Since we’re in the “everything bubble,” it kind of follows that real estate, one of the things about which people with more money than sense tend to get most excited, would be rocking. And it is. But bubbles are about more than rising prices. They’re also about behavior, to be specific behaviors that hardly anyone would consider wise in normal times. So beyond record-high prices and record-low affordability, here’s how we know US housing is now an epic bubble:
The typical US house now sells in ONE WEEK
Normally, when you’re selling a house you price it hopefully and then wait for just the right person – i.e., someone with unique needs that are met so perfectly by your house that they’re willing to pay close to your price – to come along. This used to take time, because people like that were by definition rare and there was no way to predict when they’d show up.
But now buyers are so desperate that they’ll settle for okay, rather than holding out for awesome. They know that if they don’t make an offer on the first pretty good thing they see it will disappear, and even pretty good might move beyond their reach. So instead of looking at multiple houses and considering their options and making a couple of low-ball bids to snag a motivated seller, they see and they buy. End of story.
The average asking price is now the average selling price
In non-bubble housing markets, a seller expects to get lower bids as a starting point for back-and-forth negotiation over various parts of the deal until agreement is reached somewhere in the middle.
Over the past couple of years, that dance floor has completely emptied out. Today’s sellers set their prices with the expectation that they will be met in full, all-cash, on the day the house is listed. A lower offer is more bemusing than insulting, and an above-asking-price offer is not a miraculous windfall, but just business as usual. Even bidding wars, once as rare as winning lottery tickets, are now common.
As a result – and the last bubble indicator — many buyers are now forced to waive traditional due diligence. Where it was once taken for granted that a below-contract appraisal or an inspection that found serious problems was grounds for walking away, today’s buyers frequently have to agree to close no matter what in order to get the deal done.
Add it all up and you get a classic bubble in which the imbalance between buyer and seller is pathological. Buying a house in this market is about as sensible as buying a Tesla at 1,000 times earnings or dogecoin at, well, infinity times its intrinsic value. All are deals that only happen when two conditions are met: 1) Buyers have (or have access to) more money than they know what to do with and 2) buyers are gripped by a profound fear of missing out (FOMO) on something that might soon be unavailable at any price.
It’s all a delusion, of course, conjured into being by a monetary printing press that is even now losing its ability to gaslight the general public. Today’s FOMO assets – including houses — will soon be available from desperate sellers at prices that would seem crazy to today’s buyers. And bubble artifacts like bidding wars and above-asking-price offers will fade back into myth and legend where they belong.