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Are We In A Bubble? Skyscrapers, Hubris, Expensive Cars, Cash

buildings-in-fogIn the late 1990s, I used to get my car washed at a place in Danville. Invariably there would be 2 or 3 guys there watching CNBC, discussing capital placements, angel plays, exit strategies and other stuff they probably didn’t understand. They had all gotten lucky with dotcom stocks and used their newfound wealth to buy $100,000 Mercedes that they loved to get conspicuously washed.

Shortly after that, the market crashed and there were a lot of Mercedes for sale. We were clearly in a bubble.

I bring this up b/c people often ask me if we are in a bubble now. And according to this excellent Planet Money podcast – Bubbleicious – the answer is probably yes.  (The podcast is very short at only 14 minutes.)

According to the “Bubble Expert” in the podcast, there are several indicators of a bubble including: (1) hubris (cocky guys throwing cash around); (2) new skyscrapers (the tallest one west of the Mississippi is going up now in San Francisco); and (3) inflated prices for fancy used cars that were popular when the rich guys were kids.

If the bubble pops and real estate prices correct, we are not worried for two reasons: (1) Lending guidelines are much more sound so we will not see a rash of foreclosures collapsing the market; and (2) lower prices will just mean more buying opportunities for the Millennials we referenced yesterday.

Call Jay Voorhees at (925) 855-4491
Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646