What is a bubble?
An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset’s intrinsic value.
So what’s the true value of a 1000 square foot house in El Segundo? Is it really worth $1 million? Is it really for a buyer that requires an income of nearly $200,000? A similar home rents for about $3500. PMIT is about $4800 after your drop $200k. Is that really the norm for every area of Los Angeles that is marginally inhabitable? West LA, Long beach, Korea Town, Echo Park, Silverlake?
Speculation has caused our current predicament. The idea that real estate is a store of wealth as well as a safe and ever-increasing asset is wrong.
A home is a shelter. For someone to go into that large of a financial transaction thinking anything different is wrong.
edit: I walked away thinking that I said the wrong thing. Yes, a home is a shelter, and a store of wealth to a degree (ask the Chinese nationals about that one), and it has proven a way to grow wealth but to enter into a transaction for a home you know in your heart is shitty and overpriced because some day it will be worth more is a very dangerous thought process. Save your life-changing down payment and rent. You’ll know when it’s time to step in.
This veteran investor nailed the last housing bubble and now expects another
“Median family home prices are 32% above the long-term inflationary trend — in other words it has to fall 32% to get down to where it was,” Stack explained. “That’s not as bad as the 35% in 2005, but it does kind of wake you up and say, this isn’t normal, this is going to end badly.” To me, there isn’t much difference between being 32% and 35% overvalued.