want to own a rental in this market, while underlying value rises faster than my tenants ability to pay. I would consider increasing the number of units, by downsizing them. Turn a duplex into a triplex. Too small for you? There are some places with your old sq ft down the street, at twice your old rent.

        • Bob Jayco says:

          I just think that with the present inventory being so depleted, any pause by buyers would be more than made up by corporate, or even affluent buyers, that would take advantage of the pricing change.

          Even if a decent percentage walked away, as soon as the prices dropped, if they even did, you would see a mad rush to buy before the rest came back bringing the prices right back to where they were or even higher.

          There is simply too much money out there looking for a place to come to rest and housing has proven itself to be a great place to be if you can afford it. And as long as a certain group can indeed afford it, even at these prices, it will continue to be in great demand.

          Historically housing has gone up over the long term and I think it will always follow that trend, though there will certainly be short term dips now and then. More people, more demand for homes in better areas, higher rents will always drive the prices higher long term. And so the prices reflect that.

        • Wolf Richter says:

          Bob Jayco,

          Sales have been declining so far this year. Pending sales out today were down over 10%. Existing home sales reported earlier this month dropped 6.6% and have been dropping since late last year. New house sales plunged. There are all kids of reasons for this, two of which are buyers losing interest and rising mortgage rates.

        • BayAreaMarty says:

          It is the perfect time to own rentals. People need a place to live and if they can’t afford to buy they will rent. Value of asset doesn’t matter or change anything. If your costs are covered you don’t have to increase rent to anyone.

          “Nothing feels better than sitting on an asset and watching it grow”

          Especially when someone else is paying for it for you.

      • Or we could, theoretically, get our government to stop screwing with things in 50 different ways, and allow price discovery to work its magic. Buyer hysteria is real, but everything else is government manipulation.

        I sold my house and moved in with in-laws. Will the bubble pop, or simply continue to eat away at my nest egg? Who knows.

      • cybersandiego says:

        yes Wolf. that would work. This suggestion reminds me a few years ago when gas prices were too high (for the times back then) there was a movement of sorts in SoCal, that one day of the week no one should drive. That will reduce the demand for gas and bring the prices down. It worked to some extent,
        But in these times who wants to “miss out” in real estate especially if they are sitting on a pile of cash?

      • Lisa says:

        Just like when all the toilet paper, hand sanitizer and pasta was flying off the shelves last year when Covid hit.

    • Depth Charge says:

      Keep renting and banking that nurse salary, Katie. Buy yourself a little vacation or something if you are feeling stressed. Don’t get sucked in!

    • B says:

      I’m also in the same exact boat, within the Denver metro market. To answer your question, wait it out. Fomo never leads to a good decision. Buying for emotional reasons, fine if you can’t take the FOMO, but if you are buying as a financial upside – you can get better ROI playing your finances correctly and investing in the stock market, index funds, maxing out the Roth ,etc. I know it feels like you are missing out especially in CO but I think the more you read this website and the great contributors who are all doing really well off – the collective narrative is to wait.

      • RightNYer says:

        Not sure that there is any way to “correctly” invest in the stock market at these valuations.

        I refuse to pay $100 for $2.50 worth of earnings. That’s what you’re doing right now if you buy indexes.

    • NoEasyDay says:

      @katie-

      >”…or rent and ride out this storm?”

      At this point, rent.

      Remember that the more you pay today for an asset means lower long term appreciation. Buyer’s remorse is real.

    • Phoenix_Ikki says:

      I swear it sure feels like a support group in here when I see comments like this. Guess for every 10 FOMO buyers eating up the mainstream or RE narrative, there are people like you and I gawking at the absurdity with contempt.

      Maybe the tide will turn at some point or maybe it won’t. As I have said many times before, you start to question your own stance when everyone else is repeating the complete opposite. Good that at least Wolf provide some real data to reassure us that not all are buying into this BS

      • Paulo says:

        Phoenix,

        Just to ride along on part of your comment: “Maybe the tide will change …..or maybe it won’t” Ah, therein lies the rub. One could end up like my 81 year old tenant. Sometimes, we sit together and have a few glasses of whiskey. He likes to reminisce about our area, “I could have bought George’s place across the river for______, or I wanted to buy _________, used to own a lot but sold it”. etc etc etc. Now I rent him a cottage for a 30% discount on the local market because he is my friend and a senior. Before that I found him an empty house (shack) on my son’s property and then built the cottage. He had been evicted from his previous home because the owner wanted to develop and sell. Years later he told me he was going to kill himself at the time. He had made a plan to get into his tin boat and die of hypothermia (supposed to be a gentle way to go).

        Owning a house isn’t just about numbers and investing, it is a home and part of a plan. A long term plan. I agree that as the largest investment a working person will likely ever make, a house purchase should be done in a careful and deliberate manner with attention to known details. But…and here is where I differ from many WS readers…it should be done long before developing investment portfolios, buying a flash car, or taking expensive vacations. As a lifestyle choice, owning a home is more important than dining out or hobbies. Just ask my tenant.

        I also said and say, “Probably not a good time to buy”. But damnitall, I said that 3 years ago, too. :-)

        Picked up some building materials, yesterday. My price for fir sheathing, (and I get a good price discount), was up 300% from 4 years ago. Ouch, and bought what I needed.

        • Seen it all before, Bob says:

          Paulo,

          Excellent points and I agree fully.

          A couple of added points:

          1) You may have to take some risk and initially invest to reach a down payment on a house and a cash cushion. 0.1% in the bank will leave you behind.
          2) Have a 1-2 year cash cushion so you are not foreclosed upon when the inevitable recession hits. Don’t be a Nomadlander by force. IMHO, having a year in cash making 0.1% is better than losing it all with a foreclosure and a wrecked credit score which will likely destroy any chance of you buying another home during the best times to buy.
          3) As you pointed out, a house is a long-term investment in your future security. Buy a house you can live in for at least 10 years. If it goes up and you can ladder up, do it. If it goes down, you still have a house you can live in for at least 10 years with a fixed payment. Your 81 year old friend/tenant is very lucky to have you as a landlord or he would be a Nomadlander.

          I’m like you. I thought the peak in home prices was years ago. I was wrong. Am I still wrong? That is a longer debate to have.

      • RightNYer says:

        Right. It’s like the “elites” are gaslighting us, with the help of the FOMO buyers.

    • Hernando says:

      We owned 3 houses in 2007, they all cut in half in value by 2010. It took until 2018 to recover.

      We were preparing to buy in 2018-2020 then this COVID nightmare happened.

      We are still shopping but we are signing a new lease and are waiting until things normalize. It is a bad idea to have two mortgages. Most people with 2 mortgages can’t afford both. One bad tenant, one increase in taxes, two months of no rent…. it is rough.

      The smartest people I know say not to buy now.

      • Anthony A. says:

        Hernando, in 2010, we bought a 2,000 square foot brick ranch that was three years old in a great neighborhood for $62/sq. ft. People tend to forget that back then, right after the GFC, empty house were all over the place. Lots of foreclosures, bank REOs, private sellers, etc.

        My daughter and her husband live in that house now and the one next door (same size) sold last summer for $262,000, a full price offer.

        Hang loose and when this bubble pops, it will be very loud!

    • Old school says:

      I really like the free on-line rent vs buy calculator by Michael Bluejay. I would do at least five long term scenarios from inflationary to deflationary. Print out results and study carefully to understand possible outcomes of buying vs renting.

      Home purchase is so rare for most of us, we do a poor job on decision making process. I think most people under estimate risk they are taking in holding a stock portfolio or buying a home. You will probably have to hold both through a severe price decline at some point.

      Some housing markets are just not good deals where supply is too tight and then you just have move to a different housing market where your income buys more.

      • Paulo says:

        They, (the infamous they), have done studies on home buying habits. This what I read. The average home buyer makes an emotional decision about the house they are buying. Often, they have made a subliminal decision to buy within the first 20 seconds of viewing. People spend more time buying a new outfit than they do buying a house.

        Mix in fear of losing out, fear of interest rate rise, whatever, and here we are.

        • MiTurn says:

          Good point. And it’s not like realtors don’t work this angle.

        • Anthony A. says:

          I remember a home we sold in Livonia, Michigan in 1975 after I got a job transfer. My wife had just wallpapered the 1/2 the small kitchen (above a chair rail) with some crazy wallpaper with colored balloons on it. I told her we should strip it off. (not happening !)

          A couple who were stopping by to look at the house went in through the side door which was into the kitchen and the wife said to her husband, “I love this kitchen with the beautiful wallpaper”, and BINGO, they immediately bought the place.

          Yep, that stuff happens.

        • RightNYer says:

          Anthony, and I’m sure your wife never lets you forget it :)

    • John says:

      Like all the other posters, I suggest you continue to rent and wait.

    • Larry Cheeta says:

      Just had a young lady on reddit from and still living in Venezuela. An economics student. Answering any questions and all questions in group called silversqueeze. Someone asked, buy a house because of inflation coming to U.S. She said better yet, buy cheap silver now and buy house later. She said in Venezuela housing prices had come down in relation to silver and or the dollar for now. You can buy a nice house in a safe neighborhood for $30k American. So not if but when inflation hits America, against silver housing prices will fall. Bottom line. Rent, take your money buy physical silver now and house later. Of course do 401k up to company match as it is an immediate 100% return.

      • Depth Charge says:

        I refuse to hand $10 to the coin shop for every ounce of silver they sell me. It’s ludicrous to pay a 40% markup. That’s not “cheap” at all. The time to buy was 2 years ago.

        • cybersandiego says:

          Depth Charge: How about buying a 1 Kilo Bars or higher denomination? for higher denomination Silve, you would spend less premium. Same thing is true for Gold as well. If you buy the “premium american eagle or such” your premium is higher than, if you just buy a 100gram Gold bars.

    • Shells says:

      Condos and apartments might be (slightly) undervalued relative to houses right now, given how many people in condos were so eager to have access to a yard starting a year ago. That said, location, southern exposure, neighborhood, and how much time you want to spend at Lowe’s/Home Depot doing home Reno/fixing up/YouTube learning matters as much as the financial viability. As does your willingness to make “lowball” offers and see what happens.

      I’ve been waiting for (and trying to prepare for ) the big crash for years now, and continue to be “wrong”. My wife has kept us on a more “middle of the road” path.

      • Shells says:

        A correction/caveat: if I were you I would wait until late summer or this fall to see what happens with the market, in regards to foreclosures after the moratoriums end.

    • Happy1 says:

      It depends on your time horizon and stability of your income. On a 20 year time horizon with a stable income/job, it would probably be OK to buy. If 5 years and/or less certain job, better to rent. I also live in Denver and before that, SF, there is no conceivable situation where a home purchase in Denver isn’t appreciating in value in 20 years. But 5 years, yes, anything can happen.

    • Happy1 says:

      I know many, many people who have been waiting here for 5 years for the bubble to pop, they have set themselves back 40 or 50% by that wait. I watched people do same in the Bay Area in the 90s, eventually there is an opportunity, but it might be many years and another large tick up in prices. This is the Fed’s doing.

      • endeavor says:

        Comments like this about many waiting buyers tell me that there is a much greater chance any drop in prices will be short lived. Add to that the trade up buyers and asset bubble creation by the Fed, housing will up continuously even with multi families sharing the home. Like the old days when large homes were to converted for extra residents.

  10. red pill economics says:

    The Fed = Wile E. Coyote, Super Genius.

    Article
    The Full Case Against Ultra Low and Negative Interest Rates
    By William White
    Mar 17, 2021 | Macroeconomics

    “However, debt accumulation is not the only unintended consequence of relying on monetary stimulus. Such policies also threaten financial stability in various ways. They pose a danger to the survival of financial institutions and to pension funds by squeezing net returns on traditional assets.”

    “Moreover, institutions subject to such threats then “reach for yield” in an attempt to compensate, often leaving themselves open to risks that they had not anticipated and have no experience of managing. A related concern is that of growing “moral hazard.” Every time a problem materializes, the central banks or regulators create another safety net to protect the exposed, which then encourages them to behave even more badly.”

    “Similarly, unusually easy monetary conditions over long periods can threaten the effective functioning of financial markets. In recent years, we have documented: recurrent “flash crashes”; waves of Risk-On and Risk-Off behavior; persistent “anomalies” from normal price relationships; growing evidence that normal “price discovery” has been suppressed; and finally, the near-collapse of the US Treasuries market in September 2019 and March 2020.”

    “Moreover, easy monetary conditions lead to continuing increases (bubbles?) in the prices of virtually all financial assets and often to real assets (like houses and other property) as well. For a long while, these price increases can mask the other undesired consequences of easy monetary conditions but, as “fundamentals” eventually reassert themselves, a price collapse can easily follow.”

    “Another side effect of easy monetary conditions could be a reduction in potential growth rates. The possibility of “malinvestments” and wasted resources was raised by Friedrich Hayek in the 1930s and has also been treated increasingly seriously by the BIS, OECD, and IMF in recent years. A well-functioning economy, with expanding growth potential, has ample room for companies to both exit and enter. However, there is growing evidence that easy monetary conditions discourage both processes from working effectively. In many counties, the birth and death rates of companies have in fact been falling sharply as indeed have measures of productivity growth.”

    “Nor is this the end of the list of unintended consequences. Easy money in advanced countries spills over into emerging market countries threatening them with the same kind of distortions and exposures. Rising inequality, especially in the distribution of wealth, can have important social and political implications.”

    https://www.ineteconomics.org/perspectives/blog/the-full-case-against-ultra-low-and-negative-interest-rates

  11. Henry Barth says:

    When Money dies by Adam Fergusson
    When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump ofcoal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.

    Free copy: http://ibooko.club/go/read07.php?id=B0042JSRU0

  12. Uncle Salty says:

    With regards to the first chart one can see that at the market top, back in 2006 the delta between the CS NHPI (red) and the CPI OERR (green) is about 65 points. Today, the delta is again, about 65 points. Based on the historic relationship between the two, perhaps we’re nearing a top, at least at the national level.

    In addition, that chart shows that the CPI OERR (green) acted as a kind of support level for the CS NHPI (red) as the market bottomed in 2012.

    For those who want to buy but are waiting for a correction perhaps a good indicator of an impending bottom would be when the red and green lines converge.

    I live in the Portland metro region and bought my house back in 2000 and paid it off in 2008. Compared to SF, SD, LA and Seattle, Portland is at the low end as far as west coast metropolitan real estate is concerned. Makes me think that if there is a crash, it won’t be as bad here.

  13. The Bob who cried Wolf says:

    Two things to consider:
    A local San Diego realtor took the time to figure out the annual average increase in housing prices here from 2004 to 2021 and it’s 3.58%. Remember what advisors used to say about holding for the long haul? This isn’t a huge increase and definitely isn’t a huge or abnormal amount. Now if you’re leveraging you stand to make a lot, but over the long haul this is a pretty normal yearly increase.

    I’m sure FOMO and other things are in play here but could it also be that folks are afraid of losing wealth with the way money is being printed and magically disbursed through out the economy. Hard assets, in my opinion, are the best way to keep even and stay ahead of the dilution, at least the safest; again, just my opinion.

    On a side note, my sister in law has to vacate her Sacramento home because an investor form China came in with all cash. I can only assume that the well to do over there are worried about the diluted dollars, too.

    • Wolf Richter says:

      OK, tell your Realtor to cherry-pick a different start date next time. From the end of 2005 through January 2021, there was even less annual appreciation. But over the past 10 years, there was massive annual appreciation.

      Since 2001, the annual “appriciation” in San Diego ranged from +26% in 2004 to -25% in 2008. If you don’t choose your start date correctly, you’re in trouble. And looking at the chart right now, I cannot image a much worse start date.

  14. Mark Lawrence says:

    Help me out people! I live in LA. I own an 830″ condo worth $550 K. I would like to sell and buy a bigger place. If I sell now, rent for a bit and then prices drop I’ll be happy, but if I sell, rent for a bit and prices still go up I’ll be screwed. Also, if I were to rent for a long time I would be paying someone else’s mortgage and I don’t want to do that for too long.

    All thoughts are welcome!

    • Old school says:

      If you use a good rent vs buy calculator it will help you get your head around a complex situation where the possible outcomes are many. Like stocks your time horizon is a key factor, but in my mind here are the key thoughts:

      1. Determine the estimated time you will live in a property. Because there are transaction costs on the buy and the sell transaction renting is going to be better in year 1 most likely with a cross over point at some point in time depending on economic scenarios that are out of our control. Buying might become better in year 2 or in year 15. You will not be able to determine that exactly because we don’t know the the future.

      2. If you rent you have an opportunity for investment for the funds that are not tied up in a house so don’t get hung up that you are throwing money away paying rent.

      3. If you are buying in this market with 20% down you are leveraged at 4:1 and that is probably more risky than buying a stock index because it is not leveraged and is liquid which is all that matters if you need cash to feed yourself.

    • Fat Chewer. says:

      Yeah, I get what you are saying. Put your apartment up for a private sale at a ridiculously expensive price like 2-3x its market value. See what happens. You could win the lotto. Call it an experiment in modern economic theory.

    • Petunia says:

      Is LA still an up and coming town or is it a declining $***hole? That’s the question you need to answer for yourself. Look out of the window in your current place and take a walk around the neighborhood too.

      • R Hughes says:

        Watching some videos about homeless, vacant store fronts on Wilshire Blvd, rats, trash, and on and on, Not to mention traffic. Alot sure looks awful close to 3rd world now.

        • Kate says:

          A man was stabbed to death in back of his $2.1 million home just north of Wilshire, a few blocks east of Beverly Hills. The stabber was a homeless guy. It’s barely been in the news, because that’s LA in 2021.

    • Happy1 says:

      The problem if you are staying in the same market is that the expensive places are also appreciating. You are generally better upgrading in a down market when the expensive places have taken a disproportionate dive in value.

    • Jdog says:

      Investing is a combination of common sense, knowledge of market history, and the guts to take a chance. There are no guarantees, you pay your money and take your chances. If you are right you make money, and if you are wrong you lose. That is the game.
      If you truly believe prices will continue to rise, then stay. If you truly believe this is a bubble and will pop, then sell.
      IMO what is happening now is insane, and not sustainable, but I cannot tell you when it will all come crashing down. All I know is that my entire life the only thing you can count on is change, because every action has an equal and opposite reaction. It is the law of unintended circumstances.

    • Crush the Peasants! says:

      Consider engaging in geographical home price arbitrage, if you can. Sell in the high-priced LA area, and buy the same or more for less in a different part of the country. Pocket the difference. Plus the air quality in LA is not very good.

  15. jrmcdowell says:

    “House prices rose by 11.2% from a year ago…”

    Does the Fed see this as a great success or do they recognize that housing has been turned into a speculative free-for-all? Do they understand that prodding investors with ZIRP to speculate in the asset markets prevents large numbers of people from finding affordable housing?

    This is one of the noxious side effects of keeping the stock market propped up as housing prices have gone along for the ride. Not sure that renters and young people will be very impressed with the Fed’s presentations claiming there is insufficient inflation in the economy.

    • Phoenix_Ikki says:

      Yeah I am going to venture to assume that most people and young people don’t know what exactly what the FED does or care..now if uncle Jerome is dancing on Tik Tok and rapping about QE on a viral video then you might get their attention

      • Petunia says:

        All of the young people with Robinhood accounts know what’s going on. They don’t have jobs and can’t even think about having families. They know the system is not working for them.

        • Jdog says:

          Why would you think the system is supposed to work for you? If the “system” is not working for you, it is because you are not doing what is necessary to succeed. Life is graded on a bell curve. Everyone has the opportunity, but not all are willing to pay the price.
          Those who put in the most effort succeed, and those who sit around waiting for life to give them something usually do not.
          If you are working a 40hr. job and doing nothing else, why would you expect to be successful? That is just the minimum.
          I never began getting ahead until I began investing 100+ hrs a week to get ahead. In my 30’s I would work 8-5 at my regular job and 6-10 remodeling houses. 7 days a week. Sacrificing, saving, and investing.
          Other people work full time and go to school at night to get ahead. The point is if you want to have more, you have to do more.

        • Bobber says:

          Jdog,

          Working hard may have worked 40 years ago, but work isn’t enough to build wealth now.

          Wages have not grown, but asset prices have grown 200% since year 2000. No matter how hard you work and save, everything becomes less affordable. The prices of things people really want in life – houses, education, health, retirement, etc. – are all out of reach now for the average person entering the job market.

          Over the next 20 years, a nurse or teacher could work 24 hours a day and really help a lot of people, but that won’t be enough to keep up with the rate of asset inflation we’ve seen over the last 10 years. Contrast that with the speculator sitting at his desk 2 hours a day who made a fortune buying Bitcoin or stocks.

          As I said before, my stock gains in 2020 were better than my wage earnings over the first 15 years of my career. All I did was push a few buttons. This is not normal. The system is working only for people that have some capital (i.e., the older generations). The generational wealth transfers taking place today are irresponsible and unfair. People who work should be rewarded. People who save should be rewarded.

          People who do nothing but push bottoms should not have an annual 20% gain guaranteed to them by the government.

        • Swamp Creature says:

          “All of the young people with Robinhood accounts know what’s going on. They don’t have jobs and can’t even think about having families. They know the system is not working for them.”

          Right now, its much harder to make an honest buck than it was say 40 years ago. Back then if you just played by the rules and were patient, you could get to be fairly well off and have good retirement. This no longer the case. I do agree that even then you had to put in the extra effort to really make yourself independently well off.

          I just got my annual statement from my mutual fund which invests in Short Treasury securities. The yield came in at 1 basis point. That is .57 per month on 56 K invested . Now tell me all the sacrifice and saving was worth it. It wasn’t. Hard work and savings did NOT pay off! The system is rigged now more than ever.

          Instead of being retired, me and Ms Swamp are still in the workforce working 80 hours/week, just to make ends meet.

        • Paulo says:

          Wow, hard to comment when everyone is right. However, I’m still going to ‘mostly’ agree with Jdogs opinion on working harder to get ahead because that is what I did, and what my kids are doing right now. It worked then and still works.

          I did the sweat equity thing and also controlled spending. I certainly wished I had a doctor’s income or knew enough about investing to time the market, but didn’t and don’t. I do know how to build though, and love doing it. If you pick up one or two extra shifts a month, or work some OT, pay down the mortgage with it…the money can go right on to the principal. Never increase a mortgage with a refi to buy other stuff, unless it is a good piece of property.

          Just an opinion. To quote my Father in Law, “When you pay off your house it’s like you just got an immediate $1000 pay raise. You’ll always have money in your wallet”. This was said to me in 1979. Today it would be the same as a 3K pay raise, and not too shabby.

        • RightNYer says:

          You’re all correct. The basic issue is those born from say, 1940-1970 like to think that the world they left us is the same world they inherited. It’s not. It’s worse. Far worse.

        • Seen it all before, Bob says:

          My parents said in 1982: “We’d be idiots to pay off our 6% 1970 mortgage when we are making 12% in our government insured CD.” Heck, they could have invested in all of the payoff money in a 30 year US Treasury at 14% at the time and guaranteed a massive profit by not paying off their house the entire time remaining on the mortgage.

          Will we get to that point again? It depends on inflation.

          If your crystal ball says interest rates will rise, don’t pay off your mortgage. Play the game like my fortunately lucky Silent Generation parent homeowners did.

          If your crystal ball says interest rates will fall below negative, be prepared to refi.

          In my opinion, for security, I will buy quality dividend stocks paying 3-4% while having a 2.5% mortgage rather than paying off my house. If the market crashes, I may lose some but not much with quality stocks (ie Verizon, CocaCola, Pepsi). If inflation rises and CDs rise to 12% again, I will be ecstatic with the spread between my 2.5% mortgage and a guaranteed insured 12%.

          However, I will always have 1-2 years of house payments sitting and “losing” in a government insured bank account making 0.1% so I hedge and don’t lose it all in a foreclosure.

      • Jonas Grimm says:

        Ha ha, yes, mock your inheritors. Not like you’ll care since you’ll be dead once this mess reaches its crescendo.

    • Happy1 says:

      The fed is actively buying mortgage backed securities, they are inflating the housing bubble directly by deliberately pushing mortgage rates lower than they should be. It’s criminal and nuts.

    • Heinz says:

      The Fed recently called this a “very strong rebound” in housing market.

      It is all good according to Fed.

  16. ram says:

    Real-estate bubble? That’s not a real-estate bubble! Says the Australian ;-)

  17. Beardawg says:

    About 1/2 of these “bubble” markets look to be on track from where they were headed were it not for the 2004-2006 run-up (PHX, San Diego, Miami, NY, Vegas etc). 6%-10% annual appreciation is in line with TRUE inflation.
    Methinks there is more room to run in those markets, especially since most are in the desirable US Southwest where Boomers and Millennials wanna be.

    • Petunia says:

      I also think prices will continue to rise in the short term, with many owners stuck because of covid, that’s an easy call.

      The problem is what happens when all the manipulation ends, the jobs don’t come back, and the debts are larger. That will cause both an economic effect and a political one, which doesn’t bode well for housing. It’s going to be Chop Zones all over the place. Try getting out then.

      • jon says:

        I don’t think the manipulations are ever going to end.
        The FED never stopped doing QE for last 12 years

        • Beardawg says:

          jon & Petunia

          I think the low end FHA stuff will see a leveling or slight decrease in months / years to come, just due to the volume of inventory which could hit the market after forbearance ends. Even then, extend and pretend will not change the payment amounts, just the loan term, so the impact may be only a leveling since many of the defaulters are choosing not to pay even though they can pay.
          I agree that never-ending QE, which will continue into the indefinite future, will likewise buoy home prices indefinitely. IMHO These charts reflect where house prices “should be” when considering the 12 year QE economy which will soon be the 16 year, then 20 year QE economy. In other words, the bubble will not burst but it might hit a soft ceiling for awhile as more inventory starts to creep into the market.

  18. Yort says:

    Exactly 50 years ago, in 1971, Nixon broke the Bretton Woods system and thus severed the link between the dollar and the gold standard.

    Per “wtfhappenedin1971 dot com”…if you like economic charts about how the world financial system fell apart from 1971 forward, check out the web site as it is legit and used in various financial publications, including some hedge funds.

    Here are some actual 1971 prices:

    $25,7000 – New House
    $10,622 – Average Income
    $3,560 – New Car
    $2,600 – Harvard Tuition
    $150/month – Average Rent

    I was not even born in 1971, yet I, along with everyone on this Earth, is paying a very steep price for Nixon breaking the gold standard in 1971, as 2021 pricing for houses, rent, Harvard tuition, etc have “run over” average incomes quite drastically versus 1971. Exactly 50 years ago is the keystone reasoning why the world financial system has gone scorched Earth in 2021, why housing has gone wild, why the Fed is delaying the somewhat inevitable (timing indeterminate) financial end game “reset” by any and all means possible, etc.

    Just like gaining weight or getting old, it happens so slowly it is hard to figure out when it all started, yet study 1971 and see the patterns that lead us for 50 years to “WTF happened in 2021″…

    • Old school says:

      Governments always are changing the definition of money to fleece the public. US government borrowing $30T at less than inflation means that capital allocation can be run out of DC. A few people have a few meetings and allocate more capital in a few days than Warren Buffet did over 50 years.

    • Heinz says:

      And in 1971 a single breadwinner could support a family and middle class lifestyle comfortably.

      How we got from there to today’s economic nightmare without pitchforks and torches from commoners is perhaps best explained by the boiling frog analogy and normalcy bias.

    • ru82 says:

      Sales tax in my city was aound 3.5% in 1971 too. Now it is 10.25%.

      I am guessing it will be 12% to 13% in 10 years.

    • The Bob who cried Wolf says:

      My understanding is that housing prices as well as many other things were somewhat stable before the gold standard was dropped. The fed and politicians have been messing with the free market for so long nobody remembers what a free market, with real money, even is anymore. What we’re seeing was and continues to be inevitable. I don’t know if now is the best time to buy but I can tell you this much…all of this printed money isn’t going to magically disappear and things will get more expensive as time marches on. Better figure out how to hedge it now or we’ll all be eating cat food for retirement.

  19. Seattle homes cost more because they come with NonRemovable squatters,
    use needles, heaps of garbage, massive utility bills, spent fire extinguishers,
    graffiti, & broken: walls, windows, smoke alarms, light fixtures, appliances, etc.

  20. nodecentrepublicansleft says:

    Please be super, super cautious when you say “…a realtor says”….

    They’re not all dishonest or terrible but many are.

    I’ve sold several homes on my own…realtor not needed.

    When a friend a few yrs ago said “My realtor said…”, I looked the guy up. He’d had a RE license for 18 months and said on his FB page he was “going to give a try”….since being a “chef and photographer” wasn’t working out

    I told me friend: “For the love of God, man, do not make the biggest financial decision of your life based on this person’s “advice”!!!

    • Swamp Creature says:

      Having deal with realtors over my lifetime to do routine real estate transactions for my own personal family, I have some personal experience with them as whole. My assessment is not favorable. Here it is in its raw from.

      Most realtors, about 85%, or more are incompetent.

      Most realtors, about 85% are dishonest, and unethical.

      Most realtors, about 85% routinely lie and do not know they are.

      The profession if you want to call it that is inhabited by people who have failed in other more demanding professions.

      About 5% to 10% know what they are doing and are ethical.

      Had one a while back who lost a deal because she told me not to buy on a busy street with heavy traffic, with small children in the household. She was one of the 5%.

      • RightNYer says:

        Substitute “salespeople” more generally for “realtors” and you’re still correct.

  21. historicus says:

    “….based on homeowners’ estimates about how much their house would rent for. ”
    Still marvel at this concept. In what other area is an estimate from a citizen involved in an index calculation? How would a person actually know what his house would rent for?
    And, who knows the final inputs and the legitimacy of the calculation that is “25%” of the CPI?
    Lots of room for number fudging, IMO.

    • Max Power says:

      As I mentioned in a comment on this topic in a previous article, the census folks aren’t too concerned about the absolute rent values estimated by folks. They are much more concerned about the change in those estimates year-over-year. The thinking is that if even if there is an inherent error in folks’ absolute rent amount estimates, the error itself would remain consistent from year to year, allowing the census to extract useful price change information from the data – which is all they care about.

      Now note that I am not saying that I personally advocate keeping OER as the central component of housing CPI, I am just trying to explain the statistical logic behind how it’s computed.

      • historicus says:

        So….the bureaucrats believe that the inaccuracies in their metric will be consistent. So that’s a good thing.
        That sounds about right for the government bureaucrat.
        Far be it from them to come up with accurate measures….that might mean extra work.

        • Max Power says:

          Again, I am not advocating for OER as the metric to use but from a pure statistical point of view, it is probably reasonable to assume that that error rate does stay consistent. Again, they don’t really care about the absolute amounts, what they care about are the changes to the amounts across time periods.

  22. Micheal Engel says:

    1) The glorious NFL overextended to 17 game to help the the owners of the empty stadiums.
    2) Man.U owners, supported by City bank, empty Old Trafford stadium have 75,000 seats capacity, in the middle of a city slum.
    3) Liverpool lost their thrust and slumped, because Anfield 54,000 singing and saluting fans were forced to evacuate their stadium. That didn’t stop few selected Liverpool’s superstars from kneeling and kissing the grass in front of the cameras, when they score. EPL rating plunged along with their empty stadiums RE. Those players don’t care. They have a different agenda and mission.
    4) West Ham used to be near an Arab suk, that’s why they kneel.
    5) NIKE made hairy Kaepernicht the man of the year. Xi punished macho
    NKE, because they talk too much. NKE shared turned around in the last few weeks.
    6) The $1B+ Giants stadium is vacant. No sausage and Buds. The Loews hotels are struggling. L, a lower high. Hilary Tisch, age 36, lost her life.
    7) Mexico America kaisers don’t kneel. Two weeks ago they score a Borgetti header, showing their superiority.

  23. Adam says:

    Buy now or be priced out forever. There are many sites like this saying for many years that we have a bubble and prices are just speeding up.

    Ok, in 2007 we had too much supply, it’s not the case currently.

    I’m a happy buyer of a condo in 2015 and took a second house mortgage in 2017. My housing net worth increased from $200k in 2015 to $1.4kk right now. My stocks are up from $100k to $500k in just 5 years.

    If I would wait I would be a forever renter like many of you people.

    In the meantime I just live and work.

    Just don’t wait, buy!

    • Wolf Richter says:

      Adam,

      Your IP address is in Tychy, a small-ish city in Poland. Did someone pay you to post this? If yes, I’d like to know who and how much these comments go for these days.

      • Adam says:

        @Wolf,

        I didn’t say I live in the US. In Europe house prices are even worse and Poland has the biggest increases y/y.

        • Pea Sea says:

          You just happened to leave out that crucial piece of information? Sounds pretty normal and not at all suspicious.

      • Phoneix_Ikki says:

        Either we’re really in a bubble and NAR is seeing storm on the horizon and hiring troll farm to post messages like this. If that’s the case, congrats Wolf, your site is famous enough to land on their radar

        On the other hand, maybe he is using a VPN and hiding his IP. Just giving him a benefit of a doubt here.

      • Sam says:

        Check and Checkmate.

    • Petunia says:

      In 2003 I bought a house for $275K with $100K down, by 2007 it was worth $430K, still had $100K too. By 2010 it was all gone.

      The spread in your numbers scare the hell out of me, because they are not normal returns. Good Luck, I think you are going to need it, especially if you are in south FL.

      • Adam says:

        @Petunia,

        Europe here actually.

      • Anthony A. says:

        Petunia, what’s that house you lost worth in today’s Florida market? Just curious.

        • Petunia says:

          It sold in 2018 for 360K and the zillow estimate today is 419K. The current value is close to the value before the GFC crash.

        • Anthony A. says:

          Petunia, thanks…it seems like those property values have not gone off the map like other places (Ca, Seattle, etc). The home prices here in the part of Texas we are in are not going bonkers either.

        • Lisa_Hooker says:

          Petunia, my primary home in the north central US is just about back to where it was in 2006. I do not expect it to stay this high.

      • Asia says:

        I’m in South Fla and housing prices are insane. Lots of northerners/retirees flush with cash. Been waiting for the other shoe to drop with respect to housing prices. Want to sell my townhouse but not overpay on a bigger place. Paid $160k in 2004. Previous owners paid $87k three years before that. Definitely had FOMO and was afraid of being priced out of the market. Lived through the last crash. Can likely sell for $275-300k.

        It’s comforting to see others on this site who are biding their time as well. I’d love to capitalize on the sale of my place but dread the thought of renting and moving multiple times. A couple years ago I thought the prices were too high. Now I question whether waiting was foolish or wise. I just can’t justify spending an obscene amount of money right now. It feels so similar to the last pre-crash even though you’ll read how different the situation is. Can’t shake that feeling in my bones that it isn’t a wise move to buy.

    • Jack says:

      Adam,

      Clearly ya don’t have a nickel to scratch ya but with, $1.4kk, yeah ok, it’s not a bubble, it’s a hyper bubble when measured against the economic situation, pending sales down today with an open economy, this is the top of a massive crash comming,

      • Adam says:

        @Jack,

        even if we have a bubble (which is not the case IMHO) the FED won’t let it collapse.

        • RightNYer says:

          What is with people who think the FED (always in capital letters for some reason) has godlike power to prevent every bad thing in the world?

    • Heinz says:

      Please don’t stoke the FOMO (Fear of Missing Out) anxieties of potential home buyers sitting on sidelines. They need a clear, level head to figure out best course of action in Twilight Zone times we live in.

      • Adam says:

        @Heinz,

        I’m just sharing my opinion, we have a bubble on the stock market, crypto, but in RE it’s just natural supply-demand growth, not much speculation here.

        • Turtle says:

          What about government measures like forbearance and record low interest rates? Supply was low to begin with, yes, but there are several strong temporary artificial factors at play since COVID.

          To me it seems pretty clear when looking at the mean trend line that there’s a massive residential real estate bubble. Wages are not increasing nearly as fast as real estate prices, especially in HCOL areas.

          And what is it that they say? Supply is low, until it’s not. I’m endlessly curious about the impact of forbearance ending and how many will be forced to sell.

        • Lisa_Hooker says:

          No bubbles anywhere. It’s just aggressive short term “investing.”

    • Jdog says:

      You sound like Tommy Woo… But you are probably too young to know who that was…

      • Phoneix_Ikki says:

        Is Tommy Woo the same as Tony Vu? The guy with the boat & girls and all those funny informercials? If that’s the same guy, I give him props for beating Dan Bilzerian to the punch by more than 3 decades

        • Jdog says:

          His commercials were hilarious. “You got guts to be rich like me”? That was just before everything went to heck….

    • Alku says:

      I think supply will immediately appear once the top is there. Where I live, I observe the same pattern recently: a condo is put on sale, lots of traffic and it’s gone in a week or 2 – then it’s sitting empty after that. Not even rented out, so obviously purchased as an investment. Probably the same happens everywhere

  24. David Hall says:

    Miami is sinking due to aquifer depletion and ground subsidence; plus there is sea level rise. Ocean view property is expensive. The Haitian immigrants moved inland to cheaper ground. Little Haiti was built is on the highest part of Miami. Real estate in the Little Haiti neighborhood is rising in value faster than other parts of Miami. Flood zone property is risky.

    • Petunia says:

      The outskirts of Miami have been moving since the city started to be developed. Back in the 1970s, the poor black areas were just over the bridge from Miami Beach. Now even Hialeah is being gentrified, the bars on the windows of homes are being removed.

      • RightNYer says:

        The growth in Brickell, downtown, and Wynwood in the past few years has truly been remarkable.

  25. Lance Manly says:

    Real house prices indexed for inflation in the Shiller 20 are back to 2005 levels, so yeah its a bubble. The ten year rates still look like they have room to run. So likely prices will stall and maybe go down a bit. The banks do have better lending practices than back in bubble 1 so most owners should be ok outside of the FHA mortgages no I think no crash just sustained sideways movement.

    • Beardawg says:

      I concur. Flattening. No crash. Given how much investor cash is waiting for the low end FHA fallout, there may not be much of a correction there either.

    • jon says:

      I concur. Home prices would never fall. Worst it may concur and especially in san diego because we are special and this time is different

    • Jdog says:

      What is more, the ratio of home price to income is off the charts. It has never been higher and is going parabolic. It never fails to amaze me just how short peoples memories are, and how little they learn from history.

      • Turtle says:

        I know, it’s like 10X in San Diego and probably worse in Los Angeles.

        Maybe prices will go sideways for 10 years, I don’t know. But I think more likely is that once something causes supply to increase, prices will dive in an uncomfortable sort of way over a few years.

        Nobody know, but I sure wouldn’t be caught buying right now in SoCal.

  26. steve says:

    You can’t have permanent bail outs and stimuli in the trillion range without an inherent destruction of the underlying currency.
    That’s all it is.
    And that’s only the beginning with these kind of people in power.

    • phoenix says:

      these kind of people have always been in power. only an idiot thinks there’s a substantial economic difference between administrations for the last 30+ years

  27. Putter says:

    I sold my Sacramento home in 2005 for $450K. The charts clearly said BUBBLE. My neighbor thought I was crazy . He too did not see a crash ,but a leveling off. I purchased a repo in 2011 similar to my previous home for $185K. Put 35K into it. Moral of story is, “use charts, they are not subjective”. Case Schiller tells it all!

    • Turtle says:

      Well played, Putter! I remember in SoCal around 2006 the local news would feature people who sold their homes with the intention of re-buying at half price in a few years. And that was all while others were buying 1 bedroom condos for $400K+ and homes for $600K that were $400K practically yesterday.

      The charts and rules of thumb make me think SoCal is 30% – 40% overvalued right now while certain other parts of the country are only 20% over. 10x rent, mean trend line, income to price ratio, etc. The future looks dark to me for those buying in HCOL areas right now.

      It’s really hard to get the timing right (well, impossible) but I’m amazed at anybody that thinks today is the “time to buy or get priced out forever”. That’s exactly what real estate agents were saying in 2006 before it hit the fan. Like Jack up there, who sounds like an industry guy.

  28. Questa Nota says:

    How do home improvements factor into the Case-Shiller same house sales process?

    There have been many stories about remodels and upgrades going on during the pandemic, and appliance retailers managing delivery date expectations due to sold-out models or back orders.

    Those items could offset some of the physical depreciation due to wear and tear and obsolescence, but by how much to still have a range of sameness?

  29. Micheal Engel says:

    1) US Weimar started after Nixon got the collapsing USD from Saint LBJ.
    2) In 1971 USD/JPY was 357.
    3) In 1975 gold was 110-120. Gold made a bullish Schabacker viking horn to 800. Sugar fell from 60 cents to 47 in 1974. The Suez canal shock was over, but ARAMCO confiscating and the oil shock was taking over.
    4) During the 1980/1982 deep recessions SPX had a higher low, thank to the oil companies. Both the black gold and the yellow gold were rising together.
    5) In the early 80’s the RE bust became a perpetual boom.
    6) Those who surfed on the big waves and pyramid in the early 90’s, in 2003 and in 2011, never had to sell.
    7) The value of mortgage payments evaporated within quickly.
    8) USD/JPY plunged, since the early 80’s, in a bearish Schabacker viking horn, until Apr 1995 @80.
    9) In Oct 2011, 3Y after 2008 USD nadir, USD/JPY hit a lower low @75 and jumped.
    10) The trend have changed. USD/JPY made a higher low, for the first time
    after 50Y, in June 2015.
    11) Currently USD/JPY test a support line coming from 2000 and 2005.
    12) Traders and speculators are ready for a change of character. Landlords
    ==> don’t.

  30. Keepcalmeverythingisfine says:

    I just read an article on a mainstream media site (home of one Cramer) titled “Critics slam the Fed as home prices rise at a historic rate.” In the article it is noted that house prices are not included in the CPI, and that the Fed has ramped up purchases of MBS. I find this to be extremely interesting that a mainstream media outlet would showcase this. All of a sudden the MSM got religion about the Fed? Maybe I’m overly skeptical, but the MSM prints stuff for a reason. Blame the Fed has gone mainstream? Something is up. I suspect that the Fed and the current administration are going to get even more involved in the US real estate market. I would not be surprised to see a statement from Janet Yellen soon decrying the unfairness of the housing market. Talk about irony. It appears that more federal government involvement in the housing market is on the horizon.

    • Heinz says:

      So, with Fed now buying a third of MBS issues, has Fed head Powell or any of his minions every explained convincingly the rationale for this practice during a red hot housing bubble (other than tossing it off as another QE thingie)?

    • Petunia says:

      Yellen is also at treasury for a reason. The govt is going to take over the central banking role while they have the power to do it. The fed can only lend into the closed banking system. The treasury can send out helicopter money to anybody. I’m working on my Xmas list already.

      • Anthony A. says:

        Do you think the gov will publish a calendar of yearly “Stimmy Payouts” so I can time my future purchases? That would make life so much easier and make Amazon deliveries more efficient!

      • Lisa_Hooker says:

        The government got it’s $1.9 trillion. This will be handed out to it’s friends and it’s friend’s friends. The President is asking for another $2.25 trillion. This will also be handed out to friends and friend’s friends.

  31. Tom Stone says:

    Markets aren’t making any pretense of being rational right, none of them.
    It’s fear and greed writ large and the signs we’re at a top are accumulating.
    Salesforce tower, the Jafri and Beeple “Art” auctions and with Bill Hwang. the first thread came loose’
    “Slowly, and then all at once”.
    I don’t think Arhego’s will be the precipitating event, I do think it will make the herd nervous and the rigger could well be an exogenous event like an earthquake on the Rogers Creek/Hayward fault, or a Wildfire that hits a major metro area and burns 10K homes with a large loss of life.
    or more likely Covid mutates into something more transmissable that evades current vaccines and everything stalls…

    I’ll stick my neck out and call it.
    Peak Bubble between now and the end of June when things will clearly start to unravel, different markets at different speeds.
    Real Estate prices are sticky on the way down, other asset classes not so much.

    • Tom Stone says:

      Coffee, moar coffee!

    • Heinz says:

      Danielle, the former Fed advisor and now economic maven, has also recently said publicly that she feels something is about to break in housing market.

      I agree, though precise timing is a fool’s errand.

    • jon says:

      In my hood i.e. san diego, housing market is on fire. People are going crazy and bidding war everywhere. The sellers are now asking ‘multiple offers from multiple buyers’ with best and highest offer accepted.

      Like most san diegans, i think home prices can’t go down at least in san diego and we are indeed special.

  32. Micheal Engel says:

    15) Putin like Israel. Xi like Rafael and AIA. Both can stop Iran from
    launching an attack on Israel and stabilize the ME.

  33. Jdog says:

    Speculative bubbles are wonderful…. until they aren’t..

  34. Heinz says:

    ‘Owners’ equivalent rent’ data is concocted by BLS from surveys asking homeowners this question: “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”

    So tell me, how many homeowners are savvy and knowledgeable about the rental market? Does the BLS ever do a reality check by comparing it with real market rates?

    In any case, today this housing bubble does not correlate well with rental market. Housing has rocketed to another, alien planet where prices are in permanent upward trajectory with no connection to real world conditions.

  35. Jack says:

    I don’t know why people assume the Fed can save the markets, stocks or property, the simple fact is they can’t, all they have is psychology to manipulate the greedy, eventually things have to be paid for, as some hedge funds are now finding out, like 2008 it started with Icelandic banks, and slowly one by one the markets ignored it, until they took fool notice as the blood bath ensued.

    It is when the bulls or buyers think there will never be crash & the shorters or those who want a crash give up & believe they will never see one it will happen, that time is now, all ya have to do is read the comments to see why the bubble exists, there are virtually zero who expect it, that is the game the Fed is playing, central banks are playing, Gov’s are playing, they’ve done it before every crash, anyone really believe the Fed had no idea in 2008, had no idea in 2000 or 1929, of course they did, they just tried to manage it in secret without success, same will happen again.

    Anyone know that Benranke was asked about a bubble in 2006, his response was the same as those today ” property prices never fall nationwide, only in pockets, property is not a bubble), who actually thinks they would ever admit it and then get blamed for causing a collapse. This thing is going down in flames, no doubt about it, life works that way, pump then slaughter.

    • Turtle says:

      That reminds me, I got a stimmie check from Bush and still homes in southern Riverside county were going for $100-something.

  36. Jack says:

    Archegos is a prime example of what is coming, they thought they had massive profits, paper profits, then price discovery occurs & then they realise not only are they not in profit all their collateral is gone, they have zero, they can’t even pay their loans, same as stocks & property, all leveraged bets, the price people think they are worth is not real, they are worth 80% less at worse.

    The fact is most people are already wiped out, unless they are smart enough to sell right now, but the thing that got them gains will keep them in till it’s all gone, the nature of the beast, those who held on will keep holding on all the way down, most of the debt used to purchase will disappear and the whole thing will collapse, just like Archegos, that’s the debt bubble.

    It’s obvious even the massive leverage released by finra (I think it’s Finra, ya all know anyway) is not even a third of the real level of leverage, it is way higher, at records never see in history before, all chasing stocks & property, none being spent on future growth or in the economy. The virus is back like I said it will, I believe the biggest wave yet is coming.

  37. SEA SE says:

    As two 30 somethings with graduate degrees in STEM fields, these housing prices are discouraging to say the least. At this point, we may just skip the homeownership part of life as we don’t want to be the ones holding the bag when this comes back to reality.

    Our peers that own houses all had help from family and have ridden the coat-tails to some nice equity gains. Not sure whether to give up or capitulate…

    • Pea Sea says:

      The former, but don’t think of it as giving up. Just think of it as declining to participate in the madness.

  38. So glad we bought in Mexico in 2016! We got creamed in 2008 and after we recovered said “never again”. Bought an Oceanfront vacation villa for $475K, with improvements value’s increased 3-4X AND it provides $100k rental income (it was obviously down last year). Annual Real Estate Taxes? $125.00 USD. Just got our auto ins. renewal from Axa – full coverage for 2 drivers for Nissan Rogue is less than $300 yr. Health Ins.? I pay $110 a month for IMG global policy with 5M limit and $2500 deduct. – 50% reduction if I use network provider. But the reality is health care here is both excellent and cheap so health ins. is just in case… USA is getting SO SCREWED it’s hard to watch…

    • Wolf Richter says:

      Dawn,

      I want to share a sad story with you — and with everyone here. Some people here might still remember him. One of our authors here, James Murray, had retired to Mexico and said sort of the same thing. One of his articles was about his experience with healthcare in Mexico, mostly good…

      https://wolfstreet.com/2016/11/14/my-experience-with-health-care-surgery-insurance-in-mexico/

      This was also his last article. A little while later, I was contacted by his sister who said that he had died in Mexico from some kind of heart ailment. Very sad. Obviously, this can happen anywhere. But I’m not sure that he got the best care for that kind of issue that he could have gotten somewhere else.

      • jon says:

        RIP John Murray!
        It’s the final destination for all of us no matter how much we have made. Sad part is: we can’t take any of these with us.

    • Depth Charge says:

      I was not aware that US citizens could purchase property in Mexico. I always heard it was temporary, then reverted back to the government. That being said, I wouldn’t take a Mexican property for free as you will not find me stepping foot into that narco infested hellhole.

      • VintageVNvet says:

        USA folks can buy anywhere that is NOT ocean frontage.
        Best bud from junior high school retired to Mazatlan area ten years or so,,, said nobody bothers the old folks,,, just don’t knock on the doors of the narcos.
        They love it there, says he won’t come back to USA for any reason, similar to DDF above.
        BTW, I am with you DC,,, won’t go there, period full stop,,, in spite of many pleasant visits all over many years ago, and even enjoyed the bull fights many times…

    • Turtle says:

      My Mexican mother-in-law used to spend two months with us in the US and the rest of the year in her apartment in a Mexican resort town. She had internal bleeding and needed a blood transfusion, so we had her taken to a private hospital. My wife said it was fantastic. She spent three days there and out bill was $10K. It was pay as you go (they’d periodically come and ask to authorize another charge on the Visa card).

      That would’ve been a financial disaster for us if it had happened during the months she was spending with us in the US. So, thank you Mexico.

      Now, I won’t share the ugly stories of public hospitals in Mexico where most people get their care. Let’s just say you wouldn’t want the machine you’re hooked up to being held together with duct tape. In short, life in a developing country, especially on the coast, can be fantastic — if you have money. It’s misery for the majority, though.

      I’m quote glad to now have my MIL here in the US near us with American insurance. There’s too much corruption and uncertainty in Mexico for it to be a place worth living in my opinion. Nice to visit, for sure. Always a great comfort to see those brave men driving around with machine guns sending a message to the narcos to stay outta this lovely resort town.

  39. Any time the dollar is going up at the same time it is losing value, should give you pause

  40. Russell says:

    Dallas and Denver didn’t see near the impact from the previous bubble, but if you measure increase from bubble-to-bubble, they are the top two on the list.

    • Turtle says:

      Yeah, there was no bubble in Texas last time. We bought our home for $120K in 2007 and it only dropped to $105K at it’s lowest. Now it’s worth $205K, says Zillow. Pretty decent increase but still very affordable. It’s small, close to schools, lake, golf courses and shopping in a DFW suburb.

      This makes me wonder if Texas (or at least my area) would see only a small drop because though the increase is significant percentage wise, many areas still have affordable homes in relation to incomes. It seems like homes were undervalued to begin with in Texas metro ‘burbs.

      I don’t know about Denver. It’s pricier than Texas metros.

  41. Micheal Engel says:

    1) Putin & XI signed a trade deal and a weapon deal with Iran.
    2) Putin & Xi can prevent a much stronger Iran (+ proxies) from an attack on Israel.
    3) In order to survive Israel will have to switch sides and to follow Putin
    and Xi diktat.
    4) Bob Lighthizer don’t get it.

  42. Heinz says:

    Wolf,

    Can you clue us in to how your censorship filter work. From time to time my comments go to ‘moderation’ status and then ‘disappear’ from comments.

    Some of us spend quite a bit of time and thought on our comments and it is a waste to seem them censored away without a known reason.

    If we knew your hot button keywords that kill comments then we wouldn’t bother tangling with your filter.

    • Wolf Richter says:

      Heinz,

      I understand your frustration.

      But if I feel that you use my site to spread falsehoods or these insidious “doubts” that are now being used about Covid, vaccinations, deaths, and other things — whether it’s in question format or in a statement or in some other form — I hit the immediate delete button. I’m totally out of patience with that sort of thing. You can believe whatever you want, but you cannot use my site to spread those believes. Too many Americans have needlessly died, and too many have needlessly gotten terribly sick and now have long-term issues because people didn’t take this shitty virus seriously. And if you want to say that this is no big deal, or that it’s all a hoax, or just a blip, or whatever, fine with me, but not here.

      • Heinz says:

        That is fine, you can decipher and interpret the meaning of such comments any way you wish and delete away– it is your platform after all. My frustration, and perhaps of others, is that what you decide is fit or not seems at times arbitrary. When you delete without explanation it leaves me guessing.

        So therefore, anything that does not fit the approved mainstream narrative of the pandemic is off limits. I understand and will avoid antagonizing you in future.

      • Lisa_Hooker says:

        The few times that some of my comments have “disappeared” it’s typically because of a political cheap shot. Thanks, Wolf, for keeping me civil. You are the most equitable moderator on the internet.

  43. Swamp Creature says:

    Wolf,

    Any way to order a second beer Mug? I saw a pop up ad on one of your blog sites from last April.

    Need another one or two for guests.

    • Wolf Richter says:

      Swamp Creature,

      Thank you for your interest. The company that used to sell them for me ran out of mugs, and we haven’t produced more of them. I still have some at my global media mogul empire headquarters, and I send them to people as a thank-you gesture for their very generous donation of $100 or more.

      Here is more detail, including the donation button:
      https://wolfstreet.com/how-to-donate-to-wolf-street/

      If you go this route, and after you donate, please make sure to send me an email with your shipping address and phone number (FedEx won’t deliver without the recipient’s phone number).

      I no longer send the mugs out automatically. I need email confirmation. I’ve sent too many of the mugs to people who didn’t want them :-]

  44. DAVID KIDGER says:

    What if the repeated and continuous house price increases globally are not a “bubble” but a deliberate policy to make housing unaffordable to purchase by the likes of you and me as part of the WEF agenda of making us all own nothing?

    • Keepcalmeverythingisfine says:

      There is some truth to this. We have an administration that is not about letting free market forces put things right again. Not at all. We are likely to see the announcement of a “housing crises” and a federal government plan to address it. We are all probably living in the last year or two of a relatively “free” housing market. Who gets to buy a house and where is going to be determined by forces other than a person’s ability to save up a down payment and work at a job that pays well enough to pay it off in 30 years. That will become a quaint notion in probably less than a decade in many high-demand locations where the jobs are. Perhaps some kind of lottery system will be used, or a needs-based system to determine who gets to buy a house that came up for sale.

      • Lisa_Hooker says:

        Or we may simply be assigned to work on one of the communal farms or factories.

    • Jdog says:

      Housing is a market. It is like every other market, which means it needs buyers. If you price all the buyers out of the market, it only serves to collapse the market, which makes no money for anyone.
      Markets go through cycles, that is what they do. That is what they have always done, going back as long as there are records.
      Why would anyone in their right mind think anything has changed? It is a mystery why in every single bubble market I have ever seen, there is always a percentage of people who believe “this time is different”. It is not different, it is never different, it never will be different.
      There is a reason it will never be different, because markets are always emotion driven, and human emotions never change. They are greedy and irrational in bull markets, and they are fearful and irrational in bear markets. They buy in with enthusiasm, and debt, at tops, and sell or refuse to buy at bottoms. They are always doing the wrong thing at the wrong time. In order to be a successful investor, you have to learn to ignore emotions and make logical decisions. The problem is, only about 5% of humans are able to do that. There is nothing logical about the current market. People are paying 100K over asking prices which shows their emotions are driving them completely. Their actions are are devoid of all logic or reason .

      • Swamp Creature says:

        Agreed,

        This bubble will burst once the 10 year note goes up to 2 1/2 to 3%. At that point no one will be able to afford these outrageous prices and houses will start taking longer to sell, then shadow inventory will appear out of nowhere, followed by price declines. Defaults of mortgage payments and foreclosures will accelerate. The movie script will be a repeat of 2006/2007.

  45. Trailer Trash says:

    When a home price doubles, how is it worth twice as much? Do the residents sleep twice as much? Does the building keep out twice as much rain? Maybe it costs half as much to heat, or sleeps twice as many people?

    There must be *something* different about the house to justify the increase, otherwise we are just being ripped off…

    • Heinz says:

      A house is only worth just what a willing buyer will pay for it at a given time and place.

      Additionally, at this time in this market housing inflated house values have no intrinsic relationship to its value as a shelter consumption good (its traditional use).

      We are witnessing the glorious manifestation of a true Ponzi bubble.

      • Lisa_Hooker says:

        Look at the price of homes in Bitcoins. Use one speculative bubble to price another speculative bubble. Abandon all hope, ye who enter here.

    • Anthony A. says:

      Around here, the taxes double, and probably the insurance cost. Our land values are trivial. So in that regard, the folks feeding on it and your cash feel the value is double.

    • Swamp Creature says:

      You’re being ripped off. The house isn’t worth double. You dollars are just worth one half. Get over it.

    • Jdog says:

      When it comes to assets, perception of value is determined by emotion.
      Greed and fear dictate the perceived value of all assets.

  46. random guy 62 says:

    I’m from flyover country, so these massive price premiums for location still make my head spin. My napkin calculation on any property is something like this:

    “Assuming I got that land for free, what would it cost me to build that thing from scratch?” In other words, what is the value of the physical components like the wood, siding, roof, HVAC, interior, and the time to put it together…regardless of location?

    If you’re paying $1.5M for $500k in materials and labor, you should REALLY reconsider the purchase. That price above the time and materials is just driven by supply and demand in that area, and that can turn on a dime.

    Location is obviously a huge driver of price, as it should be, but only to a point. Is that bare land really worth $1M? Really? Really?

    Around home, every used house sells for below its cost to build new, just like a car, a pair of pants, or a wrench. Seems way more logical to me, especially in a country this sparsely populated with a lot of buildable land… but I’m just a dumb hick.

  47. Swamp Creature says:

    Tears downs are going nuts in my neighborhood. I get one solicitation every other day. Even my neighbor wanted to tear down my house and build a monster 4000 sq foot frame home on my lot to replace my 1700 sq foot brick colonial home.

    I got a trivia question for you. Do these tear downs of older homes help or hurt the value of my home? I have the answer. It may surprise you.

    • VintageVNvet says:

      Sure now SC, the sale of the newly built replacement house will cause the market value of the houses around it to increase. That is certainly the case in our hood in the saintly part of the tpa bay area, where many older and smaller ”cottages” have been demolished to make way for much larger new houses in the five years we have been here. I see a new one going up at least once a week on my bicycle rides around the hood.
      Folks need to know that property taxes are based on the market value of the property, not on the cost to build as is implied by an earlier advocate of the 3D printing of new houses. That has been the case in every one of the states I have owned property in in the last 50 years.
      In FL and CA, the property tax increases are limited for those who have ”homesteaded” their homes, and in FL at least, there are also various other reductions possible for elderly, veterans, maybe others.
      I am not sure why every state does not have some kind of cap or limits on increases in property taxes, but I would hope many more would do so, as I can remember many folks, especially elderly, being driven out of their long term homes by insane tax increases based on the new McMansion next door, before they were limited.

      • Swamp Creature says:

        VintageVNvet

        Sorry to say your answer is wrong. I can’t tell you why without revealing the answer. I’ll give you a chance to try again. Hint, pay particular attention to the words in the question:

        “Do these tear downs of older homes help or hurt the value of my home? ”

        Don’t feel too bad. I brought this trivia question up to one of the top real estate appraisers in the state of Maryland he, like you, gave the wrong answer.

    • Wolf Richter says:

      Don’t keep us on the edge of our seat for too long!!

      • Swamp Creature says:

        Wolf,

        Why don’t you take a crack at the answer. If you get it correct I will buy another beer Mug.

        • Wolf Richter says:

          OK, I’ll bite. The answer is: “It depends.”

          😂

        • Swamp Creature says:

          Wolf,

          Sorry, “Depends” doesn’t cut it . Need to know if the replacement of older homes with monster homes (this factor alone to the exclusion of other factors) generally helps, hurts or doesn’t affect the overall price structure of the existing stock of older homes. Also, need a brief explanation of why you have come up with the answer? The answer can be verified by the data which I have accumulated over the years. I’ll give it another day and see if you or someone can guess the correct answer, before I spill the beans.

      • Swamp Creature says:

        Here’s the answer to the trivia question:

        At least in this area the answer to my question “Do these tear downs of older homes help or hurt the value of the older homes? ” is:

        It doesn’t help and may even hurt the value of the existing homes. This is backed up by comparable sales over a 10 year period which I have been forced to read as it is distributed by Realtors trying to churn the housing stock in order to make commissions.

        The reason is: the older homes were built in 1951 post WWII when families had one breadwinner and houses were built for that family structure. The new millenials moving in do not want homes built for that family structure and want more amenities. So the existing stock is functionally obsolete. The owners cannot make back any expensive home improvements, so they don’t do them. Thus, many of these older homes stay as is or even fall into disrepair. When one of them sells the comparables used to determine the market sale price are other homes of a similar type and condition or ones in worse shape. This puts a lid on the potential sales price. The land value does go up but the house doesn’t appreciate except for some inflation if any, and eventually the land value exceeds the value of the house on the lot at which point it is torn down.

        9 out of 10 people would get this wrong if you asked them. They would say that it helps the older homes appreciate faster in value. NOT TRUE.

        • Petunia says:

          I wasn’t sure about the answer to your question. But one thing I know for sure is, when somebody offers you a lot more for your house than it’s worth, take it. Doesn’t even matter why. If you have to negotiate to cover the cost of a nicer place, do it. But generally, it is always a mistake not to take the money and run.

        • Lisa_Hooker says:

          How can someone possibly live in a home that doesn’t have a weight room filled with pro-level workout equipment? Besides, I wouldn’t sacrifice my home cinema with real theatre seating, teeth-rattling sound system, and a buttered popcorn machine in the back for a weight room. Gotta have both. Oh, and a kitchen as big as my old home with a dining room for 12. The new normal?

        • Wolf Richter says:

          Thanks, Swamp Creature! Interesting! Makes sense.

    • Minutes says:

      It hurts the values. It doesn’t help.

      • Swamp Creature says:

        Congrats to Minutes. You got it right!!

        • Swamp Creature says:

          Yep, all these losers and lemmings bragging about how much the houses in the neighborhood are going up when in reality their own house ain’t goin nowhere nohow, and they ain;t makin no money neither. They ain’t get nothin but a dollar devaluation complements of the Federal Reserve and Jerome P & CO.

          Welcome APRIL FOOLS day has arrived!!!!

        • Swamp Creature says:

          All Wolf had to do was say the words Minutes said (7 words) and he would have had a$100 check in the mail and I would have had another mug for Ms Swamp.

    • tom15 says:

      I remember back in the “day” when southern lake county IL
      was getting built up. The vacation homes and farm houses got
      dozed and replaced with +3500ft2 homes.

      I have no doubt the appraiser increased the value of the land.
      Value of your older home…..no.

      I’m also sure the property tax bill, while not meeting the new mansions,
      also went up.

      I had a client who refused to sell to a developer.
      Subdivision and golf course were built. The land his little ranch house
      sat on went from 35K to 250K. Peanuts today but back then it was like discovering bitcoin in the kids sandbox. Would imagine if I were to go back, the ranch home is long gone. And most likely not replaced by a tiny home.

  48. breamrod says:

    I think selling a tear down to Zillow or open door may be a good strategy . I’ve read where these companies are losing an average of 17k on each house they buy. Take advantage of their trying to win “market share”

  49. makruger says:

    One of the many reasons housing is so expensive is city/town zoning in so many localities forces single family homes onto individual lots, thus not allowing the kind of properties whether the tax base is actually capable of supporting the local infrastructure and where people can afford the housing and don’t need a car. Housing is just another self defeating cultural problem, just like so many other things in America.

  50. MarkinSF says:

    OMG. A house just sold here in Berkeley for a cool $1m over asking. Listed at $1.3 it sold for $2.3m. It is a great location, on top of the hills with killer views but still. That’s where we are and for those of us not buying during the big downturn just another painful moment of regret. Well I always seem to rationalize, being in my late 50s it just didn’t seem realistic to take on a big mortgage at a time when I was sure the shadow inventory would swamp the market. See I’ve already rationalized it. Anyhoo, only 29 offers came in during the 11 days it was listed. Almost 10 years of I told you so from the old lady.

    • Wolf Richter says:

      MarkinSF,

      There is an old bankers dictum: “Bad deals are made in good times.”

      • cybersandiego says:

        or conversely Good deals are made in bad times —
        when things fall apart, you can get really cheaper deals.
        or as someone indicated in the previous comments, it happened in the 2008-2010 time frame.

    • Lisa_Hooker says:

      $2.3m? Merely 738 shares of Amazon or 40 Bitcoin. And, no mortgage.

    • SaltyGolden says:

      MarkinSF,

      I was eyeing that house before it sold. I thought it was a nice house with an awesome view, but not really walkable. I also thought the price seemed low at $1.33MM (not actually low, absurdly high, just low given the present insane environment).

      Then yesterday the story was on the news and I though “can’t be the same house!”, but it was! I was pleased that my gut view of the bonkers environment was correct. Particularly given that I don’t know anything about anything.

      Anyway, this is obvious lunacy with so many “shoeshine boy” indicators flashing red in almost every asset class it’s almost comical. I can barely jump off a Zoom call without some chucklehead asking me if I heard what GME is trading at, yet also simultaneously demonstrating zero curiosity about the underlying dynamics driving any of this.

      What’s odd to me is that so few people that I talk to are interested in seeking a unifying framework to help make sense of these strange times. Good thing we here amirite?

      (btw… I am aware that “seeking a unifying framework that helps make sense of disparate events” is what drives a lot of these dopes into conspiracy theories, but real talk… this is not that.

      Don’t feel too bad, it’ll be alright.

  51. MonkeyBusiness says:

    Amazon is thinking of bringing everyone back by fall. The Seattle Times reports the company told employees Tuesday it is planning a “return to an office-centric culture as our baseline.”

    Coincidentally, my company is also thinking of the same thing. Seems like there’s a concerted effort to get back to normal ASAP.

  52. SocalJim says:

    This is the strongest housing market I have ever seen, and it appears to be getting stronger. From what I see, the rise in MTG rates is a non-event. This could go on for quite some time. Realtors are desperately searching for listings. Possible we are in the early innings of a tremendous inflation spike. The world will be a different place in 24 months.

    • SnotFroth says:

      It feels unsustainable. The people I know who sell are cashing out and the people I know who buy are in a FOMO fever.

      I need to buy as well due to family but this gives me a bad feeling. I see the shadow of ending foreclosure moratorium, higher interest rate, exhaustion of corona fear buying, and higher taxes from Biden. How many are speculating in RE, and they want out at the first sign of reversal?

      I also see the specter of fed.gov’s power to force prices up no matter what.

      • Pea Sea says:

        “I need to buy as well due to family”

        Are you sure?

      • SocalJim says:

        In Monday, I was discussing this with a few old timers who live by me. They do not think this is an inflationary event.

        Their claim is this exact pattern played out after the riots swept through US cities in the 1960s, and their point is those riots caused a suburban housing rush that lasted for several decades.

        Personally, I think this suburban housing run will not last much more than several years, but the old guys disagree.

  53. cybersandiego says:

    Read it on the Zero Hedge:
    “Buyer Mayhem” – Canadian House Goes For $612,000 Over List After Bidding War

    Toronto is the most overheated housing market among any metropolitan city in Canada. The latest example of this is the recent sale of a home that sparked a bidding war among buyers in Banbury Don Mills, a suburb in Toronto’s North York district.

    The Globe and Mail report the 3,500 sqft home located at 42 Apollo Dr., Toronto, was listed for $1,998,000 in January and immediately saw massive interest among prospective homebuyers.

    • SocalJim says:

      Often realtors will way underprice a home just to create a crazy bidding war.

  54. Seen it all before, Bob says:

    Imagine a year where risk-averse Boomers invest either in low-cost Bogle ETF funds starting in March 2020 or huddle in 0.1% savings accounts.

    Imagine aggressive risk-taking Millennials go ALL-IN on TSLA and Bitcoin.

    TSLA and Bitcoin increased at least 9X.

    A conservative Boomer “only” gained 1-2X at best. Still not bad.

    So a Millennial with 200K invested in BTC and TSLA in early 2020 now has 1.8M

    Will they go conservative and pay cash for a 1M starter home, or will they continue to be aggressive with a 1.8M down payment on a 10M home?

    My bet is aggressive.

    How this will all end, I don’t know.

    • Seen it all before, Bob says:

      In retrospect, I wish I were young and aggressive in 2020.

      Because I’ve seen it all before, I am old and conservative.

      That’s life.

      We may be seeing the Rise of the Planet of the Millennials.

  55. Britexpat says:

    So glad I stumbled across this site as I was at a logical / emotional maelstrom with selling our property in Denver and moving to Tampa this summer . I am now pretty certain we are going to cash out here and wait it out down there as its a family investment for the next ten years or so i don’t want to buy as a previous poster put it ” a Taco Tuesday crapshack ” and regret the decision as it was based on FOMO .
    Appreciate the articles / responses as it seems there is little to no conversation happening about the current out of control situation elsewhere .

  56. MendocinoCoast says:

    Wolf and others : What’s your take on the bubble breaking and how it will affect this what I consider crazy bad low fed interest rate . As a Senior Citizen Like millions of us who depend on Interest from savings this is a large Issue 
    An Example to be forced to think of investing in Real Property simply because of almost Zero interest from the Fed ?  Humm is this a trap for some just to make a market ? Any replies appreciated 

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