Real estate industry insiders deny that a new housing bubble is forming (their denial is largely based on the fact that we haven't reached 2006 prices yet), and they are correct on a national level.
But on a regional level the same things we saw in the housing bubble days of the last decade have returned with a vengence.
Let's look at the numbers:
Housing prices are rising at their fastest rate since April 2006, right before the bubble burst.
Phoenix, San Francisco and Las Vegas had the biggest jump in home prices, with increases of more than 20 percent compared with a year ago.The thing to notice here is that these were the same places that were at the center of the last housing bubble (note: southern California, Orlando, and Atlanta are also booming...again).
Las Vegas is a great example of the bubble dynamics at work here. Contrast the fact that prices are rising at a 20% annual rate with this article.
Roughly half of foreclosed homes in Nevada are “zombie foreclosures,” or properties flagged as vacant or abandoned, said Daren Blomquist, vice president for the Irvine, Calif.-based online listing service...So prices going through the roof in Vegas, while defaults are up about the same amount and rental prices are dropping. In Phoenix rental prices dropped 10% while housing prices rose more than 20%. Does that sound like a healthy market to you?
One figure that stood out for Nevada is the 22 percent increase in “front end” inventory, or homes that have received a notice of default, Blomquist said. It’s up 22 percent from a year ago, to nearly 10,000 as of mid-March.
As if we need more evidence that logic, common sense, and even short-term memory vanishes when easy money appears, most of the worst practices of the last have reappeared as well - with a twist.
Like the recent bull market? How about taking a home renovation to go with it? That apparently is what some investors have been doing with their stock gains.While borrowing from one bubbly asset to buy another bubbly asset is certainly a sign of a bubble, the one characteristic that truly defined the last housing bubble was flipping. And its back. Big Time.
The recent run-up in the market, financial advisers say, has led to a resurgence of the type of loan not seen since the end of the housing boom -- cash out financing. But this time, though, people aren't tapping their inflated house for money. These days stock portfolios appear to be the well of choice.
Borrowing against brokerage accounts hit an all-time high earlier this year, according to data from FINRA, and has continued to go higher. Margin loans outstanding totaled nearly $409 billion at the end of April. That compares to $381 billion back in July 2007, the last time stock-market-fueled lending peaked.
Debt is often seen in bubbles, and loose lending was a key part of what led to the housing bust.
House flipping is back in some local markets, especially in California and the Southwest, where homebuyers are making bids on almost anything they can find.The only difference this time is who is doing the flipping.
In many cases, hedge funds and private equity investors are buying up large blocks of houses. Some may plan to rent them out for a period of time, but most undoubtedly expect to flip them for substantial profits in the near future.
House flipping has returned to 2005 levels while first-time buyers are priced out of the market. Does that sound like a healthy market to you?
Of course the real element that defined the last housing bubble was fraud. Well, guess what? Fraud in the mortgage market is worse than ever.
Experian has published a report which finds the instances of attempted mortgage fraud reached record high levels over the course of last year.Imagine that. Fraud is now much higher than it was at the peak of the last housing bubble.
The firm’s fraud report revealed attempts at passing fraudulent mortgage applications have more than doubled since 2006, from an average of 15 in every 10,000 cases to 38 in 2012.
Looking ahead, Experian expects fraudulent application attempts will rise to 43 in every 10,000 cases by the end of 2013.
Didn't we clean up the financial market with Dodd-Frank? Oh, yeah. I forgot that it was all just kabuki theater for the suckers.
The bubble dynamics of the real estate market are getting so obvious that even the rating agency, Fitch (which missed the last housing bubble entirely) has given a warning.
So while small investors rush pell-mell into the bubbly market looking for a quick buck, the smart money is moving towards the exit.
Healthy real estate markets don't suddenly jump or drop. Prices move slowly in healthy markets. In healthy real estate markets, first-time buyers aren't priced out of the market because first-time buyers are essential to the market. The only speculators have long-term outlooks, not flippers.
Healthy markets aren't filled with fraud.
Interestingly, the biggest real estate bubble out there may be the one you are least likely to think of - farmland.
That’s right, according to The Financial Times prices on U.S. farmland have doubled over the past decade, and are on pace to rise more than 10% again this year, even in the face of weaker grain markets of late. The main force that has been driving the increases in farmland prices has been a steady bull market in agricultural commodity prices. But according to the FT report, lately “big investors” have been dipping their toes into the farmland market in an attempt to take advantage of high agriculture profits and as a hedge against inflation...That's exactly it. Most people seem to forget that there are consequences from the central bank forcing interest rates down far below natural levels. It means that deep-pocketed speculators can borrow cheap and buy up assets until they are over-valued.
According to Bloomberg, the council warned the Fed in February that, “Agricultural land prices are veering further from what makes sense . . Members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates.”
Much of the weak growth that we've seen the past few years has been based on blowing bubbles in the real estate and stock markets. What's going to happen to both when the housing market regains connection with reality?
I am constantly amazed at the doomers and their complete inability to look at data through anything but a "sky is falling" mentality. Now there's talk of a new housing bubble forming. Let me debunk this right now.His first and most important chart shows that housing prices are going up because of low inventory. His chart shows that housing inventory is indeed low.
Economics 101: low inventory+higher demand = increasing prices.Of course it also shows that housing inventory was slightly lower in 2004-2005.
I seem to recall something about a housing bubble in 2004-2005, so I'm not sure how he thinks that this means we aren't in bubble territory right now. But maybe he's in such a rush to insult people that he forgot that fact.
Bonddad then concludes with this gem:
To make the argument that we're in the middle of a housing bubble when the economy is slowly growing (2.4% annual growth rate), with unemployment still over 7% is just ridiculous.Maybe Bonddad has forgotten but GDP growth in 2005 and 2006 (i.e. bubble years) was also below 3%. Once again, maybe he was in too much of a rush to insult people.
Sure, we had lower unemployment then, but then we also didn't have hedge funds buying up neighborhoods back then either.
Basically, Bonddad doesn't want to see a bubble, so he isn't looking for the dynamics that have always defined a bubble: panic-buying, short-term speculation, and heavy leverage.
As long as he doesn't look for those things he will be safe from ever seeing them.
1:23 PM PT: I forgot to mention one other thing that always defines a bubble: fraud.