Do you believe in housing market cycles? Some analysts do and many markets are hitting an exuberant apex.

The economy and stock market definitely go in cycles. Real estate was largely immune to this up until the late 1990s when creative financing was introduced into this largely boring sector. Aside from pocket bubbles and localized frenzies, real estate was a fairly drab and reliable asset class. That of course has dramatically changed. People forget about cycles and I am consistently reminded of Black Swan events. Over 7,000,000 people lost their homes to foreclosures over the past decade. 1,000,000 of these were in California yet somehow, the nonsensical drumbeat that buying a home is always a good deal is being echoed by house humpers. Back in the last cycle there were investors from Nevada and Arizona and they were simply adamant that no bubble was possible. ‘These places rent out and cover the loan!’ Until local economies got hit. Or they were able to flip in a short period and make a good amount of money. Until prices went down. Some seem to think banking is fantastic again and fail to look at what just happened with Wells Fargo. Yeah, everything is Kosher. That time was different. Yet this time, it is a stable market even when magnificent crap shacks in the Bay Area are going for way above one million dollars. Cycles in real estate are now a thing thanks to the massive debt fueling this machine.
The housing cycle based on various markets
Someone sent over a really interesting chart in terms of housing markets and what stage they were in based on market cycles. I like to think of real estate as a massive cruise ship. To turn a ship from its current course takes a lot of time. And also, like a cruise ship, people get lazy and simply follow the herd and eat themselves into a coma of nonsensical information.
At this point, it is safe to say that the previous bubble is a long gone memory for most. All those ‘losers’ that lost their homes simply did not have the winning formula. And here is the thing, say you bought a home for $600,000 and it is now worth $800,000. You only get that money when you close escrow and tap the money out.

This post was published at Doctor Housing Bubble on October 2nd, 2016.