Guest Post by Anthony Sanders
Supreme Court Justice Potter Steward said in 1964 in the Jacobellis v. Ohio case, “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [hard-core pornography]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.”
Asset bubbles too are difficult to define, but I know it when I see it.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
Take Robert Shiller’s P/E Ratio measure for stocks. There was a Roaring ’20s bubble which burst in 1929 (Black Tuesday), there was the infamous Dot.com bubble. On March 10, 2000, the NASDAQ Composite peaked at 5,132.52, but fell 78% in the following 30 months.
Now we are seemingly in yet another stock market bubble and almost at the P/E Ratio level of the Roaring ’20s bubble (but not near the dizzying heights of the Dot.com bubble … yet).
Stocks do seem awfully “frothy.” But what about home prices? The Case-Shiller 20 composite home price index has grown 43.6% since February 2012. While home prices are not growing as fast as they did during the home price bubble of the last decade, they are going at a rate that is twice as fast as earnings (wage) growth.
These certainly look like asset bubbles. If it looks like a bubble and acts like a bubble, it probablyis a bubble.
“Shhh. Don’t say the word “bubble!”
Don’t know about everywhere, but here in Minneapolis, homes cheaper than $500k have rocketed up, but homes > about $750k have been flat for years. What you get for $800k is three times what you get for $600k. In the ‘burbs that’s less true.
Where I live (DC tri-state area) if you can’t afford a million dollar home you’re going to live in a shitbox with a shitty commute.
I’m exaggerating but what’s the difference in affordability between 750k and 1 million…really?
The difference is the additional downpayment required and the credit score required to get the additional mortgage to afford the $1mm+ house. The $1mm+ house just seems to require a step-function up in income and net worth. Every broker I’ve spoken with confirms this analysis.
I’m now selling an inherited house in N.Va. for a little over $1mm and I’m amazed at the price/quality “delta” between the house I’m selling, which is reasonably nice but needs a little TLC, and the absolute shit boxes on the market nearby for $7/800k.
Oddly enough, in the DC Metro area you see knockdowns/gut rehabs of cheap houses in nice neighborhoods. The “new” houses come back on the market for 750-850K and if they’re inside the Beltway, they are snapped up. But the house market above $1.1-1.2mm is nowhere near as robust.
The difference is the downside. You’re right that the difference in payment can easily be justified by a lot of people, especially since interest and property taxes are deductible. The last crash was recent enough that people keep it in mind. A house near me that sold for $2 mil in 2005 sold again in 2015 for $995k. Another one that sold for $1.95 in 2005 has been listed at $1.3 mil for 2+ years and hasn’t sold. That shit’ll concentrate the mind.
So as everyone knows I sell foreclosures. The foreclosure market is a great indicator of bubble/no bubble. I say bubble. When shit boxes that need 50-80K in work are being bought for 10-20K OVER list price by CASH buyers because there is so little “flipping” inventory for rehabbers, we are in a bubble.
I was just talking to my broker yesterday. She has a 900 square foot ranch with a finished basement for sale in a small town one away from us. Owners did it up very nicely, but it’s still a 900 square foot ranch with no garage. Full price offer (259K) the first day, financed with 50K down but clause of “house must appraise at or above sale price” included. Sellers turned it down because they are afraid it won’t appraise, and this is happening less and less than it was 1-2 years ago. Homes I would have never dreamed of going for the prices they sold for are cropping up all over the place.
And of course with FNMA new millenial loans to student-loan saddled credit nightmares, I will have my job until I die.
There has GOT to be some kind of warning that can be given when a picture of Ol’ Yellen is about to materialize.
There’s a new educational puzzle out that helps youngsters adjust to life in America….no matter how you try to put it together, it doesn’t work.