How Much Longer Can Our Unaffordable Housing Prices Last?

Spoiler alert: not much
Friday, October 9, 2015, 4:12 PM

Markets discover price via supply and demand: Big demand + limited supply = rising prices. Abundant supply + sagging demand = declining prices.

Eventually, prices rise to a level that is unaffordable to the majority of potential buyers, with demand coming only from the wealthy. That’s the story of housing in New York City, the San Francisco Bay Area and other desirable locales that are currently magnets for global capital. » Read more



How A Major Housing Correction Can Happen Over The Next 1.5 Years

Own a home? This is a must-read.
Friday, October 9, 2015, 4:11 PM

Executive Summary

  • The Fed Won't Be Able To Soak Up Bad Mortgages Like It Once Did
  • Chinese Capital Will Dry Up After Capital Controls Are Imposed
  • The weakening petro-dollar will weaken demand for high-end housing
  • The inevitable symmetry of bubbles will force a price mean-reversion

If you have not yet read Part 1: How Much Longer Can Our Unaffordable Housing Prices Last? available free to all readers, please click here to read it first.

In Part 1, we looked at factors that limit further home price appreciation—mortgage rates that can’t go much lower and stagnant household incomes—and factors that could continue to push prices higher in islands of strong job growth and global demand.

Here in Part II, we’ll look at several dynamics that could deflate the current Housing Bubble #2, even in areas currently experiencing high demand for housing such as New York City and San Francisco.

The Fed Will Encounter Political Headwinds in Pushing Money to the Wealthy

Setting aside cash buyers from overseas, a major factor in the inflation of Housing Bubble #2 was the Federal Reserve’s quantitative easing programs that expanded the pool of money available to the already-wealthy while prompting very little “trickling down” of this new money to the bottom 90% of households.

The one Fed policy that aided the bottom 90% was buying $1.75 trillion of home mortgages. This unprecedented buying spree helped push mortgage rates down to equally unprecedented lows.

But as this chart shows, the Fed is... » Read more



Why China Is Extremely Vulnerable Now

The majority of household wealth is at risk of vaporizing
Friday, August 7, 2015, 11:36 AM

Executive Summary

  • Too much of China's wealth is tied up in housing
  • The Obvious Risk: Declines in demand will crush prices
  • The Less Obvious Risk: housing in China is very illiquid
  • China's extraordinary vulnerability

If you have not yet read Part 1: Is China’s “Black Box” Economy About to Come Apart? available free to all readers, please click here to read it first.

In Part 1, we looked at the factors that render China’s economy a black box: the inputs and outputs are visible, but the internal workings are often opaque. Though there is an abundance of data on China’s housing market, it too is opaque in critical ways.

Let’s dig into what makes China’s housing bubble so risky.

Chinese Household Wealth Is Mostly In Housing

The percentage of household assets in real estate varies from source to source, but however it’s sliced, China’s household wealth is extraordinarily concentrated in housing.

This means any reduction in housing values will have an outsized impact on household wealth and the perception of wealth, i.e. the wealth effect: people who own assets that are rising feel wealthier and tend to spend more freely as a result. Those with assets that are declining in value tend to feel poorer, even if their day-to-day life in unaffected by the drop in wealth. This is the negative wealth effect.

While middle-class households’ wealth is in their primary residence, upper-middle class households tend to put the family wealth in additional homes as investment properties. Anecdotally, it is not uncommon for middle-aged people with secure employment to own three flats: one for their residence and two as nest eggs. The practice of buying third homes was subject to restrictions a few years ago, but the resulting drop in housing demand scared authorities into... » Read more

Daily Prep

Recycled $1500 Shipping Containers Used to Make Stunning Off-Grid Home

A gallery of ideas
Wednesday, February 4, 2015, 11:34 AM

Thinking of making one of your own epic shipping container home? Take a look at some of these incredible homes made from $1500 shipping containers!  Enjoy the following gallery.



Martin Capek/Shutterstock

Future Shock - Crash Course Chapter 25

The unsustainable often ends abruptly
Friday, December 26, 2014, 10:24 PM

Chapter 25 of the Crash Course is now publicly available and ready for watching below.

Here at the penultimate chapter of The Crash Course, everything we've learned comes together into a single narrow range of time we'll call the twenty-teens. 

What this chapter offers is a comprehensive view of how all of our problems are actually interrelated and need to be viewed as such, or solutions will continue to elude us. » Read more



How The Federal Reserve Is Purposely Attacking Savers

But bungling badly as it does
Monday, October 20, 2014, 11:36 AM

There's something we 'regular' citizens wrestle with that the elites never seem to: a sense of moral duty.

In a perfect world, we would honor our debts and obligations, every one of us. But the world is an imperfect place ,and moral obligation is something that almost never enters into the decision matrix of our society's richest. Or the banking industry.


Understanding Asset Bubbles - Crash Course Chapter 17

Why they form & how they pop
Friday, October 10, 2014, 6:21 PM

Through the long sweep of history, the bursting of asset bubbles has nearly always been traumatic.  Social, political and economic upheavals have a bad habit of following asset bubbles, while wealth destruction is a guaranteed feature. » Read more


Peak Prosperity

Quantitative Easing - Crash Course Chapter 10

What exactly is this process that the world is betting on?
Friday, August 22, 2014, 8:34 PM

At the exponential pace at which the Fed is increasing the money supply, and knowing the huge challenges the Fed – and most other world central banks  - face in trying to stop or even slow down their money printing, the potential for a disruptive global inflationary period is very real.

So what exactly is quantitative easing» Read more


Bertold Werkmann/Shutterstock

Off the Cuff: Housing Insanity

Why should this bubble end any differently than the last?
Wednesday, August 20, 2014, 11:54 PM

In this week's Off the Cuff podcast, Chris and Brian Pretti discuss:

  • Housing Bubble 2.0
    • How quickly we forget the errors of our ways...
  • China's Impending Massive Implosion
    • A bubble of historic proportion
  • An Investing Cycle vs A Demand Cycle
    • Things will collapse after the greatest fool buys in
  • Lack Of Good Options
    • Asset bubbles everywhere, not just in housing