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Brock's newsletter  |  May 2, 2025
 
Houses Will Never Be as Cheap as They Are Today. 
About 15 years ago, my mentor said that houses will never be as cheap as they are now. She was right. And the same holds true today. 
 
It sounds crazy, I know. I find it hard to believe too. This cartoon received sighs of defeat from some of the younger members of our real estate team on our group chat last week:
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So what about that 2008 crash? Won’t that happen again? No, and here’s why.
 
Remember when “bubble” talk was everywhere? You never hear about a housing bubble now. Because we are not in one. 
 
The thing about a bubble is that it’s not just that prices are going up. Very specific conditions create a bubble.
 
The first is what is called “a new financial instrument.” Some kind of new way to do things that supercharges price increases. In the case of 2008, it was the loans. They were not only “no-money down” but “stated income” - buyers could just write any number for their income, and no one would verify it. You could buy anything you wanted, and people did. That’s simply not the case now.
 
The second characteristic of a bubble, somewhat related to the above, is widespread fraud. The last crash revealed not just “liar loans” but massive scams—entire networks of crooks flipping houses to straw (meaning fake) buyers. Nothing remotely like that is happening now.
And the housing shortage is entirely man-made. There’s no shortage of labor, or land, or wood. But no one seems intent on solving it.
 
This demonization of developers is like cutting off your nose to spite your face. We need more housing, and yet, the city and its residents vilify, tax, and restrict the group of people that can provide it. And the affordability crisis continues…
 
One last thing pumping up housing prices: inflation. It appears it’s here to stay, and housing prices tend to track inflation. In the mid-to-late 70s, the last inflationary period, California home prices tripled. 
 
So yes, houses will never be as cheap as they are today. You can say that on January 1st of each year and be correct 90% of the time.
 
Back to the cartoon above. Will there be a housing price correction?
 
We get asked this question a lot. We used to say that “absent some act of God” housing prices will continue to rise. And here we are, having just experienced a horrific act of God with the recent LA fires (not to mention COVID, strikes, rising rates)…prices haven't budged. Fundamentally, the housing shortage wins.
That's not to say there will never be a correction. Seasonal and periodic corrections happen, usually drops of around 10%. Which is nothing. You can buy a house 10% off now if you have a good agent and move fast—there is no need to wait for the entire market to shift.
By the way, the three characteristics of a bubble above (new financial instrument, fraud, and widespread speculation) are why I don’t “invest” in crypto. It checks all the boxes.
Until next week,

 

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