In The News Today

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Bill Holter’s Commentary

Erik not very far from the reality?

On the Road to Hell, Power is a Zero-Sum Gain_001

On the Road to Hell, Power is a Zero-Sum Gain_002

Bill Holter’s Commentary

Does really matter which bubble is bigger? Rest assured, they will both pop together in disaster and wipe away what is now considered “savings” by the average citizen. “Real” savings will be the only avenue that saves your bacon!

The Housing Bubble is Even Bigger Than the Stock Market Bubble
November 14, 2020

Economist Robert Shiller compares bubbles.

Stocks may be expensive based on historical measures, but it’s nothing compared to skyrocketing home values says Robert Shiller.

Please consider Home Prices Are In a Bubble. Full Stop.

Consider that the Case-Shiller National Home Price index has gained in excess of 6% per year on average since January 2012, while net rental income has barely kept up with inflation, increasing just less than 2% per year. The result is that home prices seem as overvalued as they were in the spring of 2005, nine months before the peak.

One way to measure home valuations is with a cyclically adjusted price to earnings (CAPE) ratio developed by Yale University professor and Nobel Laureate Robert Shiller for stocks. The concept can be applied to a broad swath of assets by dividing the current price of an asset by the average annual inflation-adjusted earnings over the prior 10 years. The chart above shows CAPE for U.S. home prices and the S&P 500 Index since 1996.

The bad news is all previous history came at higher mortgage rates. The average 30-year fixed mortgage rate fell below 3% for the first time in August 2020, and rates are close to the lowest possible levels given the credit risk and costs of writing mortgages. It’s one thing to be a peak valuation, it’s another to be at peak valuation with no discernable upside.

Median Household Income vs Case Shiller Home Prices