Real Estate Bounce Setting Up a Second Crash


San Francisco Real Estate Housing Bubble

Home prices are rising at the fastest pace since before the housing bubble and crash, according to the Case-Shiller Index.  Data for January showed a 10-city composite up 7.3% over the last 12 months and a 20-city index gaining 8.1%.  A bullish sign for the housing market?  More like a death rattle, we’d say.  In our estimation, the collapse in residential real estate prices begun in 2007 is only halfway to a bottom, implying that valuations will eventually fall a further 35% from their 2007 housing bubble peaks. Check out the Mountain View, CA home pictured below if you want to know why, even after the real estate collapse of 2007-09, California home prices in particular are still egregiously out of line with incomes. We rented this house from 1995-1999 for about $2400/month before moving to Colorado like so many other Californians seeking twice as much home for half the price.  The three-bedroom rancher was worth about $525,000 at the time, and we wondered who would be so foolish to buy it at that price. With just 1150 square feet of usable space and a small back yard, it had sat unimproved since 1952, when it sold new for around $12,000. The only feature in the house that might be considered an upgrade was the quiet-flush toilet in the half-bathroom. Otherwise, fixtures, carpets and structure were original and well worn. Termites could be heard munching on the garage. Smelling like a San Francisco housing bubble? 


Unbelievably, the home is currently valued at $1.1 million on Zillow. Anyone who buys it at that price would have to be either crazy, extremely desperate, or confident that a greater fool would eventually appear when it’s time to trade up.  In 1952, before the San Francisco housing bubble, this was a blue-collar neighborhood. By the time we arrived in 1995, however, nearly all of our neighbors worked in high-tech jobs in Mountain View (today the home of Google), Los Altos, Menlo Park and Palo Alto.  A typical couple had a Honda Civic with an MIT decal on the back window and a hefty loan from their parents, who themselves had borrowed against homes that had been bought and paid for. Software engineers in the area were making $80,000 to $150,000, but even workers at the high end of that range, especially couples with children, wouldn’t have much left over for frills. Our kids went to a highly rated elementary school across the street, in the Los Altos District whose close proximity supposedly added $100,000 to the value of nearby homes. Los Altos proper, just up the hill, was out of reach for mere software engineers, since basic 3BR homes went for around $1.8 million in the late 1990s.

A Little Dumpy

There are of course high-tech hot-shots living in the San Francisco Bay Area and on the Peninsula who can easily handle a $5,000 monthly mortgage payment or rental. At the southern edge of San Francisco, an easy commute down the Peninsula, they’ve bid up real estate prices to New York City levels. But for most Bay Area workers, even those in the $150,000-$250,000 range, the best housing they can afford would be considered dumpy in just about any other region of the U.S.  As a consequence, renters and buyers alike stretch affordability not only until no discretionary income remains, but until there is no savings cushion for emergencies or unforeseen expenses.  This is living on the edge, and when it describes as many lives as it does in the Bay Area, the implication is that even a small downturn in the economy – never mind a recessionary bust or an uptick in Fed-suppressed mortgage rates – could cause a collapse in real estate prices that would ripple across the country. Beware of situations similar to the San Francisco housing bubble.


Trading stocks, options and commodities in these treacherous times calls for great patience and skill. Click below if you’d like to see how Rick’s Picks approaches the challenge.

Comments on this entry are closed.

mava March 31, 2013, 8:33 pm

Awesome article on RE, Rick. Thank you. I enjoyed it, especially the historical comparisons, – I am always looking out for those.

I can’t wait till it collapses. I always thought that the crowd is much funnier after the tulip craze, not before it.

BigTom March 30, 2013, 6:31 pm

Gary – welcome back…..”I saw an improved economy that could cause earnings expectations and stocks to have a sharp rally breaking old highs.” I think the ? is where do you get those rose colored glasses? Hell, I don’t think the stock market has had anything to do with the economy for a long time now. I sometimes wonder if stock values have anything to do with it’s parent company value at all any longer either. To my eyes stock values seem the results of hot money moving around ‘betting on the come’ as they say in the game of craps. Hot money moving in or moving out sets up long or short play chart indicators, then fund moves all react the same. Apparently they all basically work off the same charts, and the ‘house’ knows it. It is a casino game out there and unfortunately it is the ‘house’ giving off the press releases thru MSM of the ‘life is wonderful’ syndrome…..Yep, just as in a casino there are ‘smart ones’ that know how to read theses things/indicators and that seems to be the money being made betting against the house. RA seems to be one of those people. In the stock market no doubt in spite of collapsing employment numbers, industry having moved over seas, financial crime being committed daily while no one gets prosecuted, and the list goes on and on etc etc etc, money can still be made but not because of a rosy economy. I think you would gain more credibility if you cut the ‘life is wonderful’ crap with the economy and always coming on like a MSM plant. Money is to be made there because like everything else in the financial world it is lies and deception that prevail by______(by filling in the blank here you show your clarity of vision), and brought to you daily by MSM….But, what do I know. I’m a neophyte here and not to wise in the world of trading….


Debt deflation cannot be reversed when it is drawing its power, as this one does, from a QUADRILLION dollar derivatives edifice. RA

John Jay March 29, 2013, 4:40 pm

Just goes to show you’ve got to do your homework before you start trading a market.
I did not know about the USDA report coming out.
And I have started watching the grains trade recently, and they often have a big spike at the close everyday.
Each market has it’s own patterns.
Here is a good web site for grains if you don’t already visit it.
I read somewhere that cash prices did not change much at all, so I guess it is the old physical versus the paper price.
Should be wild on the open after this Holiday weekend.
Were all the stops triggered and margin calls met?

Jill March 29, 2013, 5:34 am

Monsanto apparently expects to do things of this sort & already has legislation in place to protect themselves from all the destruction & havoc that they are wreaking, while everyone else remains unprotected.

S P March 29, 2013, 5:30 am

Make all of the arguments you want…
“concentration of intellectual capital”
“asians with lots of money”
“they aren’t making any more land”

Have we learned nothing? Does the stupidity have no end? There is no way that house is worth 1 million dollars. That is, if the concept of a dollar as a valuable currency has any meaning whatsoever.

I despair.

mario cavolo March 29, 2013, 6:11 am

Surely correct SP, as Steve commented to me above… we can apply this to any item as having a “relative” and “perceived” value to anything else of value including the measurable value of the currency we use in our country…

Eg., I want to earn $200,000 working in Silicon Valley and I am qualified. Cool. The price of being able to do so is living in a local house. Cost of entry? A million bucks or $15,000/month rent or commuting over an hour to cut that cost down. You want the deal or not? Value is defined by the many variables which are related to and attached to, directly and indirectly, subjectively and objectively to an item which serves some combination of need/want.

I don’t care at all about getting sucked into the new world of smartphone/tablet gadgets. Hence, I don’t want to actually spend one thin dime of my hard earned money buying any of it, but I do. While there are valuable practical things I do with smartphone and IPAD, I think $500 for each is outrageous. So be it.

Then, because my sister in law had one, I checked out a new Kindle Fire HD. I fell in madly love with the perceived “package”….it doesn’t everything I was needing a tablet to do, which is quite a variety of items and interests which it gives me access to, and it does it all at $199 on a vivid 7” , 12 oz. screen. Its the best “value” purchase I have made in years…

Cheers, Mario

Marc Authier March 29, 2013, 1:29 am

When I think about US real estate I really hope that Monsanto GMOs glyophosate corn, soya and alfafa really exterminate 100% of all Americans. That’s my level of hatred of real estate and the average american bozzo still speculating on mortar and briks. If you are still speculating on this unreal estate crap hope you get intoxicated with GMO crap and dissapear.

Dave March 29, 2013, 3:05 am

For those “healthy” fish eaters who don’t buy RE, FDA about to approve GMO Salmon and NO labeling required!

They took the growth gene of a Chinook Salmon and the growth gene of a sea eel to make this Atlantic Salmon grow very fast and very big. They say it’s sterile so can’t breed if it escaped and mixed into the wild.

Of course the USA FDA says it is safe, but has not yet approved it. Consumer Union (Consumer Reports magazine) says only 6 fish were used for testing which is a joke, FDA took much of company’s test data as OK. Once approved, there will be no labeling on farmed salmon that it is a Frankenfish. Only “safe” fish is wild or organic Atlantic salmon,

ABC News video of which there are 3 is very informative.

Whole Foods and Trader Joes ban it.

John Jay March 28, 2013, 7:43 pm

33 contracts bid @ 695
126,767 contracts ask @ 695 1/4
I don’t know if that is real or it is sell stops hit and some big funds trapped.
The other grains have normal bid ask size going on.
10: 40 AM Pacific Time

John Jay March 28, 2013, 7:03 pm

Wild day for the grains.
I was watching corn drift higher off of about 725 when wham, limit down in 2 minutes!
695.2 right at the daily CBOT hard limit.
I have never actually been watching a market when that happened.
I was stunned and I did not even have a position!
ZW, ZS, ZM, all down hard too and drifting lower.
USDA report hit at 11 AM Central time, it must have been bad, bad, bad!
Must be a lot of farmers banging their heads on the wall, especially for ZC, that had a very strong looking uptrend on a daily chart from the beginning of March.
First breakout back in late February failed, tested the bottom and just went up for two weeks.
A long weekend for farmers to think it over, let’s see what happens next week.

Speaking of the grain market, a box of Triscuits has shrunk down to 9 oz.!
I could swear it used to be 16 oz. back when I used to eat those things.
“Now, new healthy portion size!”

mario cavolo March 29, 2013, 6:00 am

JJ! Nuts! I was long one lot o corn in my fx account when it happened! If I hadn’t placed a tight stop loss, it would have been a nasty wipeout! 🙂

Dave March 28, 2013, 5:54 pm

Rick wrote in a recent S&P tout about having to up that target due to uber bullishness: “This prospect seems astounding to me, given the powerful economic headwinds from Obamacare, …”

Yet today in WSJ, Restaurant Chains Cut Estimates for Health-Law Costs, which includes comments from Whole Foods, Dunkin Brands and Walmart, the cost of Obamacare ain’t that bad, easily absorbed, negligible, maybe 1% increase in consumer prices to cover, etc.

This plus yesterday’s post of Martin Armstrong’s cycle predictions from a few years ago showing correctly what would happen with the real estate bubble and that from now to 2015, RE is up, then from 2015 to 2033 a steady decline to the bottom.

These suggest that, baring major world events, wars, nuke attacks, … , it’s party on for a few years.

So, while I like many others appreciate Rick’s dour views since they feed a glass half empty personality most times that leads to inaction and missing these uptrends because we all know eventually as Jim Rogers just reaffirmed on CNBC, it will end badly.

Having a contrary voice, i.e. Gary, to temper Rick’s generally doom & gloom mantra, brings perspective since while it likely will end badly, it’s not ending badly tomorrow. Are we going to miss out on profiting from a possible Dow 16-20K because we all know the probable dismal Japan-like future?

The canned, dried food rations I was told to buy a few years ago are soon expiring, they don’t keep like the Forever stamp.


Any source — even employers — that downplays the cost of Obamacare is not to be trusted or believed. Perhaps you failed to notice that monthly premiums have risen 35%-50% already in mere anticipation of Obamacare? Or maybe you missed the story, a couple of weeks ago, that every insured person in America will be socked with an increase next January of 20% to 100%.

Concerning your statement that we miss uptrends and fail to act, that is factually incorrect. You should know better because, unlike Gary, you have been a paid subscriber to Rick’s Picks and know that we trade both sides of the market. Concerning the supposed impossibility of things ending badly as soon as…tomorrow, it is reckless to be unprepared for it, let alone deny that it could happen. Neither you nor anyone else can say when, or how, things are going to end. In plain fact, a hundred triggers are in place that could cause a bank panic at any time. RA

BigTom March 28, 2013, 7:25 pm

Dave – That one WSJ article on how neglegient the burden of Obama Care costs are going to be upon the business community seems to fly in the face of many articles on how expensive the costs will be. It also does not jive with small business owners I have talked to. I don’t know if I’d go to the bank on a single MSM news release here at the WSJ. Though I do know what you are saying….Nothing does look good financially but somehow they do manage to pull rabbits out of the hat to keep this whole thing floating, so far…..

Lee Aaron March 28, 2013, 3:12 pm

I still like the old view that the price is correlated to 10X the annual rent. When I drive around with my wife and she says ‘How much do you think that house is selling for?’, she always ends up laughing at me because I’m about 50,000 to $200,000 too low. Then I remind her that we have always made a profit on the four houses we have bought and sold over the last 16 years. Now I would only buy the most worthless piece of swamp/industrial waste land that no one else wants – – keeps the taxes low.

Buster March 28, 2013, 12:30 pm

I’m pretty sure Bob Prechter would be describing this as an ‘echo boom’, where the belief or desire to get back to the good old boom days will eventually meet the cold hard light of day & take another dive, though the smoke & mirrors of this game of boom & bust debt based money is in the relative price. UK ‘property commodity’ (rather than homes!) is at or near all time highs, but taking account of real inflation, currency rates & other hard asset prices may give a different picture.
But really, just like the actual price of stocks this is all beside the point.
In fact, I have a new & novel solution to all these financial & social problems that will work on a global level permanently! It’s my own version of the ‘permanent solution’, & so one that I’m sure the Powerz will like, (if they haven’t worked it out already??) plus a few clever souls who have been conditioned to keep their eyes on the numbers. I think you’ll agree it’s pure genius.
It’s quite simply to replace all humans with machines. Simples! This way they can all just follow the present plan & accept it’s ultimate consequences without all the misery & suffering that are, well, just getting in the way of all this progress by numbers. Now I know this idea will seem a little crazy to some, but just think about it. The machines can borrow money in booms & then lose everything they have worked for without any feelings. They can bid ‘property commodity’ prices up, way out of the reach of lots of other machines & none of it will matter because they can just sit out on the street or get pushed from pillar to post as permanent without a home refugees with not a care in the world.
Also, the acceptance of their lot by the machines will make it easier for the Powerz to move labor & industry around worldwide to exploit any opportunities at their wim & without resistance to the obvious advantage to profits that would then lead to a booming stock market, like forever! An added bonus would be that food commodity prices could be bidded up without the little problem of starvation & social instability, since the machines obviously don’t eat. If business got a little lacklustre, the Powerz could employ their favorite little theory of ‘destructive’ or ‘chaos economics’, & thereby wipe out some irrelevant country & rebuild it again through favored contracts, all without the unsightly blood & guts stuff to have to clear up.
I can just see the Powerz & all their psychopathic followers of numbers salivating over my new plan if they’d just bother to take a serious look at it. In fact, I wonder why on Earth did God even bother with the ‘conscious’, ‘self aware’ or ’empathic’ part of us humans in the first place!! It’s just plain inconvenient.

C.C. March 28, 2013, 7:10 am

Excellent piece Rick. I live in the Bay area and my family has been here since the late 1920’s. I’ve seen it all. The population growth, the neighborhoods that used to be just your basic vanilla working-class boroughs, turned multi-million dollar ‘assets’ in the space of 30 years.

Which brings me to this ‘graph’ that I can’t seem to get out of my head. Everyone here has likely seen it – or some permutation of it – it’s the one that plots housing prices from the early 1980’s forward, along with the advent of easy and easier credit creation and creative financing, cost-of-living beginning to outstrip wages, the advent of ‘outsourcing’, etc. It’s amazing in retrospect how all of these (at the time) seemingly disparate occurrences were actually joined at the hip all along.

You are right Rick, this is setting up to be a very sobering repeat. I only wonder if the ‘bubble cycle’ this time will be shorter – history suggests that to be the case, but it remains to be seen. ‘New secular bull market’ talk is Everywhere – the ‘data’ is in… A gut-check however, has me just ~a little~ skeptical of the whole thing.

gary leibowitz March 28, 2013, 5:58 am

First the argument was that the data was faked because housing could never recover, now it’s a bad thing that it is recovering because it will sucker new home owners in.

For the last 5 years home owners were saving more, and spending less exactly because they realized their home wasn’t a piggy bank. I would call that a good thing. In fact not only were people refinancing to get shorter terms and lower monthly payments, the new buyers had to shell out on average 20 percent of the homes value and had to be credit worthy.

All those things can’t be construed to be a negative, can it?

You are extrapolating that house prices have to collapse further therefore it is foolish to buy now. That argument was made with purchasing stocks yet the assumptions had been wildly wrong. You can’t take away a doubling of the market and declare victory in the future. It might all end badly, but to say buying stocks these past 5 years and purchasing a home is a foolish proposition, implies that the future is know to you. No one is that good. The simple fact is that very few on this board ever considered we would have recovered this far, yet we have.

Now having said all that I also think that any large purchase of any sort, especially homes, will get hit in the next deflationary wave. Most people don’t give up on life, go into a survivalist mode, and prepare for a bleak future. That is not how most humans are designed. It certainly will be unfortunate if “our” assessment of the future is correct, but it is understandable that people don’t dwell on the possibilities. We are an optimistic race, even in the face of horrible current atrocities. That is what has made us so dominant on this planet.

I hope that my pessimistic views don’t become reality. I can no more blame people today of buying into the housing dream than I can of people stuffing their mattress these last 5 years with money. Now had I stuffed my mattress with gold I wouldn’t be complaining.

In any event the historic norm has been that owning a home appreciated faster than inflation. It had a remarkable run, so it is not irrational to assume it will continue. In fact I can’t think of any other hard asset that hasn’t depreciated the moment you purchased it.

To sum up: Agree that housing will most likely take another big haircut. I don’t blame people for expecting the future to be like the past, where a home retained its value. (Please be kind to this foolish analytical investor that is battling his own pessimism/demons while trying to see with a clear head). I hope the optimist wins. It would truly be a bleak world for all, no winners in the end if we fall back into the dark ages.


It’s not an optimism/pessimism thing, Gary, it is simply debt deflation doing its thing. The fact is, the unprecedented monetary blowout that has been required merely to stabilize home prices cannot go on indefinitely. End of argument. And: Do you actually believe that malinvestment on the epic scale at which it has been occurring for the last 15 years could produce any outcome besides disaster?

Don’t bother responding, since I’m not going to publish whatever you try to add to the twaddle above. Just give it a rest. Take the day off. Give us a break. Spare yourself further embarrassment. Treat your knee to an argumentatively jerk-less day. I don’t have the stomach for a string of ‘Gary’ posts that recapitulate ad nauseum what you’ve already said here a hundred times.


Jeff W. March 28, 2013, 10:50 am

While I may not agree with Gary I do appreciate his counter arguments. There’s no harm in arguing differing opinions. If nothing, you learn more about something you may not have initially been open to. And if you don’t like it? Who cares. Discussion doesn’t mean one side retreats in shame and the other a victor. People too often like to take comfort amongst those that believe exactly what they do. Counter arguments serve to either change one’s opinion or strengthen it. Regardless of the outcome, debating conflicting views is a healthy and rational thing.

redwilldanaher March 28, 2013, 6:31 pm

The housing market has been manipulated artificially too Gary. It’s beyond ridiculous how you show up here to defend things that you could disprove for yourself so easily. There has been this new cool thing that most people call “the Interenet”. On it, you can search for and find many alternatives to the lies that are told by corporate controlled media and corporate controlled government. It would take you all of one half hour to search for, find, and read a few credible pieces on what extraordinary lengths THEY have gone to this time around to levitate the housing market. Don’t tell me “that’s what they should do etc.” It’s all double standards then. You are effectively arguing in favor of your captors Gary. Do you really condone ad hoc rule changing and different sets of standards for different people and different entities? Is that what you are cheering on?

DK March 28, 2013, 6:33 pm

Great article, Rick.
With housing starts around 70% off their 2006 peaks, 4 years of declining incomes, 1 in 4 Americans with more credit card debt than savings, and real GAAP deficit of $6.9T, the economy really does resemble a termite infested house.
Housing may experience a few months of rebound, but who measures “a recovery” that way, a “blip” if you will.
The amount of foreclosure inventory is enormous.

gary leibowitz March 30, 2013, 5:46 am

Look, I am agreeing with the assessment of a deep devaluation in housing. I just point out simple truths. If one segment causes most of the hardships the government will try to patch it. I will leave the evil intent to destroy the middle class up to the rest of you. I also know that historically housing was a great hedge on inflation and that people still expect it to resume. Where have I stated it wrong?

As for debt deflation it can be reversed given enough time with low inflation and a stable economy. I myself don’t give the odds of pulling it off high, but you have to admit no one here thought we would be still talking about the possibility 5 years later. Can Ben actually stop quantitative easing with a strong enough economy to support it? I am a pessimist by nature so my answer would be no. I can’t make absolute judgments.

I guess I am ignorant. I saw an improved economy that could cause earnings expectations and stocks to have a sharp rally breaking old highs. I said this over a year ago. I also said time is needed without any crisis derailment. So far so good. I was told that was naïve yet here we are. Shut me out because my statement are just too silly and immature for this esteemed bloggers. It doesn’t change where we are, no matter how you shut me out. KISS. I like to follow events in as simple and most logic explanation as possible. I don’t look for road blocks. You believe everything that was done had a nefarious purpose where this government went out of it’s way to destroy the middle class. I believe it only took power, position, and enticements to allow greed to dominate. What ever happened to the new congress that came in under the tea party? Did they break the headlock that corporations have? Did they do anything that would indicate congress is changing for the better? I would say that good intentioned people lost their way when they found themselves in the greed/graft of Washington. Have they rejected the special perks they receive?

Since this message will most likely be blocked I can at least get this off my mind by writing it down. The sad part is that the likely scenario will be a deep deflationary cycle where the hate and meanness of the last 5 years will somehow be a vindication to your view of the world. It’s analogous to a person becoming very sick and determining that it was caused by the devil. When that person dies does that not validate the devil was the cause?

Rich March 28, 2013, 5:29 am

Accurate essay Rick.

Lived in Mountain View Shadows and Palo Alto Professorville near the Jobs’. Economics and termites accurate. Also attitudes, bumper to bumper traffic, hoes, long lines, restaurants, many people and much IPO money displayed.

Whenever the Gini coefficient dispersion between incomes gets too great and disappears the middle class like now, decay, revolution and war level the economy, markets and playing field.

Not sure when 3+% mortgages finally fizzle out. 2015?

Housing prices could return to 50’s levels by 2033 as you mentioned:

BigTom March 28, 2013, 4:41 am

Just reading this a.m. down the road from Mountain View in Pacific Grove on the Monterey Penninsula that city is trying to duck out of CALPERS retirement payments, or at least get them reduced. Apparently a lot of cities in the same boat in that state are watching to see what happens there, and all looking for an escape hatch. We all know the story line. A civil service overpromises during good times and collapsing tax revenues in today’s world and that story line is very widespread…a societal dichotomy setting up as Mario says on perhaps an 80/20 split? Maybe. I don’t know China but perhaps some enclaves here. But I do know of people today holding mortgages nearly double the value of their homes or some close ratio of that. I can’t imagine another real estate boom launching with legs enough to float that boat of upside down mortgages. The longevity of a meaningful real estate boom in today’s world? Odds not good. But what do I know, I continually shake my head at today’s reality…..

John Jay March 28, 2013, 4:08 am

“Termites could be heard munching on the garage.”

Man, you are not kidding on that count.
A two year old McMansion in my neighborhood was tented for termite poison gas before it sold.
Two years old and it already had termite damage.
I also read an article about a contractor doing a rehab on an old mansion in Beverly Hills.
Once he got started he found out he had to demolish the whole structure because, as he put it, “The only thing holding the house up was the stucco!”
Stucco does a good job of concealing termite damage until the walls start to bow out!

Chris T. March 28, 2013, 3:33 am


don’t know about that north of NYC locality, but if you have 60 min commute to work in the city from the west, no way do you escape the type of pricing Rick describes.

You’ll get something better than old blue collar Mountain View, but overall, same story.

To REALLY reduce those expenses, by far a wider range is needed.
The Pocono-commute is still going strong.

Plus let’s not forget that other Absurdistan:
DC, its like a vacuum for everyone else’s money, and it shows in real-estate too…

mario cavolo March 28, 2013, 1:36 am

Nice take on the real estate market Rick. I think to take it further and define its separate parts as indicative of the economic/societal schism which now exists in the U.S.

20% – 30% or so of the citizens are living better than ever. That same 20% is living in neighborhoods such as you have noted in this article.

While 70 – 80% of the society is truly screwed with little foreseeable opportunity to improve their situations and live reasonable lives with low economic stress. These folk live everywhere else besides the prime locations where the 20 to 30%-er’s live. In their neighborhoods, which more represent the broader real estate market, what are housing prices? Far lower. Places like suburban Atlanta, Phoenix, Tampa, Minneapolis, etc. come to mind, where in the United States $80-100-$150/sq ft will do for a typical suburban three-bedroom these days.

In the case of the prime locations we can compare, noting it is the same story across most other countries including China.

For the 20-30%ers prime Mountain View, Manhattan, Miami is the same as prime London, Paris, Rome, Tokyo Shanghai, Beijing, Guangzhou, Singapore, Hong Kong.

For the 70-80% er regular folks, same story….I’ve researched it well and easily online, you can buy a house in many countries all across Europe, the U.S. and Asia/Chna outside the major cities and in large secondary cities in that $80-100-$150 range, which it seems to me is more representative of the broader market.

And so we have to ask, regardless of prices in Mountain View, Manhattan, Tokyo, Shanghai, what will happen to prices in the broader market.

I am implying that the world of the rich oligarchs and their very well-off next-level underlings is very much separate, including in the real estate.

Until Google, Samsung, et al may collapse, they will continue to support the real estate pricing which exists in their world. eg. “Ah, you may get hired by Google in Mountain View? Bravo IT wizard, enjoy your six figure paycheck and the million dollar housing prices that go along with it.” If you don’t like it, you can do a daily 60 minute commute to find yourself cheaper housing outside the neighborhood. That is exactly for example what many New Yorkers do. My cousin lives far north of Manhattan, jumps in his car drives ten minutes to the train station and heads south into “the city”.

Another example is the North Dakota fracking boom, where a standard house that used to rent for $600 now rents for $3000. Well, hell, if you were the homeowner and you realized that all the incoming new employees were making $80,000 + / yr while at the same time housing was suddenly in severe short supply, (which is the case there, they can’t build housing/infrastructure fast enough right now), wouldn’t you raise the rent? Of course.

I conclude that the only way the outrageous million dollar pricing of housing for the 20-30% ers will collapse is if the industries and sectors they are involved in collapse. Indeed, it could happen.

We have to consider to what degree any particular micro situation as you describe is representative of and correlates with the macro picture. That is why I have been correctly saying all along about entertaining inaccurate media stories about China’s “ghost towns”. If you look at “the rest of the story”, the other influences which exist, such stories are the exception, not the rule and have far less significance than their media spin stories attempt to imply. It is now known that the original “ghost town” Zhenzhou is in fact 70% occupied and humming along just fine as city planners knew would occur over a five year time frame. America’s short-sighted quarterly report Wall Street/media mentality is incapable of comprehending how other people/governments in other countries such as China can actually make and execute their series of long sighted “Five Year Plans”. Hence, Chinese and us foreigners living here for the longterm, quickly dismiss such silly, yet entertaining fluff.

In comparison to your personal experience with the house in Mountain View, the apt we now rent sold to our landlord ten years ago in a very sparsely populated Pudong in Shanghai at $100,000. Today it is valued at $600,000. Considering its location of countryand city, demographics, trends and economics, is that so outrageous? Not at all, not compared to your Mountain View case, and in my view not a chance such pricing in Shanghai will ever again fall below current levels. You couldn’t buy a Manhattan Chinatown rathole apt for a million today.

Indeed this is the status quo and as you suggest, it will require a much awaited precipitous collapse of something in the economic/banking system to be the catalyst which causes that further 30% decline you speak of. Until then the house of cards stands…

gary leibowitz March 28, 2013, 6:20 am

What you say about China might be true but there is a huge housing bubble being born out there. The “ghost cities” were the biggest investment their citizens made, dumping their life savings expecting a huge return on their money. Since investment vehicles were so limited and restricted by the Chinese government they now have a problem that was not anticipated. Do you think it will end well if the world economies slide again? Looks like China, putting it feet into the capitalist ways, might find they can’t control everything like they once did.

mario cavolo March 28, 2013, 6:46 am

Hi Gary, not to dis you…. a highly inaccurate uninformed overly broad view…..the ghost cities were not at all the biggest investment their citizens made….. the vast majority of Chinese families, 90%, already own their homes, which have increased in value 3-5-10x. The majority of those folks bought or upgraded in their own home city, meaning China’s 30 or so primary, secondary and tertiary cities, NOT in some far away ghost town.

Secondly, many such huge developments and similar huge projects are pet projects for billions of dollars of unknown cash slushing around, much of it being divied up by the players involved who are intimately connected business people and govt officials, who, in this country, go hand in hand. (though still rampantly corrupt in this way, it is on a relatively steep decline)

Third, as I said, what a foreigner may think is a ghost town is filled up five years later. If not, ok, its a failed project, but they are truly few and far between as a percentage of the housing/community developments which exist.

If any particular project goes bust, yes, we can say that those buyers will get screwed and that is unfortunate of course, but as a percentage of the total market, its a drop in the bucket….not a barometer of broader decline…

Cheers, Mario

Steve March 29, 2013, 4:19 am

It seems that there is always the confusion between “Value” (what something does for one) and Price – the game of econ.

Hidden Pivot Graduate
Help Page

Click here
for a help page needed as a Hidden Pivot Graduate.

Keep Your
Skills Current

Click here
for a special deal for graduates of the Hidden Pivot Course who want to stay on the cutting edge


Start a Subscription
Lost my password

Seminar Information page.

Tuesday, April 17, 2018

The consistent accuracy of Rick Ackerman’s forecasts is well known in the trading world, where his Hidden Pivot Method has achieved cult status. Rick’s proprietary trading/forecasting system is easy to learn, probably because he majored in English, not rocket science. Just one simple but powerful trick -- managing the risk of an ongoing trade with stop-losses based on ‘impulse legs’ – can be grasped in three minutes and put to profitable use immediately. Quite a few of his students will tell you that using ‘impulsive stops’ has paid for the course many times over.

Another secret Rick will share with you, “camouflage trading,” takes more time to master, but once you get the hang of it trading will never be the same. The technique entails identifying ultra-low-risk trade set-ups on, say, the one-minute bar chart, and then initiating trades in places where competition tends to be thin.

Most important of all, Rick will teach you how to develop market instincts (aka “horse sense”) by observing the markets each day from the fixed vantage point that only a rigorously disciplined trading system can provide.

The three-hour Hidden Pivot Course is offered live each month. If it’s more convenient, you can take it in recorded form at your leisure, as many times as you like. The course fee includes “live” trading sessions (as opposed to hypothetical ‘chalk-talk’) every Wednesday morning, access to hundreds of recorded hours of tutorial sessions, and access to an online library that will help you achieve black-belt mastery of Hidden Pivot trading techniques.

The next webinar will be held on Tuesday, April 17. Click below to register or get more information.

Knowledge Base Link
Show Buttons
Hide Buttons