Above the Fold

Why the Housing Market Continues to Bubble

In 2005, home values in America were skyrocketing. That year, the value of the housing market jumped more in 12 months than it had since 1980 (and that was back when mortgage rates were in the teens). Last year, average home prices leapt nearly 15%, almost beating that record. But what’s more compelling is the fact that the median sale price of residential real estate was about 43% higher in the first quarter of 2021 versus the last quarter of 2005. And while some moderation can be expected, the stage is not set for a crash.

There are several reasons why homes are likely to stay relatively pricey:

• Inflation Is Gaining Steam – Inflation drives the price of hard assets, such as homes, higher over time. The phenomenon also makes building materials costlier, especially when demand is high (as it has been for a while). And when new home prices rise due to increasing construction costs, existing homes follow suit. 
• Cash Buyers, Lots of Equity, Stricter Mortgage Standards – Consumers are putting more money down on homes these days. Many are using equity from a house they are selling to minimize their debt load. The average American also has much more savings now than they did before the Great Recession. And instead of lending money to just about anyone in any financial situation, mortgage companies have become more careful about lending practices.
• Big Investment Companies Own Tons of Inventory – Companies like BlackRock, Goldman Sachs and many others have been scooping up large swaths of homes to hold as rentals. The companies are actually creating securities from the rental income and selling those in the open market. These deep-pocketed investors are unlikely to default or dump holdings if home values drop.

Three Things 

1. Some Used Cars Now More Expensive Than When New – New autos typically lose value the second they are purchased and driven off the lot. But crazy-high demand and a lack of inventory are driving the price of some used cars higher than when they were new. Used vehicle prices are up a whopping 30% in the last year, and several sources are reporting that auction values of 1- to 3-year-old popular cars and trucks are eclipsing their original sticker prices.
2. Drought Triggering “Dirt Water” Situations in California – The decade-long drought in the Golden State is increasing the concentration of geosmin, one of two compounds that gives soil its typical scent. Health officials are reassuring residents that the water is perfectly safe to drink, but suggest adding lemon or refrigeration to help mask the taste and smell. Unfortunately, lemon prices tend to rise during the early summer season.
3. Amazon Destroys Millions of Unsold Items – Several European news outlets have reported that the world’s largest retailer regularly destroys millions of pounds of unused, returned or unsold items. The company reportedly does this to make room for more profitable, higher turnover inventory in its warehouses, and also for power generation. According to Amazon, it’s currently “working toward a goal of zero product disposal and our priority is to resell, donate to charitable organisations or recycle any unsold products.”

Did You Know? 

Housing Market Flashback

In 1960, an average high-quality home in America cost a little under $12,000. Many of these homes were stylish brick and included high-end finishes, accoutrements and appliances. California homes were a little more expensive, averaging $12,788. Assuming the 5.7% prevailing interest rate, you could have purchased a nice home in the Bay Area with a $2,557 down payment and a $59 per month mortgage. The average price in that same region is now $1.06 million.