In 2004-2007, we witnessed a housing bubble…caused by many players. You can start with Greenspan for loose lending policies and advocating subprime lending but one also has to look at the criminal activities at the lending companies. The lenders realized prices became to high to afford so many decided to give loans to people that did not have the first dime to pay the loans back. We should always remember what happened because the Fed fixed the problem with the same thing that caused the problem in the first place…that being easy money. But this time, it is not only easy, but outlandishly easy as trillions of dollars have been printed. We are certainly not where we were back then with lending but there are some things happening that you should pay attention to.
Back then, flipping properties was the thing to do. Television shows were all over your tv glamorizing it. We are getting the same now. Back then, priced appreciated markedly in many areas. While many areas aren’t even close to the old highs, others are. And in the case of places like NYC and San Francisco, prices just go up and up. We were all told prices would never come down…and told by all the supposed geniuses. Try buying a place in these areas. You can get something the size of a kitchen for $1 million.
We could not have have had the bubble and crash without the lenders. They dropped all norms in lending because of prices being too high…leading to a ton of people who should have never received a mortgage. This added to the bubbling up. To be clear, we are not saying that these lending practices are happening in today’s market. Lenders were jolted in ’08 and have learned from that and are being much smarter today. Some argue that the fall in the housing market, should it happen, would not be as bad because many purchases are being done with cash as opposed to borrowing. A market still has the ability of falling in price even if it was purchased with cash. We are not saying that we are in a housing bubble like 2007 or that you should not buy a home. We are simply suggesting that you should be wary as some similar signs are appearing again. We are just here to let you know we are worried as to why housing is better. Interest rate markets…and we use the word “markets” loosely…are not what they used to be. It is no longer a two-way market where buyers and sellers trade based on fear and greed. The interest rate market is rigged by central banks which has led to asset prices bubbling up. The worry is what happens when the music stops and things start to normalize. Pay attention!