The winner in these crazy bidding wars isn’t the buyer. It’s the seller. For buyers, it’s a Perfect Time to make a Terrible Deal.
By Wolf Richter. This is the transcript of my podcast last Sunday, THE WOLF STREET REPORT.
Regardless of who is doing the counting, they all agree: Home prices are surging, and specifically, the prices of single-family houses are surging. This is less the case for condo prices. In some cities, for example in San Francisco, condo prices are actually down.
Overall home prices – that includes houses, condos and co-ops – have spiked by 17% in March compared to March last year, according to the National Association of Realtors. In terms of single-family houses by themselves, prices have spiked by over 18%. In some red-hot markets, prices have spiked by 25% or more.
There is plenty of condo inventory on the market. But there has been a sudden land rush to buy houses, and inventory of houses has become very tight.
This tight inventory is in part the result of homeowners not selling their old home when they buy a new home. They’re trying to ride up the wave of surging prices with both homes. This is now common practice; it’s a highly leveraged financial gamble, and while this gamble is working, it makes perfect financial sense.
Every month that you wait with selling the old house that is now vacant, the market keeps getting crazier, and more stories are being circulated about insane bidding wars, huge amounts paid over asking prices with conditions and inspections waved, as buyers are suffering a pandemic of FOMO, the fear of missing out.
For buyers, this is a terrible time trying to buy a home. The winner in a crazy bidding war isn’t the final buyer. It’s the seller of the home.
In these crazy bidding wars, the buyer is the loser. A bidding war is not a win-win deal. A bidding war is a win-lose deal. Bad deals are made in good times. And for buyers, this is a perfect time to make a terrible deal.
But for sellers, this is the perfect time to make a great deal. And when the market turns, that opportunity to clean out an eager FOMO-driven buyer will suddenly be gone.
And something else will be gone: liquidity.
Liquidity in the housing market is when you can easily and quickly sell your home at the price you envision, or for even more.
Under normal conditions, a housing market is not very liquid. It takes weeks or months to find an interested buyer. And that may be the only buyer that shows up at that price. And that buyer wants to negotiate the price down.
Cutting the price might bring out more buyers. And then the buyers have conditions, and there are inspections to be made, and buyers negotiate and haggle and want a better deal, and they walk away, or they might not get the mortgage needed to buy the home at that price, or whatever.
In a down-market, when home prices are declining, the housing market becomes illiquid at the prices that sellers envision. No one shows up. And you cannot sell at that price. You have to cut the price, and even then, no one shows up. But you can’t cut the price further because if you did cut to a level where you might be able to sell it, you couldn’t even pay off the mortgage with the sales proceeds.
And now the eager seller is stuck. At that point, some eager sellers might stop making mortgage payments and wait for the bank to take the home back. Others sell the home and cough up the difference from their savings to pay off the bank. Others are holding out, they pull the home off the market, waiting for better times, and paying the carrying costs of holding the house.
However they’re doing it, getting out from under a now overpriced home in an illiquid market is an arduous painful procedure.
But it’s particularly arduous and painful when it’s a second home that is now vacant; and that has carrying costs, such as a mortgage, insurance, taxes, and maintenance, and where renting it out wouldn’t even cover the mortgage payments. During the housing bust, a lot of damage was done by people who owned multiple homes that they walked away from.
This type of market is now just a distant memory, if even that. In many people’s minds, home prices never decline. You can’t lose money in real estate, as the saying goes. But that kind of thinking clouds decision making about timing.
So what we’re talking about here is the second home that no one lives in and that has carrying costs, and that has just become a big highly leveraged financial bet on constantly surging home prices.
The owner can put that house on the market any time, and when it sells, they don’t have to move because they’re living somewhere else. They’re treating it like a financial product, not a home; they’re just wanting to ride up the price explosion until the very last moment, and then get out.
Today, a seller can get out in no time, and take their money from the FOMO-addled buyer, and from the loosey-goosey lending that pervades the land, and from the taxpayer that backs many of these mortgages. And the seller can now just take all this money and run.
But if the seller decides to hang on to the house for a while longer to wring every dime out of this crazy price explosion until they see the market turning, and at that point they decide to sell, well by then, suddenly that liquidity in the housing market that they now will have totally evaporated.
They put the house on the market at the price they envision, and no one shows up. Then they go through the procedure of cutting the price until they get the first nibbles. And those first nibbles are going to be careful buyers, and they bid below the already lowered asking price, they want to negotiate all kinds of things that need to be done to the house, and they insist on inspections, and their lenders might put a cap on what they’re willing to lend.
If potential sellers miss the turning point in the market, that’s what they may face down the road when they do want to sell. And that easy money that their highly leveraged financial bet produced begins to evaporate.
But never in my life have I seen a better time to sell a house than now. For sellers, this is a pain-free, ultra-easy, and very profitable time to sell.
Today, the buyers – and this could be a family or a corporate buyer that already owns tens of thousands of homes, or it could be Zillow, or any of the other so-called iBuyers that make instant algo-driven offers to buy your home – they’re not only volunteering to get ripped off; they’re begging to get ripped off. And they love you for ripping them off.
Today, the entire real estate industry is pulling for the seller. They’ll try to make it happen. And the lenders are pulling for the seller. Mortgage rates have risen over the past four months, but they’re still low, and lending is still easy. And the taxpayer is pulling for sellers.
And then there is this: about 2.3 million mortgages are still in forbearance. These mortgages are going to exit forbearance one way or the other. One way to exit forbearance is to sell the home and pay off the mortgage. Many of these homes that are now in forbearance are waiting in the shadow inventory to be sold when the forbearance expires. And suddenly, there are going to be a lot more sellers.
Profit-taking is an ancient concept. There comes a time when the selling is easy and immensely profitable, when buyers are willing to do anything and forgo everything to make a terrible deal, while soothing their anxieties by muttering to themselves or to others that this time it’s different.
And the owner has made tons of money, and it’s enough, though they might be able to make a little more if they hold out a little longer, but they don’t know, and they sell while they still can, and they take their pile of money and run. And the time slot we’re in today is perfect for that.
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Great article!
“And the seller can now just take all this money and run.”
Run where exactly?
I am one of these people. We bought our house in early April after spending three months in my in-laws guest room to escape our condo in Boston during beginning of covid.
We were lucky to get the condo rented by September.
The two condos above us sold above asking a month ago after being on the market for 2 days.
If I were to sell the condo when the lease was up where exactly would I put the proceeds of that sale? I supposed I could pay off most our new mortgage but we have a 2.9 30 year.
I think you have been missing the fact that everyone knows financial asset prices are in an obvious valuation bubble. I’d rather own my condo that is mostly paid off than sell it and then have to park the money in JPow’s Ponzi scheme stonk market. I think a lot of homeowners that aren’t selling the places they used to live feel exactly the same way.
Not fair to future Americans or anyone that has bothered to save some of their paychecks… but this is Boomerica, the “f$&k the future!” generation.
Wolf is talking about selling second homes I think.
Keep that for your kids and grandkids because sure as heck they won’t be able to afford to buy a house.
The Fed and the congress have stolen that ability.
It’s my personal belief that only those who are ridiculously overlevered will be allowed to fail, so the logical thing to do is to use maximum leverage while making sure you’re slightly less levered than the most reckless speculators. People who are sitting in cash have been taken to the cleaners by Jerome Powell’s monetary policy. It’s easy for those who are invested in risk assets to say “just do what I do and you’ll be fine”, but that ignores the fact risk assets are only good to hold if you had a good entry point. What do you do if you missed the speculative melt-up? What if assets prices never come down?
I’m going to present what I call “The Angry Trade” to appeal to those who have been sitting in too much cash and want to get back at Powell and those who cheer him on. Looking at the chart history, it’s too risky to bank on a decline in stocks or real estate. I have no confidence in my own ability to predict them. The trade I’m going to propose is to go long 30 year treasuries (10 or 20 year works too). In the unleveraged version, you are guaranteed to come out ahead compared to holding just cash, provided you wait long enough, and since treasuries tend to peak when risk assets bottom, it works for people who missed the rally and are waiting for asset prices to come down.
But the Angry Trade is to use leverage. The rationale is that we’ll win either way: Either the stock market keeps going up and yields remain low to sustain the bubble, or the stock market tanks and yields go lower in a flight to safety. In follow-up comments, I’ll go into more details.
Today, it’s looking like yields on the 10 year and 30 year are breaking out of a bull flag. The basic idea is to wait for for the 30 year to double top around 2.5% and use that as an entry point for a small initial position. The reason for starting with a small position is that the market may panic as inflation proves to be less transitory than Powell expected, causing a run toward 3%. The trade will involve futures contracts.
Exactly. The reason people hate this market and economy is that it leaves NO good options for a person who comes into some money TODAY. The idea of dollar cost averaging into risk assets doesn’t help them.
Let’s say someone inherited $100,000 today, or gets a bonus from work, sells a house, or collects on a life insurance policy.
Their options are either to buy assets at historic valuations (knowing that a crash could easily rip 50% off in a matter of weeks), or hold cash and have it inflated away. That’s it.
Historically, such a person could buy CDs at 5% or invest into risk assets at reasonable valuations. Both of those options are gone today.
I sold my home and am renting a nice 40s pecky-wood cypress cottage from a friend.
I could be wrong, but I’m expecting this bubble to pop some time in the next few years and then I’m going to pay cash for what might be my forever home.
I’ll skip the mortgage as I hate banks/bankers/mortgage companies/ etc. with a serious passion.
I understand it’s not exactly like the last bubble but if you look at the top of the last bubble and the bottom of 2010-11 (Hell, I saw great deals where I live in 2014-16 too)….you’ll save thousands of dollars for every month you wait.
The $ I spend on rent right now….will be chump change compared to the price drop on the next home I buy. I’m renting for free essentially.
I live in SWFL….last time, some nice homes (and I”m OK w/a fixxer upper too as long as the location, lot, bones are good) dropped by 33-66%.
Do the math. Getting out and waiting might be the best move.
This could be the most intelligent and sensible article about the economics of buying and selling a home I’ve ever read. Thank you Wolf.
Wow! Sensible! It has been a long time since I last used that word!
What’s it mean?
Sensible
adjective
1.done or chosen in accordance with wisdom or prudence; likely to be of benefit.
“I cannot believe that it is sensible to spend so much”
Yes, that was the actual example at Oxford Languages!
Many buyers believe that the value of dollar will decline substantially, that’s why they rush to buy real estate. I wonder why you didn’t mention that in your article
Maybe because he’s mentioned it in 10,000 other recent articles.
Emil,
The dollar has ALREADY declined in purchasing power with regards to housing by something like 12% to 25% over the past 12 months, depending on the city. So you are NOW buying with devalued dollars. But there are also periods when the dollar gained purchasing power with regards to real estate, such as during the housing bust. From the day before — make sure you look at the first chart which explains all this:
https://wolfstreet.com/2021/04/27/the-most-splendid-housing-bubbles-in-america-house-price-inflation-ignored-by-cpi-april-update/
Dollar purchasing power has already declined and housing prices are painfully showing it. The question is how long will it take to price to come down and will it make sense to wait?
Example: 2012 – 2006 = 6 years
Last time it took 6 years to go from peak to the low levels. Thats why people prefer to buy at high levels.
Location Location Location EPM!!
Time from peaks to Down and dates of tops and bottoms VARY widely at different locations.
Some of those locations may be across the street,,, 1,000 yards up or down the street,,, across town,,, on the other side of the tracks,,, or on the other side of the country.
So, in reality, you can add, Timing Timing Timing to the first triple above, eh?
Now a days, Wolf could probably find and show a chart of the deltas of the last crash (s)???
It might help some of the folks who are in the market with ( what i hope ) is their intensive planning.
(Been in and out of the RE market, with family, since 1956,,, been OUT of the SM since the early 80s when realizing the crony corruption, though it had likely been there a long time. )
2010-11 was the very bottom in my part of SWFL. But like I said above, I saw great deals still pop up as late as 2014-16.
Every market is different of course. This time, the bottom could fall out slower or faster. Let’s say it’s 4 yrs. Where I live, I’ll spend $67K renting for 4 yrs.
If I buy my next home for $100K off the current prices, it’s a win on multiple levels. Especially re: property taxes.
The future is unknown. But I’ve been down a very similar path to this before. This time, I’m doing exactly what I should have done last time: Get out w/profit. Wait to buy.
I am not sure how all of you can be so blind, Wolf included.
The market will never go down again, because it will be supported by cryptocurrency and NFT billionaires. These two sources of infinite growth will raise liquidity and prices of other assets in a mostly smooth but perfectly rational trajectory.
You may have missed out on an amalgamation of 5000 pics worth $69 million, but there will be plenty of other NFT opportunities to arise if you stay aware. I read about early internet memes being part of some new ones, but my cash reserve is low ATM.
I think I read about owning a “share” of collectible cars. I don’t think you get to drive it or sit in it or even touch it, but it likely comes with a nifty picture. I forgot to investigate that further at the time, and likely missed out on the boom there.
Is that percentage (12-25%) adjusted for the record low mortgage rates? Because if not, the buying power might turn out to be largely the same. How else would you explain the frenzy buying.
The next question One Solo Senior Empty Nester ‘ faces is to rent or buy, with the proceeds, in a rapidly inflationary market.
Devaluing the ‘value’ of the proceeds…..
This so reminds me of the year 1979 when prices went through the roof here in DC and people were scrambling to buy before the homes became unaffordable. Then it was cost push inflation not market driven like it is today. Also, fear of a credit crunch which eventually occurred when Paul Volcker took over as Fed Chief. Prices crashed in 1981 and the whole real estate market froze up. People started doing home renovations vs selling and moving. I see the market freezing up in the very near future as interest rates rise, shadow inventory hits the market and homes become unaffordable. The causes are different from 1979 but the results will be the same.
Swamp
Ah the Carter years!
It was insanity!
When he was sworn in inflation was 5.2% by March 1980 twas 14.8%.
When he left office in 81 they’d managed to get it down to 11.8%!
Would be interesting to know what our current inflation is if we could use the same data as they did back then!?
In-laws bought a home at 14.8%, with a secondary loan at 17%.
Ouch!
But they were definitely FOMO.
I was in a local band in the area at the time. We did a pep rally for Carter at the Mt Vernon, Virgina historical site. I saw him speak. His big issue at the time was the $50 tax rebate. What a joke. A bigger joke was the fact his campaign never paid the band for the pep rally. We got stiffed. I realized at the time that his administration would be a total failure. If you can’t handle paying a bunch of poor musicians for a gig how can you run the country. I was right on the money.
VV
President Ford left him a great economy on a silver platter. NO Inflation, solid dollar, no energy shortage, low interest rates, affordable homes for 1st timers. balanced budget. Carter administration turned that all into an economic sewer because of his incompetence.
Don’t you think the oil embargo had anything to do with the inflation. As oil is used in so many so many products and their manufacture?
Search for ‘LBJ and Fed Chairman William McChesney Martin’.
Carter was the bag holder. That’s how compound interest works.
I’m not a Democratic but this is garbage! Paul Volcker has a choice to either kill or save the dollar! The incompetence had been happening for 10 years prior.
C
W,
The seeds of inflation were already sewn before the Carter years. LBJ”s guns and butter. Nixon’s closing of the gold window. How about the WIN ( Whip Inflation NOW) campaign and wage and price controls. Thank goodness Carter had the stones to appoint Volker and sit through the interest rate squeeze Volker used to finally beat it.
In today’s world Volker would have been burned at the stake and no politician would have respected his independence.
This is far worse than the Carter years. Back then we didn’t have civil unrest like we have today. And we had some semblance of a free press. Also Carter though incompetent was a decent guy in my opinion. He corrected some of his mistakes when he appointed Paul Volcker as Fed Chief. Nothing like these mitigating circumstance are happening today. We are heading south and there are no corrective forces in place.
SC:
“And we had some semblance of a free press.”
That’s an interesting thought. From what I recall during that period of time, there were a hand full of newspapers and other news outlets that were controlled by a few small editorial boards.
Now with the internet, anyone can self publish and say whatever they want, whenever they want to. Looks pretty free to me.
Yes, and these editorial boards presented both sides. Not like today. Anyone who thinks we are getting unbiased news from them now is living in an alternative universe. Back in the Carter years the mainstream media was very critical of his administration, and his appointments.
As far as the Internet is concerned, haven;t you heard about the censorship by Twitter and Facebook.
Please peddle this bus$it to someone else. Not me.
Stop lambasting the J team. The combination of Joe, Jerome and Janet will save us.
If they don’t, we’d have to wait for the K team, headed by Kamala and two K first names to run the economy to save us.
But, that might be a long wait given that Joe indicated that he wants a 2nd term.
No thread would be complete w/out some Carter bashing and your claims that Biden is the new Carter.
No civil unrest in the US before now? Surely you jest.
Free press problems? Never had any issues until very recently!
It’s odd….you think all the problems in our country either happened because of Jimmy Carter or started 1/20/21.
Stand back at look at that forest on the other side of the trees!!
you are misleading the readers, prices of real estate have never come down with the exception of the 2008 bubble.
Do not look at the prices adjusted for inflation, its misleading as people’s wages haven’t kept track with inflation for decades, so yes it is always a good time to buy a house , especially if you plan to live in it.
Best thing to do in 1979 is buy a house and hold onto it.
Easter bunny
Yup, took your advice..built in 77 on 10 wooded acres, west Mpls had a fixed mortage at 9.75%. Two years later thought I was a genius as friends were paying 15%.
Eeeks!
Poured every extra dollar and all bonus money i recieved toward it. 53k had it paid off in 9.75 years.
Still in the same house. They say I can get 1.2 m. but what that’ll buy me compared to what I have?! Retired in my late 60s, so sometime in the future, we’ll have to sell cuz too big of a house for the 2 of us. But I don’t think we’re going to loose on this investment. Maybe a little FOMO on the high. But anyway I look at it we’re going to be OK.
Good thoughts to all.
Kind of sounds like gloating, to me. You were the beneficiary of the times – a member of the lucky sperm club who was born in the right era. Gen Xers like myself never had the luxury of sanely priced real estate, save for a blip back in 2008-2011 where things started correcting until the FED quickly arrested that.
Keep your eye on the proposed capital gains tax the new prez wants to pass. You may give up most of your gains to taxes and means testing.
@DepthCharge, you blew yourself up with that bout of waaa waaa waaaa. Nobody gave that guy anything. Did you read about the interests rates being charged at that time?
Buying a house is like planting a tree. The best time to do it is 20 years ago. The next best time is yesterday.
All that happened while interest rates dropped from 18% down to 0%. What do you think happens when interest rates start to reverse that trend?
The past is sometimes opposite of the future.
Well, his name is Easter Bunny so perhaps the thought of interest rate ever rising will be just as much of a fantasy as Easter Bunny or Santa Claus being real.
I bought a dump back then and got stuck in it for 21 years
“you are misleading the readers, prices of real estate have never come down with the exception of the 2008 bubble.”
Absolutely false.
There were several panics (what we now call financial crises) in 1800s that brought down real estate.
Crash of 1929 and subsequent Great Depression hit real estate bad. It took until 1960s for house prices to fully recover.
you need to have a sense a proportion in your comps, if you do enough regressions and beat the data with a baseball bat for hours, it will yield any result you desire. Fact is real estate is a good and reasonable investment compared to most alternatives available to average Joe.
In addition to SoCal in early 90s recession Bc Cold War ended. Part of the reason SoCal features so wtf in the most splendid housing bubbles.
eastern bunny.
You are correct!
According to Wolf, you could have purchased any house during the last 100 years in most parts of the country and still be up today. Look at Wolf’s charts. We are at a peak over all history.
How much you are up depends on when you bought. A house is a place to live and enjoy and not an investment.
Will there be dips and crashes? Yes. However since a house is a place to live and enjoy, have enough reserves so you don’t sell during these times. Just enjoy! And stop reading Housing Bubble blogs after you purchase.
I’ve recently seen several homes where the sellers aren’t happy with the offers they get (all presumably over asking, though I can only vouch for one of the offers). Then they relist at $100k+ higher. Then they sit for weeks. I believe they were expecting crazy fomo offers like their neighbours were getting in Jan-Feb, and when that doesn’t happen, they relisted for what they hoped to get. The fantasy is starting to end. Once enough of these ‘optimistic’ listings pile up, the surplus will do its thing and prices will fall. Only question is how far.
I agree that this housing mania is getting a little old even at this point, and perhaps potential buyers are now getting a teens-weensy bit more cautious. Does it have legs to run longer? Sure.
We will watch intently as the summer months pass for more signs of FOMO fading a bit and perhaps some more inventory hitting the market.
Manias will run their course. Stocks and real estate asset bubbles are doozies of manias in modern times in my book.
Let’s even assume for sake of argument that Powell is an economic Superman (that is, his ideas and policies trample ‘free markets’ and centuries of economic wisdom with impunity)– but there is economic kryptonite waiting to take him and his radical policies out.
Another example, I went to look at a place that was listed at 700k, it was very run down, and probably needed 150-200k of renos, but was a large home in the best neighbourhood in town – tremendous potential. We considered going 50k UNDER asking, but settled on offering the asking. There was only one other bidder, they offered 850k. overbid by 149k for no reason. but the sale price gets posted and creates the impression that things are still very frothy. 2 months ago this place would have had 20 crazy offers. idiots are in short supply. one day, (maybe soon) the 150k over asking bazooka offers will stop, and these buyers will look like the fools they are.
Weimar Powell is Superman alright…he is about as good of a Superman as the one in Joss Wheldon’s Justice League. His timeless FOMC briefs has as much as convincing performance as Ben Affleck’s Batman
“Convincing” as Bruce Wayne / Batman?!
Hmmmmm, only one person ever pulled that off w/the gravitas the role deserved. Who need Laurence Olivier or Anthony Hopkins when Adam West is available!
Fed is certainly not helping the situation. If you watched Powell, he is telling people the juice is going to keep flowing a long time and that he wants inflation to run hot a long time.
Yes, and also…
Many here suggest a day of reckoning is coming as in, when the Fed hikes rates.
Yet also many say the Fed can’t hike rates w/o the house of cards falling.
So who is correct? We, may have reached a point the Fed can not go back, and end ZIRP and QE expansion.
See: Japan, Europe.
In other words…this time is different.
Finally, Jerome is no genius that’s for sure. Look how he got his whole “there has to be an off-ramp” and “hawkish gradualism” 100% wrong. He should us he nothing but a tool of Wall Street and asset heavy elites.
There’s a whole segment of the population for which the fed is irrelevant. I’m one of them. I don’t care about the interest rate because I have no investments and will never have a mortgage. Use credit cards mostly as a convenience and have to pay higher than normal rates for other credit anyway. I generally don’t care what the fed does about interest rates. And there are plenty of others in my boat.
Wasn’t it fashionable amongst the Found Fathers to view citizens and voters as property owners ONLY?
Perhaps the Founding Fathers have been reincarnated as Jerome Powell and voting members on the Fed. They just don’t know it yet.
I care because at 65 I have a lifetime of savings I am trying to manage in case I live 30 more years and its tough when the Fed has taken policy to new extreme. If I misread Fed policy and screw up my real income is going to be squat in a few years.
Powell has gone full clown show. Everything spewing forth from his lips was a lie. And again, nothing but softball questions. It’s propaganda that would make North Korea blush. We have a fake government.
You know it’s theater. If the truth was the objective it would be more like a trial with Powell under oath in front of a tough prosecutor trying to trip him up in a lie. Watch Fed’s action, not the theater.
Gunlach is probably right that 2.25% on 10 year is about all government going to pay even if inflation is hot and then Fed will nail it there through curve control.
Yes… Most buyers, in the middle and lower end of the market don’t even know what the FED is or who JP is?
They just go herd mentality, based on social media and media.
just like the toilet paper from Costco. Some people did it, then it went viral, where everybody was doing… it just nuts
Most FOMO buyer don’t know about the FED or JP, they just see people on Facebook buying.
But they still have to service the debt. Good luck with that. I’m banking on mass foreclosures. These people can’t afford these houses.
Ding-Ding-Ding!!!! We have a winner!
Just like “last time”…..
The more things change, the more they stay the same.
Live Wolf has been pointing out… None. of this. Makes. Sense.
When the shit hits the fan….cash is King.
Friends of mine recently made an offer on a short sale near Sebastopol.
A short sale in THIS market?
Yup, the sellers inherited the place from parents who bought in 2006 and paid to much.
I haven’t been active as a Realtor for a couple of years now but I keep in touch.
And like Wolf I have never seen a better time to sell a home and like Wolf I have been burned often enough not to let greed blind me to risks.
We have half the normal inventory for this time of year in my stomping grounds because once again people are treating unrealized gains as actual profit.
Unrealized gains are, by definition, unreal.
Learning that lesson can be expensive and will e for a lot of people.
“We have half the normal inventory for this time of year in my stomping grounds”
This is the real problem, and drop her of price increases in my area as well. We are at 50% of 2019 inventory.
Can’t wait for this bubble to burst and leave the speculators hanging out to dry.
They will morph from “sophisticated housing lotto investor winners” to “we are victims and we didn’t know what we were signing and need a bailout too” sad pandas.
There’s gonna be a lot of tears. Tears from those that realize they just made the most epic mis-investment of their lives (FOMO buyers) and can’t sell to get out from under it; tears (of happiness) from those that were able to sell at peak and make enough profit to bury some debt; and especially tears from realtors when they realize that the party is over.
The people who insist this market is sustainable do not understand how and why markets work. Many of these comments refer to peoples fear, and greed, and those are the driving factors in all markets which deviate from the mean. At the point where markets begin to be driven by emotions, instead of rational thought, the reversal of that market is an absolute certainty. The only constant in life is change, and those who do not understand that, can not plan contingencies for when it happens.
Few people are capable of ignoring their emotions, and disciplined enough to ignore fear and greed. That is why so few people ever achieve financial independence, and why the vast majority will die with nothing to show for their entire lifetime of earnings…
Well said Jdog!
You know I think financial and real estate markets are a lot like a baseball season. When it comes to financial transactions there is someone on each side of the transaction. Usually one side is more financially talented.
Over a season usually the team with the most talent has the better record. Over a lifetime the person that is disciplined, is somewhat math proficient and understands the system makes fewer mistakes.
Financial decisions are rarely slam dunks, but are an assessment of the likely future outcomes.
I can’t wait for the opportunities us fools with cash on hand will get to pick from. Delayed gratification.
Who knows if us cash holders will be right, but if I was in levered assets today I would be selling because assets to real are at all time high of about 7 X. That’s at least twice normal. What’s it going to do from here? Go to 10 X?
I think it comes down to this if you are long leveraged assets, you believe interest rates are not going to rise for 20 or 30 years. Could happen, but that’s not my bet.
How it ends with FOMO:
“My parents are in a money pit situation because they waived the inspection. A few months after moving in my dad went right through the kitchen floor due to rot. Owners had put down new laminate over the rotted floor to hide it. They got lucky no one fell through during the viewing. That was just the beginning. Porch is falling apart, HVAC is ancient, roof is leaky. It’s their own fault, but I would never waive an inspection.’”
And it gets worser:
“An agent (not ours) recommended that we empty out our 401k’s and wave (sic) all contingencies in order to make a cash offer on a house.”
Source: Julie Sherwood, Democrat and Chronicle, April 21, 2021
I rented a mega landlord renovated house in Florida with a spongy second story floor. I was afraid to fall thru the bedroom floor there and that was the least of the issues with the house. It was beautiful when we did the initial walk through, but over the course of the year, turned out to be a poster child for bad renovations.
Waiving home inspection when buying a house is the height of stupidity.
Especially so when idiots with more money than neurons overpay for an uninspected house. Termites, wood rot, mold, roof leaks that only appear after heavy rains, foundation and lot drainage problems, non-code or unsafe electrical system, and plumbing and HVAC issues are often not so obvious and will not come out and warmly greet unsuspecting buyers when they are there for the showing.
I don’t know how lenders and insurers let them get away with it.
Where do you find an honest home inspection, Diogenes?
Word of mouth. I found the most amazing home inspectors because they did an inspection on a home I was selling for a potential buyer.
When I got a copy of the inspection, I said “DAMN! These people are super thorough and REALLY good at what they do.”
When I buy again…they will be doing the inspection. In a normal market, all the problems they find are ammunition you use to get seller to drop the price a little bit.
You say: “Hey, the roof needs replacing, the AC is on its last legs, etc. Go look up the permits that have been pulled.
I found a home for sale once…from 1925 (the year was 2015)…never had a single permit on record.
Either that’s a metric shit-ton of “deferred maintenance” or they did the repairs w/no permits.
For us little folks, buying a home is the biggest financial purchase in your life. DO YOUR DUE DILIGENCE!!!
This is exactly what I’m doing. I lived in Oregon for my whole life until 2019 when I decided I just couldn’t take any more regulation and taxes from the psycho Governor Brown. I moved to Utah but held onto my house and an adjoining lot in Oregon. I turned it into a rental with positive cash flow. The current lease is up in 15 days and the renters are moving into a new house they built nearby. I’m putting both the house and lot up for sale and cashing out. I would normally hold onto it but I’m scared to death that the next renters would stop paying rent and the psycho Governor Brown would allow it.
The big question will be what to do with the proceeds. I could buy a rental nearby in Utah and stay in the real estate game or invest it in something else. I’m terrified of the pending inflation eating away my purchasing power. I’d buy gold and silver but it’s really hard to find any these days. I considered investing in stocks but the bubble scares me even more. I could lose 1/2 in the blink of an eye. Any ideas???
Traditionally – what does well in inflation:
Energy stocks
Housing and REITs
Commodities
Precious Metals and mining stocks
Stronger foreign currencies
Consumer staples stocks
Tobacco and Alcohol stocks
Tobacco and alcohol consumption also work well during inflationary times.
I should have just looked in the mirror before asking. I’ve never drank and done more nicotine in all of my life than I just did through the Covid fiasco!
Good tips. I’m in several of these right now but forgive my ignorance but how exactly can one invest in stronger foreign currencies? I’m not really a “paper” guy. I wipe my butt with paper. I try to invest in real things like metals, real estate, cars, weapons, wines, etc. Things that I can touch, feel, hold, and protect myself. However, it’s a good thing to be diversified. Are you talking about actually holding foreign currencies or trading them electronically? I’ve heard horror stories about currency traders taking a bath.
Onionpatchkid
Since you were considering an absentee rental anyway and you now have a bit more comfort with rental real estate, you may want to consider deploying some of your proceeds into the Midwest rental market which has been hot for over 5 years and is still affordable.
I was in Kansas City MO and turn key $80K homes were coughing up $1300/Mo rents. Similar results could be found in St. Louis, Indianapolis, Cleveland etc.
I sold all my rental inventory to investors and I am carrying the loans on everything I sold. My borrowers were begging me for more inventory but I had set and achieved my goal. Prices have drifted upward a little in the past year, but the Midwest model remains the best cash flow bang for your buck in rental real estate.
Beardawg, how do you protect yourself for carrying the loans on what you sold?
Shiloh1
I require 25% down payments when an investor purchases a home from me. If Borrower jingle-mails, I just take the asset back, use their down payment $$$ to fix it back up (cuz there will likely be repairs or upgrades needed), then put another tenant in the property and sell it again.
There has been no concern in the current environment where my Borrower’s rent rates have been stable or rising. In the low-end Midwest markets, I tell my Borrowers do NOT count on ANY property appreciation – these are strictly cash flow investments….BUT….even this lower end asset class is appreciating – bonus for them !!
Beardawg – interesting! Did you mean Cleveland, OH?
Yes – Cleveland OH :-)
My rental is across the street from me and the tenant is a good friend. We will also be buying another place right next door. Owning a distant rental is a recipe for nightmares, imho. But then our rental is not just an investment, rather, it is a way to protect our lifestyle and local area. To be honest I hate being a landlord and being called ‘my landlord’ by my friend. But you get a bad neighbour moving in next door and life can turn pretty shitty, pretty darn quick. The other thing about having a local rental is security. If we go away our renter keeps an eye on things and vice versa. When the insurance company asks for inspection history I just laugh as I see the place everyday on my way out and about. I leave the tenant alone and he leaves me alone unless he stops by to BS and have a coffee or beer.
If you get some tough bikers or gang types renting your midwest investments what are you going to do about it? They’ll wreck your place on the way out for sure. Rent late? Another hassle. Deadbeats? My son rented a pad to some deadbeats who begged and begged him to park their RV on a spot of land. He relented and all was good for about 18 months. Then they just buggered off and left all their stuff. No one wants a bunch of old furniture and books. It’ll be a bonfire and garbage run to deal with it all. After Covid.
The point is that having rentals isn’t free money and straight math. There can be hassles…will be hassles. Maintenance. Possible damage. It’s nice to keep complications down when aging.
Paulo
Good observations on doing rentals for sure. I spent 17 years owning/managing my own rentals, both local (AZ) and later long distance (Midwest). I learned many things the hard way for sure and I was was one of the few who made it through 2008-2015 because I paid cash for all I owned.
My goal was to become a lender so as not have to worry about tenants, toilets and trash. ;-) I do not make the higher returns that my borrowers make (because they are leveraged), but after a 20 year journey – I am finally making mailbox money !!
As for suggestions for ONIONPATCHKID, my suggestion was to consider taking “some” of the real estate proceeds and try a Midwest rental – dip the toes first, then see if it works for you.
Being a landlord from 1100 miles away wasn’t fun. I’ve had other rentals in the past but I always repaired everything myself. I was in construction my whole career and I’m pretty picky (and cheap) so I always just preferred to do it myself. With this scenario though, I lost sleep when there was an issue. I think it’s a good time for me to exit the rental business. I couldn’t imagine not getting paid rent and trying for a year to evict someone on my dime from 1100 miles away. No thanks.
Ag and Au are available just have to look and not pay a stupid high premium. Rental property near where you have settled makes it simple to manage.
This Saturday – May 1, 2021 is the 10year anniversary of the Comex driven Silver price smackdown ??.
I have some PMs, but I am also in a lot of cash at the moment. I am in the camp that thinks there will be a bubble pop and asset crash before they start to really print. The amount of dollar debt in the system is many times the amount of money printing. But I am watching closely and can be convinced otherwise.
The future hasn’t been written yet so we can’t know for sure, but I think the vast majority of times excessive debt results in stock prices dropping rapidly and then debt getting worked out slower in court system. Buyers kind of dry up in the housing market for a while.
Beanie Babies and Dogecoin.
And whatever Glenn Beck is hawking this week.
Just another story about fools rinse repeat our kids have no knowledge of money or value perfect set up for govt higher valuations higher taxes simple really 90% of people have no common sense
I also feel the same.
And one of the reasons why runaway inflation right now doesn’t look imminet is because almost everybody is expecting it. The market will most probably do something that will take the crowd by surprise.
this was a reply to ElbowWilham…
I was a young house flipper in the San Fernando Valley in the 1980’s when the aerospace industry tanked and much of the housing market tanked along with it. I barely got out as things were deteriorating. That was close. I learned a lot. I saw how much prices fell that time. During the dot com bubble bust I waited and bought the bottom (RE and S&P 500). Ditto for the GFC and the Pandemic. You never know what the catalyst will be, or when it will happen, but a crash will come. You will get several opportunities like this in a lifetime. I’ve had 3. We are in a massive upswing right now. The Fed has the pedal to the metal, and so does the current administration. Trillions and trillions. Think about that. I will go on record here and say this is NOT a sell in May and go away year. Not for RE and not for the S&P 500. There will be a time to “lean out” of the markets, just not right now. The fire has started and they are throwing rocket fuel on top of gasoline on it. It is going to burn really, really hot.
Disclaimer: If you follow my advice you may take a serious ass-pounding and lose all your money.
The LA housing bubble of the late 80’s was sizzling and a buddy got his real estate license just in time for the market to crap out, nothing was selling in the early 90’s, and the realtor he worked for had a dozen on staff, and my friend related that a husband-wife duo who were in the top 5 of sellers had been relegated to cleaning the office, just to look busy.
Back then we only had regional bubbles, nobody gave 2 shits about Boise or other yeah whatever medium sized metropolis.
This mother of all housing bubbles is way different and poised to fall apart, and if you have a ho hum home that needs work, you’ll never find a better time to have somebody pay you in advance for needed repairs vis a vis the selling price, when a market is in heat.
Boise is pure insanity right now. My lease is up in October and im considering moving back to the midwest, housing and rent costs have gotten so bad.
Yep. Just sold my house in Boise within 12 hours of calling my realtor. Cash offer.
Then you priced it too low.
The Fed and investors are changing the traditional ways in which housing is being valued and they’ve turned it into a speculative asset class. It’s no longer just about incomes, down payments, monthly payments and comparable sales.
It’s about capitalization rates and financial repression where holding cash is intentionally penalized by the government. The current ten year treasury is 1.68%. What is the cap rate of the median home? It’s probably greater than that so investors may think housing isn’t a worse deal than holding cash or long-term Treasuries. So it may not all be driven by panicked buyers and FOMO although that exists.
In past cycles, interest rates rose sharply which dampened the speculation. It’s different this time because the Fed is not going to be significantly raising interest rates and they can buy bonds to keep long-term rates down (or so investors believe).
This is terrible policy that is doing a real disservice to people looking for shelter and those being clobbered by higher property taxes.
JRMcdowell,
In the name of financial stability, the FED is re-destributing wealth from first-time buyers and the next generation into the hands of home owners and asset holders. Current home owners are the clear winners.
Long term, there will be a lot of losers. Low ownership cap rates and high taxes means more and more renters.
Good observations but many current homeowners aren’t really winners. Yes, they’re keeping up with inflation but in reality, they’ll only be paying higher property taxes and insurance along the way.
Exactly how I feel. This is not a positive for the economy and it surely is repressive longer term with property taxes. I don’t want my house to be a lottery ticket. People with a brain would agree regardless of owning…Its not as if the blowup is that long ago. Was that a good memory for people?
Many of these future renters are going to be renting in other countries. There are already early retirees that have left and won’t be back until they qualify for regular retirement. They are saving money on taxes, rents and medical costs. The nomadic life is not just RVs in the rural areas, it’s international now. The mega landlords may be left holding the bag because people are leaving for lower cost areas on purpose.
There are so many vacant rental properties right now that it boggles the mind.
In my years, I have seen people camp for days on a sidewalk to pay overinflated prices for substandard homes, and I have, only a few years later, seen nearly complete housing tracts abandoned and eventually dozed to the ground because of total lack of demand.
All markets must bow to the laws of physics, and to supply and demand.
Bubbles always end in crashes, and crashes in turn lay the foundations of the next recovery. People who base their perception of reality on a few years, or a decade or two, are blind to the entire picture.
That’s it right there. Renters suffering from FOMO and cash holders need to hear your words.
Your comment brought to mind my Mom’s story of how in the early 80′ in SoCal we had to camp out to keep our place in line for new construction. She said the guy behind us was testy and threatening. And that was with interest rates in the double digits. I don’t totally understand it but people really, really wanted those homes (of which there was no model to tour) to the point where they’d sleep on dirt with their babies and endure harassment.
It also brought to mind a particular neighborhood of unfinished, quite large luxury homes on big lots on the outskirts of Phoenix after the big crash. That was an eerie looking place. It looked apocalyptic. It felt unsafe. And today I wouldn’t doubt that they’re selling for 10x what they were picked up for by cash-holding investors after Phoenix tanked hard.
Bravo to what you said and I completely agree. Unfortunately for people that are riding high now since the last decade this will fall on deaf ears, doesn’t matter if they are old enough to have witness all 3 housing crash in the past 50 yrs. I wasn’t old enough to give a craps about the crash in the 70s or the crash in Japan but I can read and educate myself on things to not fall victim to it. Even the sudden drop last march seems to be a distant memory for most in the stock market now with the amount of animal spirit on display. I swear, feels like majority of people are the main character from that movie Momento. Forget about learning from a crash 13 yrs ago, they can’t even remember when they Dow had a triple digits loss close this month..
“People who base their perception of reality on a few years, or a decade or two”
A decade of Two. well people in their 50s can’t wait 1 decade or 2, cause they’ll be dead
If they have not learned anything in 50 years, they are not going to learn anything in the next 10 or 20 either. The stupid are destined to live and die poor…..
I think housing sales and inventory will slow down to a trickle as sellers realize that there is nothing to do with the cash and it is better to keep an asset that is not easy to reproduce rather than digital dollars that Powell can double or triple at the stroke of a pen.
Inventory will become non existent, its a way of currency rejection. Our crisis is not economic, its moral and it started when we bailed out the banks. Once the moral underpinning of society starts to shake, trust will be next casualty. Working hard, playing by the rules and saving were our moral values. Have you noticed how saving nowdays is called hoarding in the media? Eventually media will start promoting poverty as being the next cool thing and it will become trendy. It happened during the great depression. Weird things happens to a society without a moral compass, this is only the beginning.
“Our crisis is not economic, its moral and it started when we bailed out the banks.”
The issue was how the bailout went down. Millions of people lost their homes and savings while Wall Street was not only bailed out, but greatly enriched and rewarded. They were even able to swoop in and buy some of the foreclosed homes on the cheap.
Wolf and others have argued that the Fed should have stepped in as the lender of last resort to provide support to the banking system to keep it from failing (which seems reasonable). The real problem was when the Fed was allowed to crank up the printing press and start buying bonds which shepherded us into the era of the wealth-effects doctrine. Moral hazard has never recovered.
There is a good article if you google it “How the Fed got huge” by Jeffrey Hummel where he explains how we moved on from Greenspan area where the policy was to flood the system with money so credit flow can continue to Bernanke area whose main concern was that failing intermediaries will harm the economy mainly through the restriction of credit flow, and set the goal to bail them out independently of what was happening to the money supply.
Hence the zombification of the economy.
FOMO and YOLO..then eventually at some point it turns into FOOP. Just interesting to see how FOMO rules our decision making process. At the end of the day, certain traits we share with Chimpanzees are pretty obvious despite how evolved we think we are as a specie.
If interest rates stay crazy low then
I don’t think this is the top.
Remember when the candidate who didn’t win the election warned that dems were pushing to abolish single family neighborhoods? Well it’s happening on a city by city level across the country and now the candidate who won the election is pushing it on a national level. The only way these neighborhoods may be saved is by pricing the developers out so there’s no profit incentive.
Keep an eye on the news, especially San Diego news.
It’s happening and most folks are unaware it is and will be blindsided when the first 6 unit dedicated low income project goes into a posh neighborhood. I know of one that’s going to go public here really soon and the neighborhood outrage is across the political spectrum. Blue folks who voted for these blue politicians will be eating their own in short order. It’s an interesting collection of folks at the meetings.
I used to volunteer on a local city planning council and a well run city does not have silos of wealth and poverty. Usually newer neighbourhoods are purposefully mixed single family, duplexes, patio homes, apartments, etc. Wealthier homes have the views or waterfront, but the use is still designed to be mixed. Crime is lower, schooling is better, and kids get a more realistic view of the World and society. Even low-cost subsidised housing looks upscale. There is even bus service, egads.
Lower income people just have less money. They are still citizens and worthy of respect.
I now live rural where there is no zoning or restrictions to speak of. We would be considered to be a ‘have’ family in the area because we had jobs and savings. But it’s a crap shoot how neighbourhoods evolve or how ours will stay? Populated areas need proactive planning with stated outcomes, otherwise you have ghettos, gates, and fences. In the country we have hedges and trees. Space. :-)
If housing slows due to a general lack of confidence by buyers due to a real economic crisis, then yes it could be, will be a liquidity event as Wolf states, and there will be many holding the hot potato. But if it is just higher rates or something like that, because there is so little inventory and so much cash in the hands of FOMO buyers, even a slight dip would bring on even more of a frenzy. I really don’t see this ending soon unless a major money/political issue causes a real lack of confidence in everyone.
Or the end of forbearance and eviction bans causes the market to be flooded with new inventory. But even then it will be sucked up in a large amount by those still out there with lots of inflated stock options just waiting to cash them in at the top of that other bubble market.
Certainly fun to watch and try to guess where it is all going.
Talked to a quality builder in town who built a couple of houses my friends live in. He is building a 3/2 spec starter house right now. He built the same floor plan at the other end of street 1.5 years ago and sold it for $218,000 without a realtor. He said framing package on the one under construction was $10,000 more and that was before the big run up in price.
Second problem is getting materials on time to complete the build. He had to wait a few weeks to get windows. If it takes him a month longer that is more cost and less supply on the market.
Third thing to comment on is reduction in quality of materials. Homes built 10 years ago were all built with lovely stained wood front door. Now painted metal.
Nobody saw the housing market going down in the GFC either.
Except a handful of folks that most considered “nuts” and got a film made about them called “The Big Short”.
This looks, smells, sounds and feels like the top of the last bubble.
I refuse to ignore reality this time around…..
This is great stuff for the bureaucrats. Your (property) money’s visible, illiquid, an ongoing stream of tax revenue for them that’s increasing exponentially due to illusory values and won’t be adjusted back down until jingle mail and foreclosures force the issue. All these houses that escaped pre-sale inspection have punch list repair items that the next mortgage companies’ inspector ought to catch and flag, more delay and expense while backed up tradesmen schedule you for next month, if lucky. I’ve done dozens of real estate electrical pre-closing punch outs, every one the inspector missed things. At the moment the real estate market momentum shifts, you’re in the hole and ladders are unobtanium.
This is really well written, it scared me like a forgot-about-the-test nightmare. And I don’t own anything valuable that I can’t move quickly, storm surge was window top here once. The Feds want you in a house with a note. Then Powell and Dora the Treasurer want worldwide taxation authority? Hope greater minds prevail, there’s lots compared to these mental midgets. Great article.
The problem of lack of quality inspections may not be only with the older homes. Recently, I toured a luxury model home in Lehi, Utah, built by the top builder in the state. The list price for a basic version of that plan was around $640K and it goes up by another couple of hundred, if it has a walk-out basement. That pricing is without any upgrades.
During the tour, I noticed several visible cracks in the basement floor. When asked, the standard reply was “It’s normal, the house moves a bit before it settles!” That builder is now releasing two per month and there was already a waiting list of seventy people. The low volume of release was attributed to the diminished supply of construction materials. The sales rep was not too keen in putting me on the list and only seemed happy to get rid of me.
I saw similar cracking of freshly poured floors in another new home too. That went for $50K over the ask of $700K in Herriman, Utah, in a flash. That location was at least 25-30 minutes away from I-15. Two slightly older homes (2016, 2018 built) were showing several vertical cracks on the sides of the foundation. The 2018-Lehi home went for $55-60K over the ask within 3-days. I don’t believe the buyers bothered with an expensive geotechnical inspection.
I am wondering whether the inspectors are in cahoots with the local builders or is it the case of builders slacking off in their construction due to high demand or both?
I understand this article is about RE in general but most everything references a lot with a house. But this craziness extends to raw land too.
For example we own some off grid forest parcels and live there too. This is off grid in the extreme: not a utility one and no services – not even a reliable cell phone connection. We have satellite.
We have not marketed but we keep getting requests to sell some land from those who want their ‘bug-out’ place. There aren’t too many comps for placing a price per acre but from those that are available the prices are just NUTS! And this area is not good for work from home until Starlink matures. People want to know how much for a parcel (40ac)? I don’t give them a price. I just tell them to do some research and throw me an offer. Gosh the reactions are crazy.
Anyway, these are crazy times for sure.
Weimar Powell is Superman alright…he is about as good of a Superman as the one in Joss Wheldon’s Justice League. His timeless FOMC briefs has as much as convincing performance as Ben Affleck’s Batman
Saw an interview with Schiller yesterday on MSM. That guy is always so restrained in calling a market a bubble. I remember seeing him back in 06-07 calling the market a bubble on MSM and still comes off as lacking that conviction to really call it as least compare to the contrarians he was debating.
Anyway, what he did say about today though about the stock and housing market is that it reminds him a lot of the 1927-29 between housing and stock market then. Everything was going up, people still buying into it while being generally uncomfortably overall. I guess that’s his way of calling it a bubble in his subtle way
no one will call a bubble with low inventory.
there is a direct relation between inventory and price increases / decreases. Everything else is wishful thinking.
Inventory is always variable, and dependent on prices.
I purchased a home 2yrs ago, which has gone up about $250K. It is not worth it to me to sell, because to replace it for what I paid, in a similar area, would require relocating out of state, and I am not willing to do that for that amount of profit. Now if we were talking 3x’s that amount, my home would be added to the inventory list…. along with most of my neighbors…
If inventory is tight, it simply means the prices have reached a ceiling.
Yup, got it…inventory is always low. You know what’s coming to drive that inventory even lower? Just saw a Pentagon released video confirming UFOs, guess those pesky Aliens got the FOMO too and want in on the hot housing market. Their exotic alien currency is sure to drive that supply even lower. Hmmm..Maybe time for me to start a new Crypto..Alien52 coin anyone?
Quibbling about what a bubble is can be fun. I read a book about them the spent the first several pages coming up with a working definition, I forget the title. For the purposes of serious analysis, having a precise identity strengthens your model, but in the media world, parsing like that is sort of delay tactic. If you go on a 24 hour news segment of 7 to 10 minutes, you’ve bought into the idea that what you present is going to be a reduction.
Some people are buying second homes and not moving into them. If you knew you were going to move in a year or two, why wait? Buyers in this market are selling cash. FOBI (Bail-In) is back. The Fed has expanded the money supply (too much really) and the day when they reach into your FDIC account and swap two twenties for a ten, is the outcome. Deficits are high and going a lot higher, and out of the Fed’s purview. The trade deficit is also looming. China might hit 10% growth this year. No trade deficit drag on that GDP number. Corporate America still sees the US labor market as a toxic pond. The troubling with selling anything is you are buying cash. We are entering a period of deflation, where zero interest bonds increase in value according to the money supply. Inflation is always the enemy of bond owners, take the inverse.
If we are entering a period of deflation, wouldn’t “buying cash” be the right move?
Americans are saving stimmy checks, good for them! Although I wonder how many are saving to buy a house?
“Personal saving was $4.12 trillion in Q1, compared with $2.25 trillion in Q4. The personal saving rate was 21.0% in Q1, compared with 13.0% in Q4.”
Per Wolf (great stuff!) – “iBuyers that make instant algo-driven offers to buy your home – they’re not only volunteering to get ripped off; they’re begging to get ripped off. And they love you for ripping them off.”
Sometimes I think getting ripped off is under-rated. Getting ripped off, from my experiences, has forced me to make wiser future choices. I ended up infinately better long term by being allowed to screw up and then pay the price mentally and financially, and learning/growing in the process. Kind of like no pain, no gain…huge financial hits change a person, and usually for the wiser. I’m glad the govt did not bail me out in the past from some huge financial blunders, six-figure sized life altering mistakes. I’d be a slave to the system if I had not been forced to live and learn from my ignorant monetary choices. Basically my biggest financial mistakes turned out to be my best life leasons, and I would not trade them for anything as I in no way would have made, on my own, the hard and drastic changes to my past thinking and life direction if some entity had bailed me out for being a financial fool…
I think the Fed is creating long term phychological changes to an entire generation of humans (re-programming of sorts), and this will unfortunately only become obvious over the next few decades. I still have trouble grasping how one single human, out of billions, can force so much change on the entire world. In many ways, J-Pow is a modern day financial genghis khan…
1) It’s a perfect time to collect : 0.25 X [$1,500,000 – $100,000] = $350,000 in capital gains, plus 6% RE commission, plus lawyers fees and houses improvements.
2) US yield curve look like a balloon held by a child.
3) 1M is 0.005 / the 3M is 0.01 / the 2Y is 0.166 / the 10Y = 1.65
and the 30Y = 2.32%.
4) The 10Y minus 3M = 1.64%.
5) If JP lose his grip, or let go, the balloon will fly.
6) If the DOW flunk, buy US bonds.
A house I rented as a tenant for three years just went under contract. They were asking 950, I’m sure they will get over a million. I know the problems with that house intimately. I always thought if you could get it for just under 500 and drop another 500 on it, it would be a million dollar house. I mean, it has potential some places don’t but as is it a potemkin house. Keeping with the Russian them, if they waived inspection expecting to absorb some repairs, they did not play roulette, but put a fully loaded gun to their head and pulled the trigger.
You get what you deserve when you buy dogsh.it construction imo.
I have learned to like simple construction. Simple rectangle, one story. Simple roof. Simple heating and air. Even small amount of storage so you have to get rid of excess stuff. All easy to inspect and maintain.
This is a war for the heart of our nation. Do we want to live in a society where people develop skills and form a reliance on their own efforts and capabilities, with a safety net for those who cannot provide for themselves, or do we want a welfare society where the connection between effort and reward is nonexistent, mobility is permanently stifled, and a privileged class is protected by virtue of owning stocks and bonds.
The Fed is leading us down the welfare and rentier path without any acknowledgement by the media or legislators of this massive societal shift that impacts the very core of our country.
The media and legislators are bought and paid for, at least the ones that still “work” in and around and for DC. The noncompliant with integrity and scruples are covering diversity parades in Des Moines or practicing law in Akron, as an object lesson to the others to shut up and take the cash. I would call it societal grift rather than shift, but I’m a bit of a smartass.
Several things I would say are definitely true:
1. Fed has blown up the price of stocks, bonds and housing relative to median income.
2. Fed has transferred wealth from savers to financial industry.
3. Young wage earners have tougher road in building wealth when asset prices are already off the charts on any logical valuation model.
The disconnect I have is you can’t keep piling on leverage. If nominal growth is 4%, how many years can you grow asset prices 3 times real economy before the kid says the emperor has no clothes I mean income.
Bobber
Yes
Corporations have been receiving massive welfare from the US taxpayers for many decades.
Did you have a problem w/that?
Welfare for corporations is good!
Welfare for people…no bueno!
Or maybe we’re just trying to get through a disaster we’re sitting on the precipice of? Could it be that?
The type of asset may change, the period in time may be different, the “facts” may be “different this time”, etc. etc., but what is always the same, what is never different, is the human emotions that drive people to agree to pay ever-increasing prices for that asset. Prices that may seem insane to the purchasers themselves but who nevertheless sign the contract anyway. This never changes, this is always the same.
What also never changes are the rationalizations, explanations, and analysis as to why it’s a “new paradigm”, and the rattling on as to how the bubble de jour is distinguishable from all prior bubbles, you see, because of x, y and z.
This is the same movie over and over. It’s title is “It’s Different This Time”. Stallone with the Rocky sequels has got nothin’ on the “It’s Different This Time” series. I think we now at “It’s Different This Time XXXVII”.
+1!
I listened to a smart guy on a podcast and this is in line with what he said. Yes prices are crazy, but it’s the sentiment and human herding behavior that tells you the end is nigh.
In the old credit cycle days that said the end was nigh when you got to the bottom of the barrel in people borrowing money.
Robin Williams got paid $8million for doing the voice of Aladdin. That would be an insult to get such a small fee today. Sarcasm on
The American psyche has latched on to housing because its a necessity with limited supply. The coasts (west>east) have been undersupplied housing for decades – now made worse with the housing crisis supply hangover. Millenial family formation demographics, work from home, and flight from urban centers all favor increased demand in suburban single-family markets. The Fed has continued to promise the supply of cheap/free money and punish prudent cash holders.
Yes it will all blow up one day as it always does. That day does not appear to be soon.
No one knows
I heard that “the day won’t be soon” back in 2000 and 2007-2008 too.
Just food for thought.
Bubbles are basically just pyramid schemes, and fail for the same reasons.
They are driven by the greater fool theory, and at some point your supply of fools is not large enough to support the mechanism and it begins to implode.
jdog
Simple
Concise
Correct
When are we going to hold realtors and the real estate apps accountable for the lies they are propagating? I’m seeing manipulation of DOM, erasing old listings and re-listing places as if houses are new and didn’t go to contingency before the sale falls through, removing listings at previous price points and re-listing with no evidence of old prices…
At the same time our government and regulatory agencies hold all the bankers and hedge funds and what not that caused the GFC accountable and throw them in jail….which to my guess will be never.
However, if they do, I am sure Lawrence Yun will probably be lock up for the rest of his life. The amount of lies from him since the early 2000s are unmatched by anyone else.
Listing history that goes back years is always easy to find, as well as tax history, and not really a secret if you look for it.
Sellers can pull listings, change prices or terms as they wish to. Or list with another agent/firm after the initial listing agreement ends. If a listing is pulled for a certain amount of time, I think it is 30 days, it can back as a new listing but the history of the previous listing is still on record. RE agents can correct if I’m wrong.
I’m not sure what is deceptive about that part of the business.
Most commonly I agree, listings have a full record. But I have absolutely seen listings with now invisible history of recent changes that look like new (magic!)
Dallas Fed president just said there are real excesses in the housing market.
I am sure SocalJim disagrees.
Sorry, Weimar daddy Jboy will tell that Dallas FED president to STFU next time…how dare he goes against the everything is fine narrative? He’s stepping out of line and not following the chain of command.
“about 2.3 million mortgages are still in forbearance. These mortgages are going to exit forbearance one way or the other.”
I heard the forbearance months are appended to the existing mortgage. Also believe gov easily won’t let this gush selling pressure to mature. So hoping for a sudden selling point is senseless.
I’ve been looking for a house for over a year. Prices keep climbing with more competition. I tried to see a house and the realtor said no more showing a because 20
Ppl seeing it tomorrow. I’m done. On a buyers strike. Was trying to move into a new town outside fo Chgo but will wait this out. The realtor agreed to wait