Price Warnings
Many today argue whether the period from 2020 to 2022 has been a bubble in prices and whether price warnings should be more accentuated. There should be no argument. The Federal Reserve and federal government created a bubble across most types of assets – housing, crypto, stocks, bonds, art, etc. With 2022 in the history books, average home prices in October had already fallen to beginning of the year levels. Read our prior post on market predictions for housing, stocks, crypto and more here.
What’s in store for 2023? Don’t rush to buy a house yet. The market isn’t done sliding. Expect another 10-15% drop in housing prices as the year progresses. The spring/early summer selling season will be a struggle for sellers to face the reality of a weaker housing market. Since prices peaked around May/June, they have steadily fallen about 1% or more per month. If you look to buy, wait. Late 2023 or 2024 may, that’s may, present an opportunity. And negotiate. DO NOT let your real estate agent talk you into rushing to close a purchase in a short period of time. Take time to get a thorough inspection….and REQUIRE the seller to fix problems. Those are the seller’s problems no matter who they sell to, don’t make them your problems unless you get substantial funds to correct them properly. Repairs aren’t cheap right now, although that will likely soften as the recession hits and work slows for contractors and materials suppliers.
Housing Price Bubble
Let’s look at the last housing bubble for prices. This chart shows the run up to the financial crisis beginning in the 2007-2008 time period. The Median home price peaked in June 2006 in that bubble. The prices shown reflect the median price and the median price adjusted for inflation as measured in the CPI. The chart uses the August 2022 prices to calculate the backwards CPI adjustments.
In June 2006, the CPI adjusted price peaked at $316,500 and the not seasonally adjusted price peaked at $216,350. It took TEN YEARS for the NSA price to get back to the June 2006 level, reaching $216,695 in March 2016. However, the CPI adjusted price took nearly FOURTEEN YEARS to recover, reaching $320,900 in April 2020. After April 2020, the new bubble really exploded with both price levels hitting around $390,000 in May 2022. Since May 2022, prices have been falling. We expect they will continue to fall, perhaps into 2024. So, if you are looking to buy or sell a house, heed the price warnings. Sell now if you’re a seller. Delay if you’re a buyer.
Stock Price Bubble
The NASDAQ showcases another round of bubbles. In primary focus is the tech bubble. Driven by Y2K fears and easy money, the NASDAQ soared in the 1990s, peaking at around 8250 (inflation adjusted; 5133 unadjusted) in February 2000. It lost 75% over the next few years before returning to the prior peak more than SEVENTEEN YEARS later. In October 2017, it reached 8300 (inflation adjusted) to finally recover the losses. In a prior period which was symptomatic of an inflationary period, the NASDAQ peaked around 950 in May 1972. It briefly reached that peak again in June 1983 before faltering and did not finally break out until February 1991. That’s nearly 20 years! These are adjusted for inflation, but the price warnings are there. The NASDAQ has already retreated more than 30% in 2022. Will it be another decade or more before recovery as in the prior two bubble periods?
Bitcoin Bubble
Bitcoin has little history to guide us. But Bitcoin was below $2,000 in 2019, and peaked around $68,000. It has since fallen about 75%. Since it is backed by nothing but faith, unlike housing and stocks, where will it bottom? We expect less than $3,000 over the next 12 months. While it should be $0, speculators and gamblers likely will prevent that. NFTs (non-fungible tokens) which are a vaporware-like speculation similar to Bitcoin have even less to prop them up. They truly have $0 real value.
Price warnings are everywhere. Your core asset may be your home. Read Winning Mortgage, Winning Home to avoid the bubble mania and protect your biggest asset.