Snowflakes and Bubbles

By Hildee Baldwin

June 30, 2021

Snowflakes and Bubbles have one thing in common; each individual one is similar but entirely unique and both are extremely fragile.

“Experts” have been telling us for months that the current economy isn’t in a bubble.  Their argument goes something like this: ‘This can’t be a bubble because banks have higher lending standards now than in 2005 at the height of the last housing bubble.  This housing market will never crash this time because the people taking out mortgages now can afford to pay them!  They have unlocked the equity in their homes by refinancing and pulling out funds to buy second homes and/or invest in the stock market.  The surging stock market is reflective of a strong economy!  The Fed will be buying our securities keep interest rates low - FOREVER.  We’ve got Powell over a barrel.  He can never turn off the tap because it will crash the stock market and the housing market and now THEY are too big to fail!  The party will never end!  Invest now!  Buy houses now!  Get in before you miss out!"

Get in before you miss out.  Think about that.  If you have to get in before you miss out doesn’t that imply that at some point there will be nothing left?  That someone will be holding the bag of debt, or useless tulips, Dogecoin, or Tickle Me Elmos?

While Millennials were standing in line for Harry Potter books, squealing over Justin Bieber, and spending their college loans on tickets to Burning Man, Coachella, and Kaaboo; their older Gen X siblings were learning just how awful the Boomer Generation had been as parents and stewards of the economy and environment.  Most of us dumbly went about adulting – going to college, getting jobs, getting married, having kids, buying homes and generally drinking the Kool-Aid.  We believed that if we got educated and worked hard, we’d be able to buy a house, raise a family, and live comfortable lives until retirement where we’d have pensions, Social Security, and Medicare upon which to rely in our Golden Years.  By 2008 we’d learned we were screwed and had been lied to – we and our children were always intended to just be grist in the Boomers’ mill, and the Millennials and their offspring would have it even worse, but we couldn’t tell them that because, well, we tried but they know everything and always have.

Back in 2005, when the present generation of first-time home buyers were still playing with Bratz Dolls and HitClips, the term “Bubble Sitter” was bandied about by those in the know as a slur against the people who wouldn’t listen to them and take out multiple no-doc*, interest-only HELOCs** to come up with the down payment on their third or fourth home, the loan for which would be a no-doc 5-year ARM*** they’d be able to repay with a quick refi before it reset if they didn’t sell it beforehand.

*no-doc = a no-document loan.  Borrowers could apply for loans and get them without providing documents proving income, source of down payment, etc.

** HELOC = Home Equity Line of Credit.  To come up with a down payment on a third, fourth, or even eleventh home, buyers would tap out the “equity” in the homes they already owned to use as a down payment on a subsequent home.  Due to the increase in prices brought about by FOMO demand, shady appraisers, and realtor hype, a home you bought two months earlier could easily have $50K in “equity” you could cash out and use as down payment on your next place which in turn would provide you a down payment on the next place and so on and so on and so on.  Renters would be paying your “nut” (mortgage, HELOC payments, property taxes, etc.) on your existing properties or worst case, you flipped one of your earlier properties to the next sucker who was just behind you on the Multi-Level Housing scam.

*** ARM = Adjustable Rate Mortgage, the workhorse of the last bubble.  They came in 1, 3, 5, and 7-year terms and offered super-low interest for the related number of years, at which point they would reset to the going rate at the time of term end.  The logic was, you’d buy a place for low interest, hold it for a year or two and sell it on to the next sucker for a huge profit before the rate reset, at which time you’d plow your cash into another home or buy a Hummer. Or both.

Bubble Sitters were mocked and derided by shills and grifters in the real estate game – from agents to mortgage brokers to appraisers.  Anyone who questioned the logic of taking on more and more debt while your income stayed the same was ridiculed and ostracized.  Anyone who questioned the notion of lending money ‘to anyone who could fog a mirror’, money that was being used to inflate prices higher and higher, was laughed at and mocked.  They were labeled chickens, “sad” losers, and sticks in the mud.  There was no risk!  If people couldn’t make payments, they’d just sell for a profit.  The banks and their investors would get paid, the sellers would plow their profits into the economy by buying boatloads – literally – of cheap crap, and new buyers would fall out of the woodwork to perpetuate the system.  After all, they weren’t making any more land and we were having a housing crisis (According to experts, we’ve been having a housing crisis for decades because we don’t have enough supply on hand to moderate prices – don’t ask them though about where all our supply goes, because looking behind the curtain at all the foreign owned second homes and investment properties owned by individuals and hedge funds to be used as both long-term and short-term rentals is a political no-no.  Nope, don’t ask them about their end game of paving the entire state of California just to build homes on every square inch so we finally have enough to satisfy the demand of everyone who wants to own a home, all the foreigners who want to offshore their money or just run away from weather, all the individuals who dream of becoming landlords squeezing desperate, trapped tenants for more and more money every year, and industrial-scale investors bogarting the lion’s share of homes to run as slums for the benefit of their clients and themselves.)  If you bought a home in the 2000s, you’d would be sitting in the driver’s seat for life, able to demand enough rent to cover your costs plus a little extra, and garner a handsome return if you sold.  Supply and demand.  If you control the supply, you cash in on the demand…until there is no demand.  But that could never happen, right? 

The current environment where the price of stocks, houses, and cars (and gas, and insurance, and food) just keeps going higher and higher can never end.  If you bid $100K over asking price for a 1400 square foot townhome in suburban San Diego, the next guy will do the same and the next guy and the next!  If you pay $100 for GameStop stock, the next guy will pay $100 more and so on!  If you pay $3,000 more for that used Civic than it last sold for in 2019, the next guy will pay $3,000 more than you did or more!  Right?  A 1000 sf condo with no parking in Minneapolis will be worth A MILLION DOLLARS in a couple of years and will only go up!  GameStop stock will reach $10,000 a share and keep going up!  A 2016 Honda Civic won’t depreciate, instead it will be worth $30K in under a year!

If you just paid $900K for a 35-year-old, 1500 sf tract home in Carmel Mt. (a suburb of San Diego), another guy will surely pay a million in a few months so there’s no risk to you!  You’re getting in at a record low interest rate!  You’ll have equity in this place in no time and if you ever lose your job, you can sell for that million dollars to cover your closing costs and get a little something for your relocation to your next job, but honestly, who in San Diego would lay you off?  San Diego companies are flush with COVID cash and will be forever, they’ll never need to lay you off to please stock analysts and investors demanding 5% YOY growth!  It’s fine!  And now that everyone can permanently work from home, you don’t need to worry about that 30-mile/ 60-minute commute twice a day.  Every newspaper and online “journalist” declared work from home to be permanent! You’re set.  You are the envy of all your friends because you beat out 25 other people who also bid on the house.  They are in awe of your negotiating prowess when you brag about paying $100K over asking price which was $100K over what the sellers paid for the place in the summer of 2019.  You lose no sleep over the $4000 a month in mortgage, interest, and property tax you owe because you and your wife both have jobs and bring in $150,000 gross a year – who cares that that’s a third of your gross income on housing, California income taxes are super low and while your kids are in daycare that costs $1200 a month, Biden is giving you money for having birthed the next generation of serfs.  YOU BID THE HIGHEST!  YOU WON THE HOUSE!  

If you were one of the lucky folks who already owned their home when COVID struck and you took out a HELOC or refinanced your house and pulled cash out to buy Meme Stocks, it’s fine because the stock market will only continue to go up and the value of your house will only continue to go up.  The extra debt you are now carrying causes you no sleepless nights.  You are a WINNER!

‘This is nothing like 2008, ergo it’s not a bubble!’

That’s the prevailing logic of experts as broadcast and reported by The Media.  The talking heads on “news” shows and YouTube told me so.  Powell is going to lift inflation so high it will force employers to raise wages to compensate for the new higher costs of everything which in turn these corporations will gladly do it to lift profits.  Ford will pay line workers $500,000 a year so they can afford a million-dollar home in Detroit, two $50,000 used VW e-Golfs, insurance premiums, and bread at $25 a loaf.  Chipotle and Rubio’s will pay burrito makers and cashiers $100/hr to fold your $50 burrito, serve it to you, and scrub the public toilets so they can afford rents on Blackstone-owned properties. Right? I mean this is how it must go to perpetuate the This-Isn’t-A-Bubble bubble.  Either that or everything just freezes at a certain point, which will also be totally FINE!  Bottom line is, it will never pop.  Housing prices will never go down.  They’ll just level out, plateau if you will.  No one will ever be hard pressed to sell, there will always be a dearth of homes, supply will continue to be depressed forever and people will refuse to “give it away” by lowering prices.  Builders will never build more than two houses a year just to maintain the current low-supply-driven price inflation.  Buyers will always be willing to pay $50K over previous sale price and overbid by an extra $100K.  All the rumblings about companies demanding employees come back into the office at least 4 days a week beginning in the fall are just noise.  Millennials are quitting their jobs in protest – the media said so, buyers will continue to flock to the ‘burbs and won’t mind the two-hour commutes into San Diego, Los Angeles, San Francisco, Minneapolis, Dallas, Denver, Austin, Raleigh-Durham, and Charlotte once a week.  Right?  RIGHT?!

Stipulated: It is nothing like 2008.  No bubble will ever be identical to another, but they do form and explode by the same machinations – mostly lots mastication and hot air.  People who fall for the scams will be manipulated and chewed up, and assets will be inflated by endless pontification from the very people who stand to profit the most and lose the least – bankers, mortgage brokers, real estate agents, corporate executives, politicians, and Wall Street insiders. 

Every time there is a crisis, there are people who learn from it.  You’d like to think they learn how to prevent future crises, but they have no interest in that, there is no profit to be made in preventing panic, fear, and chaos.  The Federal Reserve, banks, politicians, and other con artists learned from the 2008 housing crash, the dot com crash and other stock market crashes, the Gould and Fisk gold conspiracy, etc.  They learned how to make the most of a combination of psychology and opportunity.  COVID was just the latest opportunity to use their greatest mindfuck tool -  fear.  Fear of dying, fear of no money, fear of not being liked, fear of having nothing to post on social media…fear of missing out. 

A never-before-seen cataclysm born of decades of malfeasance, corruption, incompetence, and hubris descended upon America in 2020.  The high pressure of COVID fear collided with the lows of inner-city living. At the same time, a seismic shift in (alleged) workplace flexibility met a tsunami of money from bailouts to corporations and small businesses (if you knew the right people to get them that is – ahem, Kanye, Newsom, Pelosi’s husband, et al.), billions in government contracts for equipment (Remember PPE, ventilators, testing, workplace decontamination systems and health scanners, vaccine development and administration contracts?), forced savings due to lockdowns and having nothing to do; windfalls in the form of stimulus funds, expanded unemployment, and no bills to pay because of mandated eviction moratoriums, forbearance, and protections from having utilities shut off due to inability to pay – the latter three achievable with no restrictions on claiming eligibility beyond the honor system. And then the Federal Reserve rolled in, smashed the levees and opened the floodgates of cheap debt and low-risk lending.

When the history of COVID is written, it will be interesting to see who the first person to plant a story about overbidding on homes was…My bet?  It’ll have been a real estate agent lying through his capped teeth.  From there an “economist” with a national real estate organization will have run with it – calling up all the media outlets who dutifully take dictation and reprint it as “news”.  Are we really supposed to believe that the authors of these stories have at their disposal the data on homes in bidding wars? And once the story was out there, we were off to the races. Other outlets picked it up and the panic spread, just like COVID. Now buyers had to beat out other buyers, it was about winning!  And Fear Of Missing Out on bragging rights for scoring that thing that everyone coveted but not many could acquire – a home.  No one ran the story that said, ‘Hey, things are bizarre right now, just chill out and see where this goes.  We’re going to shelter in place for the year and in 2021 let’s all agree to an orderly exit from lockdown instead of everyone rushing for the exits like panicked animals at the slaughter.’  No one took a beat and said, ‘You know, this just doesn’t feel right.’  Nope, the real estate machine and the media dusted off that age-old, tried-and-true marketing con that too many humans fall for every time.  That must have Christmas toy?  That purse/watch/pair of shoes? That car? That cellphone? Those concert/music festival tickets? Get out there and get it now!  Click here to read how screwed you are, what a loser at life you are if you aren’t bidding your left kidney to get ____(fill in the blank)!  It’s all hype, but sadly, a guaranteed, significant percentage of people fall for it every. Fricking. TIME!  And the percentage has just gone up with the proliferation of social media influencers.  That anyone could be convinced to run out and pay double or triple what a 30-year-old tiny tract home on a postage-stamp sized lot was worth in 2019, all because interest rates had dropped, what, 0.75% from already low rates? is, in fact, nuts.  That hundreds of thousands of Americans did it is bizarrely, jaw-droppingly insane.  But it’s okay, prices won’t go down, they’ll just keep going up or, at worst, plateau.  Everything will be fine.  Trust us, we’re professionals, we’d never lie to you.

Except things won’t, and they will.  Powell knows he can’t keep printing money to buy home loans off the banks’ books, investors know Powell can’t keep printing money and it’s showing up in the bond yields which are linked to mortgage rates which are ticking up.  Powell can’t continue to let inflation run wild and while housing doesn’t factor into his inflation calculations because it’s so “volatile”, it is intertwined with the rest of the economy.  He keeps saying this inflation explosion is transitory – so how can the higher costs of food, gas, insurance, cars, travel, and housing all not be transitory?  You can’t exactly unlink one or two items from the web that is our economy without the whole structure becoming undermined and falling to bits.  Smart people have been asking for quite a while, ‘If this is all transitory, why the hell should I buy now?  I’ll wait for the inflation to go down and buy when things normalize.’ thereby removing themselves from the pool of buyers of things.  Damn Bubble Sitters!  Banks can’t go back to the halcyon days of lending money to anyone with a pulse – that was a one-trick, kick-you-in-the-teeth pony Congress can’t afford to allow back in the circus, especially with mid-terms next year and a razor thin margin in the Senate both sides want to widen. Employers will never, EVER raise wages beyond a token drop to garner media accolades and five minutes after their fifteen minutes of fame are over, they’ll cut the hours of the higher-paid employees or layoff the new hires and bring in the old payroll amounts – it’s straight out of every HR playbook since the ‘80s.

Holdouts (AKA Bubble Sitters), higher interest rates, stagnate wages, employers recalling employees to the office and crushing permanent work-from-home dreams, lending rules that can’t be broken or even bent too far…it’s all taking a toll on the housing market, but the media isn’t reporting that because they don’t care to research it themselves and they will never get a call from the real estate community and their shills to report on it for obvious reasons.  But it’s happening.  Just look for yourselves.

Refinance applications are down, mortgage applications are down, home listings are up, homes are sitting longer, and they are dropping their prices every week by $5, $10, $20, $50K and more – and IT’S JUNE!  This is the busiest time of the year, people!  Most buyers want to move while school is out and get settled before the new school year starts.  New inventory keeps coming on the market – some of it, hilariously, just closed their sales in March, April, and May of this year, and are already flipping back on as “investors” realize they need to get out.  But most telling of all are the homes that keep coming back on the market – homes that have gone Contingent, Pending, and Relisted numerous times since February.  And they aren’t your usual crack dens that have a hard time clearing mandatory pest inspections, septic compliance, and the like – they are comfy, 21^st Century-built homes that a few months ago were flying off the shelves but were a little too late to the party, or a little too greedy in accepting over-priced offers and the buyers either backed out of their own volition (or as listing agents keep saying in public comments: Got Cold Feet) or their financing fell through because they have lost their job (Layoffs at General Mills, Marathon, biotech firms, and other companies who just made BANK off COVID-related sales and bailouts, but are now trimming payrolls, are affecting thousands of people.)

During the time of the Bidding Wars, townhomes and single-family homes under $500K in Minnesota suburbs like Victoria, Prior Lake, Savage, and Eden Prairie; in North Carolina suburbs like Mint Hill and Cornelius; in Texas suburbs like New Braunfels and Schertz, sold before they even listed.  Far too many real estate agents are just legal grifters.  (Honestly, someone is going to have to explain to me why we need people like real estate agents and car salespeople too for that matter.)  They make their money no matter what as long as the deal closes.  Buyers and Sellers are responsible for anything they sign so have to know all the legalese in transaction documents, they are left hung out to dry if there is a problem with a property or transaction.  And for the privilege of having an agent, but doing your own due diligence and owning all liability – each agent gets 2-3% of the sale price of the home plus numerous other junk fees they tack on in their representation agreements.  And yet, there are almost no avenues of recourse for buyers and sellers if an agent commits a lie of omission, or even a straight up lie.  There is no recourse for a buyer if they let themselves get manipulated into vastly overpaying for a home and waiving all inspections.  Agents say things like, ‘If you want to Win the house you should _____.’  To ignite the competitive nature of buyers it becomes about winning the house.  It’s a total psyop far too many people get sucked into.  COVID allowed agents to pull out an old, gross trick from the moldy corners of their back closets – COMING SOON.  From 2008 to 2019, most homes listed and were ACTIVE, immediately available for viewing and presenting offers, but beginning in April and May of 2020, a different trend emerged - most new listings were marked COMING SOON.  It was a way to do a pocket listing without getting in trouble for doing a pocket listing.  Listing the home COMING SOON meant eyes were on it as buyers in lockdown with nothing to do but scroll through endless news of death and suffering, turned to Trulia, Zillow, and Redfin to look for a way out, a momentary mental holiday.  COMING SOON is the Red Light District window dance of the housing market.  It’s a cock tease.  You want more?  Pay up, sucker!  And people did.  They signed exclusive contracts with agents, got them inquire about the houses, gain access to disclosures and HOA docs, and write offers even before the house went ACTIVE, before anyone had even seen it in person.  By the time the house went ACTIVE, it was already gone.  Agents would use one “weak” offer (read: an offer at asking price) to solicit dozens of stronger ones using secret agent code. ‘Why yes, my COMING SOON listing does have multiple offers (even if they are one offer at asking price and two crappy, lowball ones submitted by a fellow agent in on the scam, I’m under no obligation to tell you that, in fact, if I did I’d be violating my contract with the sellers).  My clients will be reviewing them on the day it goes ACTIVE at 6:pm.  Oh, your clients will be submitting one too so they don’t miss out?  Well, it will need to be a strong offer(code for well above asking).  And they should write a love letter to the house, perhaps a poem?  One of the offers I have came with a letter saying the prospective buyers had never seen such a well-built house.  Yes, they made this determination from online photos.  And if your buyers have anything they’d like to throw in to sweeten the deal, like, say, paying all closing costs, having no contingencies for inspection or financing or sale of another home, and offering use of their children as personal maids to the sellers while the they rent back from you for free until they find and close on a home of their choosing, that would give your buyers a chance at winning this home.’

AND PEOPLE DID THESE THINGS!  Except for the children as maids bit – I have no proof of that, but all the rest – overbidding, paying all closing costs, waiving contingencies for inspections, allowing sellers to rent back indefinitely…it all happened.  No proof of what was in the other offers, no proof there were even other offers.  They just blindly did what agents, who profit off every sale, told them to do.  All so they could WIN the house.

But now the party is winding down.  All the people who didn’t ‘get in before they missed out’, are now looking around at shelves half-full of product that a few months ago were nowhere to be found except on online for 1000x their normal retail price.  The factory is still producing stock and “entrepreneurs” who couldn’t sell their hoarded, over-priced inventory over the winter and early spring, are now having to return their items to stores before the refund window closes, meanwhile the stores are putting the stock back on the shelves at lower prices to try to eke out at least some profit.

It’s true, this isn’t the same bubble as the one that popped in 2008.  It’s a different one, one that inflated really quickly and will make a sticky mess for all of us to clean up. But it is a bubble.