How do you measure a bubble?
One way may be to use what is styled “inflation” – that is to say, the devaluation of the buying power of the fiat currency we’re forced to use as a medium of exchange – to see how much more you have to spend today for the same thing that used to cost much less, yesterday.
My old house up in Northern Virginia was built in the early ’70s. I bought it in the mid-1990s for about $160k. It’s modest (appx. 1,200 square foot) house built on a slab that was poured on a quarter acre lot in a subdivision of similar houses. These were working and lower middle class houses when they were new – and when I bought my house in the mid-1990s. That same house – and others like it, in the same neighborhood – is now a $600,000 house. When I lived in Northern Virginia – which I did until the early 2000s – $600k would still buy a house twice the size of my old house and (usually) on at least an acre or two of land.
These were the homes of the affluent.
What is my old home, now?
You would need to be very “affluent” to be able to buy it today, certainly. But $600k doesn’t buy what it used to. It’s the same 1,200 square foot house that it was when it was my house. Maybe it has nicer windows now. The neighborhood isn’t any nicer, though. Part of the reason I sold it was just that.
The neighborhood – when I lived there – was still on the outskirts of the traffic-awfulness that characterizes the Northern Virginia suburbs. You could still drive places without most of the drive being sitting in place. That was changing fast by the early 2000s.So also the general character of the area.
What hasn’t changed much is people’s financial wherewithal – in that $600k is still a lot of money, in the sense that few people can afford to spend that much money because not many people earn that much money. You’d need to be earning almost-Fauci money to be in a position to afford a house like my old house, today.
Let alone a larger, nicer house.
I wasn’t affluent in the mid-’90s and yet I was able to buy my old house. In part because it was more feasible for a single young guy to come up with the 10 percent of the purchase price in cash (which was only about $16k) needed to qualify for a mortgage when the purchase price of a home is $160k as opposed to $600k, as it is today.
A person looking to buy my old house today would need to come up with the same 10 percent of the purchase price to secure loan approval, just as I did. But that person would need to come up with about $60,000 in cash rather than the $16k I had to come up with. And even if he could come up with it, he’d end up living in the same house I was living in – only he’d be paying about four times as much for the privilege.
It’s a pretty good rough yardstick for what is styled “inflation,” isn’t it?
As in a swelling of cost relative to actual value.
Sometimes, the two are rough synonyms, as when a thing costs more because there are no more of that thing but there are more people who very much want that thing. This is why a classic car costs more (sometimes, a great deal more) than it did when it was new. They aren’t making any more of them, so demand for the remaining supply results in higher costs.
The classic car is more valuable.
My old house in Northern Virginia? It just costs more. There is nothing about it that justifies a four-fold increase in value. There are many other houses literally just like it (the old neighborhood had three or four basic models of houses that the developer sprinkled throughout the neighborhood) and even more that are similar, in terms of square footage and lot size, etc.
They’re all $600k properties now – and those are the “affordable” ones.
It begs the question . . . Who can afford them?
The DC ‘burbs are home to a locust swarm of federal “workers” – who make a lot of money relative to people who have to earn their living. But even a $100k income doesn’t buy what it used to up there. I know because I was making about a third of that when I lived up there – and I was able to afford a house that is now an unaffordable house unless you are making considerably more than $100k, today.
And even if you are, you aren’t getting any more for your money than I got for a lot less of mine.
It’s a pretty good measure of a bubble, I think. I’m glad I’m not in the neighborhood anymore, too.
Because when this bubble pops, it’s not going to be good for those who bought in – and didn’t get out, in time.
. . .
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Eric,
Like classic cars, housing is also in short supply. There are more people competing for that lesser amount of housing. Supply is down, while demand is up; that’s a recipe for price appreciation-just like with classic cars…
Hi Mark,
No question. But there is the element – with housing – of artificiality in that new houses are and (assuming no collapse) will be built. The development occurring in my old neighborhood is off-scale. Probably twice as many houses there are were there when I lived there. But the new construction is all “McMansion”… no small/basic houses like my old place. The “McMansioning” drives up the cost of everything.
And 600k is not the full cost to buy your old place. When you bought it it was about 20 years old, so it was probably pretty livable in the condition it was in. Maybe you tore out the shag rugs and put in a beige or grey carpet replacement and maybe painted some rooms. But it was likely in good shape.
As you said it was built in the 1970’s, so it’s now its nearly 50 years old. That means it probably needs (plumbing, electric, hvac, roofing, siding, windows), repairs, updates and/or replacements due to being a track house with inexpensive materials that don’t last. And if the kitchen and bathroom have their original 1970’s finishes, they are worn or just in bad shape or the little lady in your life doesn’t like their dated and old appearance. So you need a new kitchen and bathroom too. So it may cost as much as you bought it for to rehab it back into almost new condition.
TELL ME ABOUT IT! As someone who lives in a house built in 1953, I’ve been replacing that kind of stuff. I did the roof a few years ago; I replaced the hot water heater in 2016; I replaced my main sewer and drain lines this summer; and I had to get a new HVAC system last year. My electrical wiring is fine, but I checked all electrical outlets; I replaced those that needed; replaced all switches; and had all light fixtures checked, while replacing three of them.
Hi Mark,
When I bought my old house in Northern Va back in the ’90s, there were still affordable single family houses in that area. There no longer are any such, from what I can tell. The minimum “price of entry” appears to have more than doubled to around $300,000-plus and that’s probably lowball. This is probably a function of the area being a nest of government “workers.” Their parasitism has rendered Northern Va a place for the affluent – and poor – only.
“A person looking to buy my old house today would need to come up with the same 10 percent of the purchase price to secure loan approval, just as I did. But that person would need to come up with about $60,000 in cash”
Come on, Eric, give a little credit to our predatory lending industry. They’ll get anyone they can foreclose on into a house. 😉
The end of cash
A deep dive into what the new CBDC central bank digital currency is, the issues it causes and when it is coming.
How it might be used after the crash of the everything bubble to try and manage the mess and how it can be used as a political weapon.
https://pro.paradigmnewsletters.org/p/awn_cday_0522/LAWNY6AF/?cake_s1=09_74551163_c64a4f96-d045-4cc8-9363-65703490c71b&h=true
When interest rates are 0 % to 2% and assets, real estate, with it’s enormous leverage, stocks, collector cars, go up 10 to 20% per year it is a no brainer, borrow like crazy, leverage up to the moon.
When interest rates are 5% headed for 10 to 15% and some of these assets are dropping 20 to 30% in 6 months, (happening right now today, we’re back to the 2009 crash…lol), it is a different story. Panic time. Crash.
Buy gold? Short the market? Maybe….lol…. The repo man will make money.
Was it a setup to make sure you are broke, own nothing? It was a trap, it is working.
In bond jargon, MBS went “no-bid.” No buyers for MBS.
The halcyon days of 2020 and 2021 when banks were paying you to borrow money may be coming to an end. Maybe we’ll see real estate become assets again, and the mortgage you took out to buy that real estate go back to being the liability, instead of the other way around as it has been for a couple of years now.
Rent money at 2% to 3% buy real estate that goes up 10 to 20% per year is a great idea, but….borrowing money at 6% to 18% to buy real estate that goes down 20% to 50% in a year is insanity…lol….so the real estate market has siezed up, broken, crashing……..
And when the energy bill to heat the house goes up 200% to 500% (see europe now) and property tax goes way up = more people forced onto the street bankrupt…homeless…
30 year fixed mortgage rates today are about 270bps over the benchmark 10 year Treasury as of this writing (5.85% vs. 3.165%). If we need to get to real bond yields before investors want to buy bonds, that implies a 10 year Treasury somewhere north of 8.6%. That in turn implies mortgage rates north of 11%……11% mortgages…lol…. (All of that assumes you believe the 8.6% CPI print.)
https://notoriousrob.com/2022/06/finally-no-bid-on-mbs/
From a mortgage buyer/funder’s point of view……..
When you get a mortgage to buy a house, where does the money come from? The mortgages are bundled together securitized and sold off, they are called MBS, mortgage backed securities, these securities are sold on the bond market to investors like pension funds, these buyers are where the money for mortgages comes from.
That market just went no bid, that means there is no buyer willing to bid, no buyers. To get these investors to buy again 11% mortgages might be required. They have to get a rate higher then inflation, 8.6% or they get a negative return.
Inflation is 8.6% why? A lot of money was printed, especialy in the last two years, this causes inflation, more money chasing fewer goods, the government/central banks ignored it, now they can’t ignore it, so the central bank raised interest rates to stop inflation.
One of the problems this caused is mortgage buyers won’t buy mortgages yielding 2% when inflation is 8.6% (probably 20%), so mortgages rates had to rise, this effects the real estate market and prices directly..
Saw an ad in an old newspaper that advertised a new house for 630 dollars back in ca. 1928. Not a mansion, but a built house at the end of the day, you can live in it.
32 double-eagles and one eagle got you a house in King County.
If you earned a dollar each day, after a week of work, you had five dollars, two weeks of work, one double-eagle or about 1800 dollars, 900 dollars per week, an eagle. If you were paid in silver dollars, about a hundred dollars per week. Either gold is over-priced or silver is under-priced, you don’t get to decide.
Inflation robs you, you never see zee money, it’s always gone.
And… it’s gone.
My truck went on the fritz, it would stop while driving down the street. Had to turn off from the main road, try to start the truck until it did start, a little trouble to get it going, then would stop again. Limped it home with not much problem, parked it and had to decipher the problem, trouble-shoot the engine and all of the electronics involved.
Rented a Chevrolet Silverado for two days, nice truck, lots of space, got a whopping 11 mpg. I’ll rent one now and then, but not going to buy one at 40 grand.
Had to have a vehicle, have to work to make sure it all goes as planned, has to be done, can’t avoid it. Rent a truck to get ‘er done.
The disabled truck, a Pathfinder, had a problem that needed a fix. Can’t be the fuel pump in the gas tank, when they die, you’re stuck.
So you go to the internet and search for an answer, the problem needs to be solved, can’t drive a truck that will stop in traffic, you are asking for trouble.
The answer to the problem was the cam shaft sensors were dysfunctional, weren’t doing the job. I bought both sides, no scanning, just intuition, replaced them and started the engine, drove 50 miles, no problems, gas mileage increased from 19.5 mpg to 23.4 mpg.
The truck runs like a top.
Two plastic parts, both about 2 and 1/2 inches long, a bit difficult to locate and remove the sensors but it did get done on my own with the help of a good mechanic.
The cost of the two parts, together weighed less than probably a half ounce, totaled 306 dollars and some change. Was informed not to buy any other sensor, a week later, you’ll be changing the one you bought. Go to the genuine parts counter at the dealer was the advice. The two parts at a parts store were going to be at least 200 dollars and you don’t know what you’ve got. Spend another 100 dollars for the genuine article.
You don’t pay the value the physical part, you pay for the technology, the intellectual property, you buy the know how.
306 FRNs to get back on the road and a better working engine is worth every penny spent.
The leftist/globalists are going to starve you out.
US Rancher Reveals Planned Food Shortages the Real Goal of Carbon Agenda; Bill Gates, CCP Buying Up Farmland
“In 1900, it took ten acres of land to produce enough food to feed one person per year. In 2021, it takes less than a third of an acre.”
That’s all thanks to diesel power.
And five of those ten acres went toward feeding mules and horses. Today, one gallon of diesel replaces 500 man-hours of labor. And that, says Loos, is the real reason for the attack on fossil fuels. “With fuel, we can continually get through the efficiency of producing more food with fewer inputs,” he said. “Without fuel, we go back to the horse-and-buggy days, which is a regression of 100 years.”
With every turn, governments globally—via carbon taxes, banning pipelines, making drilling impracticable, or sending tankers of fuel reserves to China—are driving fuel costs up, making sustainable farming less viable. The flipside of the burning candle is land. Biden’s Executive Order 14008—or “30 by 30” initiative—aims at removing 30 percent of land from food production by 2030.
Food security is a grave national security danger, he warns. The Chinese Communist Party (CCP)—China’s big brother administrative state—has been buying up enormous tracts of land in the United States, along with billionaires such as Bill Gates and Jeff Bezos, marching in lockstep with Klaus Schwab and the WEF. “China is buying our resources at an alarming rate,” he said. “So much of our medicine, so much of our vitamins and trace minerals, and things that we rely on [are] from China. And [they] are the only source in the world. They could hold us and are holding us hostage.”
“They’re demonizing the cow because the cow is the most important animal in God’s creation for planet health,” he said. “The cow consumes [from] 74 percent of the United States’ landmass—the world’s landmass. Seventy-four percent is not suitable for growing a crop to feed a human, but a ruminant animal with four chambers in its stomach can take cellulose material that you and I can’t eat and upcycle it into the most nutrient-dense food substance on the planet.”
He added, “With the cow, we can feed the world like we’ve never seen before. They’re trying to demonize the cow, saying that the cow is the contributor to climate change [through methane emissions], and you need to eat crickets. And who’s the largest investor in crickets in the world? A guy name Bill Gates.”
https://www.theepochtimes.com/us-rancher-reveals-planned-food-shortages-the-real-goal-of-carbon-agenda-bill-gates-ccp-buying-up-farmland_4695205.html?utm_source=BR_article_free&utm_campaign=bright-2022-09-04-ca&utm_medium=email&est=MXpPfM%2Bq9MM0zb7AZl3AA3V7nUErqbO1gCvnJ6G%2FZdCGoXOjf6eTrGhXTlkv%2BJNL
The Chinese Communist Party (CCP)—China’s big brother administrative state—has been buying up enormous tracts of land in the United States, along with billionaires such as Bill Gates and Jeff Bezos, marching in lockstep with Klaus Schwab and the WEF. “China is buying our resources at an alarming rate,” he said. “So much of our medicine, so much of our vitamins and trace minerals, and things that we rely on [are] from China.
Your government is pushing EV’s? Why?
Re: EV’s and grid upgrade equipment……
China has infiltrated all levels of governments, taken control, (check out the leftist/communist takeover), your politicians bought off, paid to push the EV agenda.
Anybody pushing EV’s is a paid ccp shill.
Who benefits the most from the EV vehicle conversion? china does.
All the most important components in the new EV’s are all made in china. Then you are dependent on china for replacement parts, etc., in effect they take over the whole vehicle supply chain. Vehicle production then centralized in China.
the chinese are taking over the electric car market, they are starting to export their EV’s worldwide, their EV’s are supposed to be advanced and cheap, they will kill off the other manufacturers……
the chinese make most of the chips, maybe the shortage was to help their EV launch….lots of their cars coming here soon
at this rate everyone will be driving a chinese car soon, a lot of electronics in your car are made there already…….
no wonder tesla moved a lot of production to china…
china…..it is where most rare earths are processed; and most of the mineral supply-chains for electric vehicles lead there, with existing supply sewn up.
With more EV’s the grid has to be upgraded, most of the equipment for expanding the grid is made in china.
The largest beneficiaries are the Chinese manufacturers of electric transformers, cables, generators, etc. since almost none of that stuff is made anywhere else anymore.
If there is a war and chine detonates a neutron bomb that takes out the grid, they get to supply all the replacement equipment, another win for them.
What about all the vaccines and drugs the government has been pushing, all the ingredients come from china.
china was chosen to lead the wef great reset, they probably cooperate to help their own agenda
https://carnewschina.com/2022/04/18/chinese-electric-vehicles-are-on-fire/?fbclid=IwAR0qjRYwe7u0vfefTsZ9MOEDRE3imKU9cXN2qbZwQr-XdU3D04FgvorMWIM
Tom Luongo at Gold, Goats ‘n Guns has an interesting take on the Fed’s rate hike plan.
Executive summary: The US banking cartel (Fed) is attempting to usurp ultimate control from the old/B>< European family money banking cartel (Rothschild/ECB) by bankrupting them with interest rate hikes. We are ants watching elephants battle, trying to not get stepped on. Many ants, on both sides, will.
https://tomluongo.me/2022/08/29/now-everyone-afriad-jerome-powell/
JMO Worker,
That thesis is Q level red team-blue team BS. They’re all in this together.
Hi Worker
Now both the UK and the EU are caught between the Fed draining them dry in the capital markets and the Russians refusing them much needed energy.
the US Federal Reserve was a willing puppet of Davos and the UK/US Neocons for decades until it has realized that staying on their side is a guarantee of their own destruction.
THE FED ARE GUILTY OF TREASON.
The Federal Reserve traitors are now focused on THEIR survival, maybe even their avoidance of jail time, to the point now that they are desperately seeking a reconciliation with the MAGA movement. They are seeking forgiveness and redemption, and hope they can con Trump once again.
The unwashed brainwashed are going to wake up to some economic real pain in the next six months to become hopefully patriots again. It’s all been the Fed’s fault with a little last minute stupidity from Brandon and the Bolshevik Democrats.
The Fed sees the handwriting on the wall, and they have decided to save themselves. Classic Trotskyite cowardly behavior from once arrogant now terrified bureaucrats.
I doubt that they will survive as we know them today. They certainly won’t certainly survive an audit, if that happens and is performed properly.
He actually holds an interesting hypothesis that The Fed is aligned with the interests of US sovereignty (NOT for noble reasons at all) because the Davos crowd – in their own words and publications – desire to eliminate commercial banking and move us into a CBDC that is global in nature. Think of the dynamic as two formerly aligned mobster gangs where one profoundly violates the turf of the other. There are no good guys in his hypothesis.
Think of it like this, the Fed is the vampire that still thinks it can drain more blood from their hostage. Davos is the werewolf that just wants to kill the hostage and be done with it. They may well be arguing about it and the vampire may think it’s time to kill the wolf, because it knows the wolf will starve it and pounce when it’s weakest.
https://tomluongo.me/2022/09/05/the-clowns-of-winter-harry-the-uk-down/
brandon didn’t want the fed to raise interest rates because it will crash everything on his watch, the fed won’t co operate….so far….and everything is crashing…lol…..
https://finviz.com/futures.ashx
vix is up 25% since the middle of august, leading the way…lol
the fed won’t co operate….powell didn’t go to epstein’s island enough….lol
In 1995 a $160,000 house was worth 270 oz of gold
Today a $600,000 house is worth 348 oz of gold
In 27 years it has gone up 28% priced in gold
Priced in fiat it has gone up 275%….the fiat has lost a lot of value in 27 years
Own gold to maintain purchasing power.
The justifications given for inflation are that people will delay purchases, knowing the price will come down tomorrow, and that without constantly adding more dollars, the economy will grind to a halt as “hoarders” will pull currency out of the market.
The problem with these arguements is that both already happen in a fiat currency world anyway. People will buy food when they’re hungry, even sooner if there are shortages, but many will shop at the day-old bakery if they can get a bargain. And there’s the obvious retort of the transistor, where just bulking up ever cheaper silicon devices encourages people to throw away and buy now, even though future year’s phone will be faster and cheaper. As for the second argument, holding dollars is like owning stock. Just like a stock is only worth what someone is willing to pay to buy it, money isn’t worth anything until it is exchanged. And the price of anything is subject to millions of variables that aren’t measurable, and the mood of the people conducting the transaction. Many rich people don’t know the value of money and overpay for everything.
One thing that would really help people understand how money works is if the United States did more bargaining. I grew up in the golden era of flea markets and garage sales. Every Sunday after church and lunch we’d go down to the Silver Drive-In and check out what might be found. Most of it was junk of course, but sometimes I’d find Hot Wheels or something that I wanted more than my allowance. And I had no problem asking for a lower price than the tag. The best buys were often when there was no price. The guy would size me up, throw out a price and I’d counter with a 50% discount. Sometimes I’d get it for that price. Usually we’d meet in the middle. Eventually as I got older it didn’t work quite as well, but I still will haggle about price if I get the chance.
The article and comments are both excellent. The home price increases IMO are not justified, and that reeks of a mania.
The question is why did any of this happen.
The answer is not generally known. Our system of fiat debt based money is based on a principle that debt must continually grow for the system to work. That means new debt must increase for old debt to stay solvent.
The current debt system, will by itself, self liquidate in a deflationary collapse, if not serviced by more debt. The reason for this is the story of the 13 marbles. The banks lend out 12 marbles, but because of interest, the total owed is 13 marbles. There are never enough marbles to go around for every one to be free and clear of debt.
As a result, when the Fed was created so was bankruptcy court rules. The current system always has so many losers because there are never enough marbles to go around. Someone has to take the fall, because when a loan is generated, only the M for the loan is generated, not the M + I .
So know why the idiot economist on the Boobtube are always yelling about “growth” and “fiscal stimulus”. With each cycle the “system” becomes more unstable, because the bigger the debt bubble the bigger the potential collapse.
Thus at this late point in this destructive game, the Fed gunned the system with utter craziness, trillions of new money because they literally are in a panic to keep the system going. If you want a visual – it is like pushing your car accelerator to the floor all the way as you approach the cliff edge. What difference does the speed make when the car goes over, the ending will still be the same.
https://fred.stlouisfed.org/series/M1SL
When a person signs a mortgage contract they are complicit in this fraudulent money creation. The bank takes that piece of paper to the Fed, which creates money out of nothing, and gives it to the bank. The banks takes that newly created money and puts it in the seller’s account.
That money which is paid for the $600,000 home sale did NOT come from the bank vault, or from the deposits made at that bank. That money is electronically created out of the ether by the Fed. That is inflation by definition, an increase in the money supply.
But that’s not all. As this phenomenon works it’s magic, home flippers soon learn that debt is your friend, in fact the more you are in debt the more you gain as the home price goes up. Plus they learn, that in each and every real estate cycle, prices recover, because the Fed always comes to the rescue, by buying up Mortgage Back Securities and Treasuries.
As a result a mania eventually develops, where all caution is thrown to the wind, and people are so conditioned by this debt based lifestyle that they think nothing about paying for a $600k dollar home that is really still only worth $160k. Reason? They do not care about principle amount, only the monthly payment amount.
And the Fed by purchasing trillions of MBS is causal to making interest rates go to zero. See chart Fed chart:
https://fred.stlouisfed.org/series/WSHOMCB
In 2009 the Fed went on a mortgage buying spree, from zero to 2.8 trillion. Interest rates on a 30 year mortgage then declined to the lowest level in human history:
https://fred.stlouisfed.org/series/MORTGAGE30US/
So now where are we brown cow? At the end of history, because if the Fed keeps raising rates and selling securities (QT) they will cause the biggest collapse in history. That may be the plan, BTW, because that genius Klaus Schwab says we will all soon own nothing. Just so you know who we are dealing with:
https://media.patriots.win/post/iDgTJ5bU.png
Why would a 600k home be “really” worth 160k? The dollars are devalued, especially over decades. Is there symptoms of inflation or not? Speculative excesses are concurrent/in addition to symptoms of inflation and it is difficult sometimes to discern the “line.” “Payment shoppers” doesn’t explain this. Also, the Fed set rates at (almost) zero. That wasn’t a market result of bond buying activities. It raising rates may not affect asset prices or inflation to the extent people expect based on circa 81/82 outcomes, either. I know “it’s different this time” sets some folks off but it is what it is.
Hi Eric,
When we bought our house in 1974 the banks at that time required a 20% down payment, plus there were strict income guidelines as to how big a mortgage you could get, plus on top of that my wife’s income didn’t count “because she might get pregnant and stop working”. Pissed me off to no end because that kept us from getting the house we really wanted and still frosts me to this day seeing how those “guidelines” got shitcanned and 7-11 clerks were buying McMansions.
Worked out ok though, paid $33k for the house we’re still in which is (supposedly) worth slightly over $1million, but the ever increasing property taxes are more than our original mortgage payment by orders of magnitude.
Bite-me President can solve the problem of inflated price of housing by tax confiscation of the evil Maga-Republicans homes, because they know where we live, and we are a threat to this country. These homes will become section 8 housing for democrat voters: illegal aliens, homeless, reparations to favored minorities.
(I bet my inflated dollar the Marxist-Bidenistas are thinking this way…)
‘tax confiscation of the evil Maga-Republicans homes’ — Hans Gruber
… and reverse discrimination by offering zero-down loans in formerly redlined areas:
‘Bank of America is launching a mortgage with no down payment or closing costs that aims to promote home ownership in minority communities in Charlotte, Dallas, Detroit, Los Angeles and Miami.
The program will not take a borrower’s credit score into account. Instead, creditworthiness will be based on such factors as timely payment of rent as well as phone, auto insurance and utility bills.
“Our Community Affordable Loan Solution will help make the dream of sustained home ownership attainable for more Black and Hispanic families,” AJ Barkley, Bank of America’s head of neighborhood and community lending, said.
https://www.cbsnews.com/news/bank-of-america-black-hispanic-mortgage/
Deja vu all over again: in 2005-2006 — the era of no-doc “liar loans” for 100% of value or more, plenty of minority buyers got on board expecting ‘free money’ capital gains. Instead, by 2008, they were tens of thousands underwater and many got foreclosed.
Hard to tell whether B of A is engaged in liberal virtue signaling, or more darkly, wants to sucker in minorities at the market peak, wreck their finances, then boot them out onto the street.
With ‘friends in the business’ like Uncle Tom at B of A, they don’t need no enemies.
The availability of 3% down mortgages combined with the $8000 tax credit for first time home buyers put a ~ $240k price floor under just about every decent house about 10 years ago. Add in the FHA qualifying loan maximum being allowed to float and historically cheap loans thanks to the Fed buying a lot of the paper, and you end up with the prices we have now.
I’m really floored by the appreciation in the stucco shacks in Florida which friends’ parents struggled to afford at $90k new with 13-14% mortgages back when I was in high school. For most of the 90s, those houses saw about 3% appreciation and were still in the low $100s circa 2000.
Currently? $500k easy.
Our dollars are being devalued much quicker than ever before. I doubt there’s any chance of this reversing. Cost of living, cost of everything you need (e.g., NOT 90” flat screens) is going up in double digit percentages in a saw tooth pattern at times, with discounts put on and then taken off at new higher regular price, and the pace is increasing.
As far as real estate prices go, this is not the bubble scenario of the mid-00s. There has been excessive speculation (flipping, remote worker arbitrage, etc.) but this is occurring in the context of the overall symptomatic increase in the price levels across the board due to inflation (defined as the increase in the money supply, particularly the extreme increase in the past 2 1/2 years). I expect house prices and rents remain high. People will hold as they see real estate as a hedge against inflation and something with intrinsic value vs. financial instruments
What I’m seeing locally and is being reported in other places is what I call a frozen market but others call some sort of housing “recession.” Low supply, persistent high prices (includes prices that may have come down 10/20% but from ATHs) and few transactions.
https://www.cnbc.com/2022/08/25/housing-recession-home-price-decline-unlikely-despite-slowing-sales.html?&qsearchterm=housing%20recession
Great article Eric,
The biggest bubble of all time is derivatives, which no one can coherently explain without a complex degree in mathematical algorithms. It is so large now, the number has become surreal. The complexities surrounding it, will hopefully be striped away as all this so called ‘wealth,’ hehehe, comes crashing back to earth.
To me, the derivatives casino looks like a place where members of the club keep their ill gotten gains liquified. Its where the big money goes to play, blowing off steam and each other. By invite only, you and I will never see inside. That would be like seeing the man behind the curtain. If I had to guess Id say it probably looks a lot like that backdrop from the Biden things speech the other night, with pictures of Soapy Smith above all the urinals.
Once this ultimate of Ponzi collapses, the owners of this world will wail and cry, like a bunch of little Instagram bitches claiming poverty. ‘If the taxpayer is not held responsible, and forced to backstop our irresponsible and reckless losing bets, then there will be blood in the streets.’
So be it. Let it flow, let it flow. From the rarified air of the banker suites, full of lawyers and lobbyists, to the poor schlubs who have to endure another crash. All because no amount of filthy lucre is ever enough for our garbage ruling elites.
I just looked up my first house, which a subdivision developer built for me in 1984. It was the same deal: there were a handful of cookie-cutter plans to choose from, all three bedrooms. Some were simply a mirror image of mine, to fit better on the slope of the lot. Some had a family room on the back; mine didn’t. I paid $58,000. Today Zillow has it at $223,900.
‘The DC ‘burbs are home to a locust swarm of federal “workers”’ — eric
DC is also where mortgage securitization began. Until the 1930s, Savings and Loans took time deposits, lent the funds locally on mortgages, and held the mortgages till they were paid off.
Then Clowngress, as part of Frank Roosevelt’s New Deal, created Fannie Mae in 1938 to buy up mortgages guaranteed by FHA and securitize them. But Fannie Mae and its little brother Freddie Mac really took off in 1970, when they were authorized to buy ‘conventional’ mortgages — those issued by local banks and S&Ls — and package them into securities which are sold on Wall Street.
Securitization lowered mortgage interest rates. Buyers could take on bigger loans. But then, thanks to the subsidized financing, house prices took off with a bang. Net result: with cheaper financing, but higher purchase prices, home owners are no better off than before.
It’s the same story as student grants and loans (which drove college tuition through the roof) and Medicare (which gave America the world’s costliest medical care): subsidized financing pushes up prices.
Ultimately, we suffer from the same phenomenon that brought down the Soviet Union: a centrally-planned, value-subtraction economy. By grossly distorting markets, fedgov interventions make them function more poorly than before.
One jackass in the White House, 24 cabinet members, and 535 Congressclowns are systematically dismantling our prosperity, thanks to their abject economic illiteracy. They celebrated the demise of the Soviet Union — having faithfully copied its doomed, centrally-planned structure.
Well…since our host opened the door, pardon me if I just waltz right in.
People in our camp still dont understand the meaning of inflation, what causes higher prices, how and why money has value & why it loses value, where money comes from, and so on and so forth – and that includes most economic schmuckperts (you know, a cross between an expert & a schmuck). Now, most of the people I’m talking about are uninformed for good reason, which you don’t need to be reminded of. But those in the other camp (the dark side), who may or may not know any better (most don’t), intentionally & immorally obfuscate the discussion about inflation, and here’s why: BECAUSE IT BENEFITS THEM!
Those people who profit from and have a vested interest in the status quo include the irrational or criminally incompetent, people paid to lie & misdirect, propagandists who purvey false information, corrupt politicians & govt employees, sudo economists & phony economic experts, and on and on (I think you get the picture). Right now their popular line of double-talk is to blame Putin for inflation, which of course is pure B.S. Putin is not the cause of inflation. And if you believe these people & their lies, or you actually believe Putin is the cause of inflation, then shame on you.
So why is this so? Because Putin is only guilty of one thing: causing higher prices – that is, some higher prices – but not inflation. Just like a Florida Hurricane is the cause for higher plywood prices, and not inflation, blaming Putin for inflation is absurd. The definition of higher prices and the definition of inflation are two very different & separate issues. If you do not realize this then you dont know what your talking about.
The problem here is the blatant overuse of the word inflation. People (including those so-called “experts”) throw the word around like it was candy. And that probably explains why the average person is so confused about the subject. Sometimes people use the word to describe a price of something somewhere which goes up. Sometimes that same person will use the word to describe the overall general price level which goes up. And sometimes the same person will use the word to describe an increase in the money supply by govt monopolies. And around and round we go.
Yes, Dave: we need precision in language. Inflation is an artificial increase in the money supply. Rising prices are a result of inflation.
And value exists only in the mind of the consumer. I could design and manufacture the most ingenious, sturdy, high-tech titanium paper towel holder the world has ever seen, and offer it at a price of $5,000. But regardless of whether that price accurately reflects the cost to me in engineering, materials and labor, if no consumer believes it has that much value I won’t sell a single one.
‘How do you measure a bubble?’ — eric
Here’s an explicit, quantitative answer. An analyst named Eric Basmajian just made an 8-minute video explaining how he analyzes and forecasts house prices. He uses three main indicators:
1. Months supply of new homes. When the market slows as it is now, supply balloons and sales slow, pushing months of supply to over 10 months — a recessionary level.
2. The yield spread, or extra yield that mortgage securities offer, compared to US Treasuries. When the spread goes up as it is doing now, mortgages are seen as more risky. Buyers face higher payments and qualify for lower loan amounts.
3. Trend in M2 money supply. When M2 money supply is not keeping up with inflation, it exerts a credit-contracting effect.
All three of these measures point down now. Eric Basjamian says the housing market is about to get smacked silly, not unlike 2006-2010. The coming crash is brought to us by our ‘friends’ at the Federal Reserve.
https://www.youtube.com/watch?v=vLnX7GsoVDE
“There is nothing about it that justifies a four-fold increase in value”
Especially since it is now 30 years older, and and 50 years old. Such houses do have a limited life span, and get more expensive to maintain and operate as they get past their prime.
It’s almost comical, if it were not so disastrous, how those that have created what long ago became massive inflation cast about looking for someone else to blame. And expect you to believe them. Sadly, far too many do. Convinced that higher prices are the fault of those charging those prices, or some foreign nations policy that has nothing to do with us.