THE BUBBLE IS BACK!
Ben has succeeded. He is in the process of reflating the bubbles that helped cause all of our messes in the first place. A carefully constructed combination of government stimulus and low interest rates is bringing the bubble back to American real estate. Jim the Realtor is dumbfounded at what he is seeing in the markets over the last few weeks. This video is a must see:
CNBC’s Diana Olick is also reporting similar stories in Las Vegas where a full blown real estate depression is occurring. No longer! Houses are moving like hot cakes:
But back to Katie. Her Realtor, who is also an old friend, emailed Katie the following warnings before her arrival on the Vegas strip:
- This market is crazy and many things are just not going to make any sense.
- I can guarantee you 99.99% of the listings emailed to you will no longer be available by the time you get here.
- Properties are selling in the blink of an eye.
- Properties are getting multiple offers within a few days of being on the market, the most offers I’ve heard a house had recently was 44 offers (I know, crazy).
- This market is crazy and many things are just not going to make any sense.
- 40% of all transactions are cash purchases, which makes it harder for the buyers who are financing to get their offers accepted.
- We have 1/2 the inventory we had a year ago and 4 times as many buyers as we did a year ago.
- Chances are we will have to submit several offers to have the chance of getting 1 accepted.
- This market is crazy and many things are just not going to make any sense.
- You will probably leave not knowing if you have a house or not because banks take 2 to 3 weeks to respond, because this market is crazy… you know the rest.
I’m guessing you noted the crazy part. Katie is looking in the $150-200,000 price range. Despite the warnings, Katie was completely unprepared for what she found. In seven days, she saw 50 homes. All but one were foreclosures.
Make no mistake – the boom/bust cycle is alive and well. Ride it up and pray you step off the train at the top because if you don’t….well, Lord help you.
* Special thanks to Calculated Risk for pointing us in the direction of Jim The Realtor.
This is totally insane! What are we doing? Unemployment is at a record high and we’re incentivizing people to speculate on stocks and real estate. Haven’t we been thru this before?
Well, there’s the trillion dollar question. Can you simply reflate an economy via stimulus and expect the “recovery” to become self sustaining. If Japan & the last 10 years in America are used as evidence the conclusion is a resounding “NO!”.
Will it be different this time? Who knows, but for now the direction of the liquidity surge is quite clear….
I don’t see how this will end well.
Get a job at Goldman Sachs. You’ll end up well there.
lol — whatta country.
the thing about being an all-cash buyer — you’re less leveraged in percentage terms, but with a mortgage you can try to go short sale and shunt off some of the loss onto
the bankFHA.but then, if you know you’re not going to move for 20 years….
I have a question for you guys – housing prices have been very closely correlated to income growth over the last 100 years and therefore have only grown at about the rate of inflation (3,5%). Why then, is there still such a wide disparity between real estate prices and inflation? RE prices are still 20% above the 50 year moving average of inflation. What gives?
Either prices will remain flat and wages will rise or prices will fall 20%. How does that sound?
Real estate is not going to the moon again. And if it does it will crash just as hard as it did last year. It’s as simple as that. Homes are too closely tied to incomes and wage growth for RE to get this far out of whack.
How about the alternative: Money lost 20% or more purchasing power?
There is no rule to follow if government keeps changing rules and abandons commonsense.
If stock price tied to earning like RE tied to income, how about this
“As Zimbabwe continues its descent into violent chaos, the stock market in Harare continues to serve as a “store of value” – somewhere you can place cash without it evaporating in front of your eyes.
But the chart does not quite do justice to the situation. Go back to, say, January 2005 and the index was trading at 1420 points. By Friday it had risen to 5,418,000,000,000. ”
http://ftalphaville.ft.com/blog/2008/06/23/13987/the-mad-market-of-zim/
For fundamental analyst, what kind of economy can yield such earning growth?
For technical analyst, what chart pattern is that?
So, all we have seen in recent months is nothing related “recovery” like some habitual liars claimed, money is only thing in the story.
http://www.calculatedriskblog.com/2009/08/house-prices-real-prices-price-to-rent.html
“Looking at the price-to-rent ratio based on the Case-Shiller index, the adjustment in the price-to-rent ratio is mostly behind us as of Q2 2009 on a national basis. However this ratio could easily decline another 10% or so.”
Maybe RE isn’t great value (ie not 40% discount) on average, but one can guess that these buyers are getting better deals than the average. Even if they are not, as LZ said, your dollars are declining at 5% per annum (at least!) anyways.
I don’t think this is a bubble 2.0. Of course they and us could get totally f’d if the Fed tightens unexpectedly or because they have to. (Of course, GS will have known that in advance and will have already shorted the Case-Shiller.)
Looking at recent market behavour, I’m wondering if the reflation trade has turned into the fear-of-devaluation trade. Fear is a very strong motivator.