Rates are increasing to more normal levels and the hysteria in the market just highlights how juiced and stretched we have played this low interest rate environment. Inflation is now out of control and the Fed will have no choice but to act and this of course will cool the housing market. Last year the market was driven by FOMO and people were bidding junk up because in many cases, they were desperate. There is now talk of another housing bubble and people counter with – what about subprime? Let us remember that with the 7,000,000+ foreclosures in the last debacle, about 1 to 1.5 million of those were subprime. The rest were vanilla 30-year fixed rate loans that hit households that lost jobs and they simply could not pay their mortgage. Venture Capital is getting more restrictive, and we are seeing ridiculous companies implode with valuations that only “Web 3.0” would love. But let us look at some insane prices in working class areas of Southern California.

The hype around real estate is nothing short of a feeding frenzy and brings back memories of 2006 to 2007 when all caution was thrown into the wind. Even though sales volume is low, and inventory is historically low given growth and demand, many people are jumping at the chance to become a real estate agent. As an agent, you are paid by selling. So high volume is key here and high inventory is just as important given the product is the home. Churn is the name of the game. It may come as a surprise that “real estate agent” was the most searched for job term in Google. Is this an indication of mania? Let us explore some actual data in California and nationwide data to see if people are actually taking the leap into the industry.

Expensive does not mean good in many cases. People tend to think that things only go up and somehow, things do not correct (ask Meta how that logic goes). Things do correct and they usually do not happen in the way you think. People are cramming into homes stretching their finances to the brink. There are some significant headwinds coming down the pipeline and these involve rising interest rates, more housing units, and the economy coming out of Covid-19 restrictions. Builders tend to join the party late in the housing market and given how hot things have gotten in housing, there are some signals starting to go off that we should be paying attention to.

As we are seeing in the financial markets, inflation has a big impact on the way people behave. Too much money floating around is going to push the price of items up. Back in 2005 to 2007 it was incredible how many people viewed their homes as ATMs and tapped equity to fuel their lifestyles. Well guess what? Home equity withdrawals are back on the menu. In fact, the rate in which people are tapping their home equity is reaching levels last seen in the months before the housing market imploded. At this stage, it is pointless to save your money in a bank account. Banks are paying roughly zero percent on savings so people are chasing yields in everything from crypto, to real estate, to stocks. We have companies with no tangible products or revenue now being valued in the tens of billions of dollars because money is simply floating through an aggressively inflated system. The Fed is now trapped. Inflation is soaring but raising rates will correct the markets. What is a person to do? Well leave it to the average American to yank money out of their homes and spend on fun times.