Market Pulse

Random Walk down Bubblicious Avenue

Today, the markets are closed in observance of the national day of mourning for former President Ronald Reagan. Since there are no markets to chinwag with, I will take this perfect opportunity to review the lovely real estates.

Aside from the stock markets, the real estate sector is on one of its biggest bubble in the US history. The consumer version of ‘carry trade’ (the act of using low interest rates via ARMs to purchase houses priced over buyers’ income level) is inflating the housing markets well over the affordability range. Even at this point, everyone walking down the streets still doesn’t believe housing prices will ever come back down, because of their strong believe that demand will always be there -- we all need a house to live in, and owning one is the American dream. The problem is buyers going nuts or extreme bullishness to beyond sense and logic. [READ]

I, on the other hand, have been dispensing the notion below to friends and family. Use this ‘bubblicious’ opportunity to sell your house for a ‘bubblicious’ premium, comfortably situate your family in this ‘once in a life time’ cheap rents locked in for 6-10 years, and purchase a much bigger house 6-10 years down the road at a ‘once in a life time’ bargain. I think 50% off current market price isn't far fetched.

Let me spell ‘bubblicious’ with a contrarian hat on. When you see or hear people crowding into a sector, especially those with experiences in other areas charting into this unknown hot territory with simple fact that it's hot, and when you ask your co-worker what is their dream job, and their immediate respond was a loan officer or a real estate agent, the bouncing bubble is alive and quiet possibly reaching its peak. At this time, it requires more force and energy to make it bigger, but it may stay this way for some times. No one knows exactly when the bubble will pop, but when it does, it will be loud and traumatizing. Remember in 1999 and 2000 how everyone everywhere wanted to walk across street and work for an Internet company? We are eating the same food but on a different plate. Within my circle of friends and family, I’ve heard more of them changing jobs to be a loan officer than being lay-off. This is a scorching hot sector, and, as usual, the so-call switchers and sell-outs always appear in abundance at the bubble top.

I wasn’t always this cautious on real estates. For once, I was a member of the home shoppers club, but that was more than two years ago. My only regret of the time was not taking up on the offer to purchase a beautiful 4-bedroom, in wall entertainment living room, outdoor water fountain with speakers hooked to the indoor entertainment system, a sandbox playground next to 2 car garage house just a few blocks off University Avenue in Palo Alto for a basement price of $850,000. That house will probably sell for 1.8+ million in this market. But that was in 2002, when the stock market was at its lowest, and the owner of the time, who was a VP at Netscape (pictures in the study are worth a thousand words), told the agent to sell the house lower than the asking price (she whispered a much lowered price to me as we walked out the door).

Ah, the good old days and we shall see that again. This bubble isn't unexpected. We are merely following the foot steps of the Japanese 1989 crash (2000 for us) and the continuation of the real estate inflation after that. [READ]

posted by jason @ 10:43 AM