The hype around real estate is nothing short of a feeding frenzy and brings back memories of 2006 to 2007 when all caution was thrown into the wind. Even though sales volume is low, and inventory is historically low given growth and demand, many people are jumping at the chance to become a real estate agent. As an agent, you are paid by selling. So high volume is key here and high inventory is just as important given the product is the home. Churn is the name of the game. It may come as a surprise that “real estate agent” was the most searched for job term in Google. Is this an indication of mania? Let us explore some actual data in California and nationwide data to see if people are actually taking the leap into the industry.

Expensive does not mean good in many cases. People tend to think that things only go up and somehow, things do not correct (ask Meta how that logic goes). Things do correct and they usually do not happen in the way you think. People are cramming into homes stretching their finances to the brink. There are some significant headwinds coming down the pipeline and these involve rising interest rates, more housing units, and the economy coming out of Covid-19 restrictions. Builders tend to join the party late in the housing market and given how hot things have gotten in housing, there are some signals starting to go off that we should be paying attention to.

As we are seeing in the financial markets, inflation has a big impact on the way people behave. Too much money floating around is going to push the price of items up. Back in 2005 to 2007 it was incredible how many people viewed their homes as ATMs and tapped equity to fuel their lifestyles. Well guess what? Home equity withdrawals are back on the menu. In fact, the rate in which people are tapping their home equity is reaching levels last seen in the months before the housing market imploded. At this stage, it is pointless to save your money in a bank account. Banks are paying roughly zero percent on savings so people are chasing yields in everything from crypto, to real estate, to stocks. We have companies with no tangible products or revenue now being valued in the tens of billions of dollars because money is simply floating through an aggressively inflated system. The Fed is now trapped. Inflation is soaring but raising rates will correct the markets. What is a person to do? Well leave it to the average American to yank money out of their homes and spend on fun times.

If you thought it was hard enough to compete against regular home buyers and sellers, now you have a new competitor in the market, algorithms that are looking for a quick profit. Now it might seem like the battle between the haves and the have nots is ramping up and many are looking for get rich quick outlets like options trading and crypto currencies, the reality is the market is dramatically changing. People are feeling left out and for many buying a home seems completely out of reach given that the supply system is completely out of whack in many ways. Part of this has to do with artificially juicing the markets and moratoriums that stalled regular demand from hitting. We have this corporate welfare bailout mentality that is simply creating externalities in the market and because of that, we are seeing soaring prices with toxic fundamentals (which is what we are trying to avoid). During the last crash, you had hedge funds gobbling up homes and making bank and now this time you have things like Zillow Offers and Opendoor making offers on properties. Zillow is pausing home purchases and you are seeing examples where the algorithm is having issues.