“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: We’ve seen eye-catching downturns in two “it’s different this time” slices of the investment world of late — crypto-currencies and the stock market’s technology-laden Nasdaq Composite. Could home prices be the next victim of a renewed bout of risk aversion?
Source: My trusty spreadsheet evaluated pandemic era price swings in bitcoin, the Nasdaq and the DQNews median selling price for the six-county Southern California region. To level the playing field, monthly average prices for bitcoin and Nasdaq prices were used to compare performance vs. housing through April.
Did you know that despite recent turmoil, all three assets are up since February 2020 — the last month before coronavirus hit the economy?
Through April, bitcoin gained 329% in the pandemic era, Nasdaq is up 42%, and home prices advanced 41%.
Note that these bounties of the pandemic era are significantly smaller for bitcoin (it was up 697% through March 2021) and Nasdaq (up 69% through that same month). Home prices in April hit their all-time high.
It was a surprising upswing for risk-taking asset holders amid unprecedented economic gyrations during the pandemic.
Looking at the 26 months of the pandemic era, home prices rose 18 times, bitcoin was up 17 and Nasdaq gained in 16 months. But Nasdaq stocks fell in six of the last seven months; bitcoin was off in four of the past five; while home prices dipped just twice in the last 15 months.
The best months? Bitcoin soared 58% alone in January 2021. Nasdaq’s top gain was a 10% jump in May 2020, as coronavirus’ initial economic icing swiftly thawed. Home prices had their largest jump at 4.5% in July 2021.
Worst month? Bitcoin lost 29% and Nasdaq dropped 17% in grand unknown at the pandemic’s start in March 2020. The ugliest month for home prices displays their slower-moving tendencies — the pandemic’s early and brief shock didn’t hit fully until a 1.8% drop in May 2020.
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … SIX BUBBLES!
Look, we are seeing bubbles bursting. It’s no longer the warnings of the skittish.
The trusty spreadsheet says bitcoin tumbled 32% from its peak. Nasdaq is down 15% from its pinnacle. And this math didn’t even look at May’s ugly data!
First, crypto. It’s a bet that an unproven data-sharing technology could store uncertain financial values, The pandemic’s times of grand economic unease made the novel concept briefly seem even more plausible.
Let’s politely say, the doubters are currently in command of that market.
Next, Nasdaq. It owns some similar blind gambles — such as investors flocking to what are essentially billion-dollar start-ups pledging to alter life as we know it.
Worse, long-established technology stalwarts ran out of ways to create ever-booming profits. Why? The pandemic’s throttling of everyday life — a boon to many novel ways of selling and communicating — wore off.
Loosely speaking, in this par of markets we’ve witnessed a swift re-evaluation of profit potential and what investors might pay for those perceived income streams.
Yes, homeownership needs have not changed overnight for individuals. Yet the loss of crypto and stock wealth changes the monetary landscape.
Let’s be honest, pandemic era investment gains helped many a house hunter.
Housing benefitted as gains from other markets helped provide sources for down payments. The extra cash flow made larger mortgage payments easier to digest following continued, large sales price surges.
And please don’t ignore housing’s fickle and larger-than-discussed investor slice. Will their thinking be altered watching other assets take a dive?
Add it up. Far fewer speculative windfalls. Perhaps a rethinking of what’s too risky. Oh, add in dramatically higher mortgage rates. You do the math.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at email@example.com