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Ephraim Bubble Blower

Us Bubble Remains In Good Shape

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I was at a party in New York last night and conversation turned as it inevitably does to the housing market. A friend who is bright and has a good job was talking about buying and came up with the standard arguments, "You can't lose money on real estate," "Renting is throwing money away" etc.. However then more worryingly, he espoused the benefits of 'flipping' and the trawled out the usual anecdotes about how a friend-of-a-friend-of-a-friend bought an apartment and sold it two months later for $50k more etc..

This got me thinking.....I had always assumed that those people still looking to buy in this inflated market were generally financially illiterate and who in many ways should be protected from self-damage and that sites like this one performed a valuable public service if it helped to educate. However this friend was not financially illiterate - he understood the importance of portfolio diversification, the dangers of leverage etc.. but was still utterly convinced about the need to buy. (Admittedly in the US mortgage payments are tax-efficient unlike in the UK and this does make a difference).

With views this entrenched, and the desire to buy vs. renting so well-established, then I am not convinced that our long-awaited crash can occur without a very sizeable exogenous shock which frankly won't help any of us (huge inflation shock, terrorist attack, war etc..). I had hoped that the straw that broke the camel's back would be the reduced willingness of banks to lend at silly income multiples, particularly in light of a flattening yield curve, but instead they seem to be upping their lending based upon anecdotal evidence and well-publicised press articles about their innovative new products eg. negative amortisation loans.

In short, those factors that might lead to a crash, in the absence of a major exogenous shock, are fighting against a huge headwind, and it's hard not to conclude that we may be waiting a lot longer than we'd hoped for a return to normality.

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I read a couple of days ago that just over one third of all US real estate sales over the past few years have been "speculative second homes" bought by amateurs!

Just imagine the stampede when it all blows! :blink:

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I read a couple of days ago that just over one third of all US real estate sales over the past few years have been "speculative second homes" bought by amateurs!

Just imagine the stampede when it all blows! :blink:

Shake the tree and elephants will fall out, its their own fault, they shouldn't be there in the first place.

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Hi,

I partially live in Canada, I travel for work several times a year to west coast US. From first hand experience I can say there has been some massive falls in San Fransico, Reno, Portland, Las Vegas and San Diego, we are talking 20-30% in some areas. It is pretty easy to check this up on the US media reporting as well. All is not well at all in the West property market but the US I also think is far better placed to weather these real estate falls. It is still a large manufacturer and can trade within itself.

Boomer

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In short, those factors that might lead to a crash, in the absence of a major exogenous shock, are fighting against a huge headwind, and it's hard not to conclude that we may be waiting a lot longer than we'd hoped for a return to normality.

This may be true IN AMERICA (but I doubt it). Negative amortisation mortgages do not exist in the UK, and MIRAS was phased out long ago.

the US I also think is far better placed to weather these real estate falls. It is still a large manufacturer and can trade within itself.

Hmm, what does the US make these days apart from (ugly and gas-guzzling) SUV's? America has been no more immune from the shift of manufacturing to China than anywhere else.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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