Have you ever wondered what causes a housing bubble or why it pops? On this episode of Real Estate Launchpad, the author of The Housing Bubble Blog joins Jonathan to explain what is going on in the current single-family home market. Ben Jones is dedicated to examining the home price boom and its effects on owners, lenders, realtors, regulators and the economy as a whole. His blog tracks news on housing bubbles and bursts around the world. This episode is not to be missed!

Ben's experience with the savings and loans crisis

During the savings and loans crisis in the 1980s, everyone was talking about real estate. As the market began to collapse, Ben saw headlines daily about scandals. He mentions one scandal where the same office building was flipped 7 times in one day. The complexities of 7 transactions in a day were massive. Lawyers, realtors, appraisers, and many others would have to be involved in this, so there were a good number of people in on the scam. Ben notes that this crisis was caused by fraudulent commercial loans, and essentially caused him to bail on a real estate degree and move towards business and economics. However, what he saw during this crisis piqued his interest in the housing market and housing bubbles.

What Ben saw in Sedona, Arizona that made him nervous about its housing bubble

Prior to the housing market crash in the 2000s, Ben began to see signs of a problem in Sedona, Arizona. Average houses were appreciating $10k/month, and homeowners were giddy about it. Masses of people were fixing up homes and cashing out money on refinancing based on the speculation that their homes would continue to appreciate. However, they did not and many people were left owing more on their homes than the home was worth. The housing bubble actually popped in Sedona around 2005-2006, before the national housing crash.

The last market collapse explained

Ben mentions that the common narrative surrounding the housing market collapse of the 2000s was that subprime loans were defaulting. Lenders had too many defaults in this category, which caused the issue. However, Ben says that the crash had nothing to do with prime or subprime loans. The common denominator in borrowers defaulting was that the buyer had purchased the home when the price level was at an all-time high. Buyers were simply purchasing homes they could not afford, and they defaulted quickly.

Many buyers borrowed on speculation: speculation that the market would continue to grow, that homes would appreciate, or that they could cash out money by refinancing and not have to pay it back. However, these speculations were not fact and ultimately contributed to the market collapse.

The housing market in the US and around the world

Ben says that the money supply is driving price appreciation around the world. A crisis is typically met with money creation, which causes a lack of accountability. For example, in Australia, they are bailing out banks and homebuilders. In China, there are ghost cities where condos have been built but no one has ever lived in. The construction of these ghost cities is important to jobs and the economy, but they are simply creating another bubble around a bubble.

Currently, Ben sees speculation again in the housing market. Consumers are continuing to refinance their homes and take cash out. They are speculating that their home will continue to increase in value, and they will make this money back at the time of selling their home. There is a general attitude in America represented by reality television shows that you can "fix and flip" and make instant money on a home. Housing bubbles are caused by an attitude towards the market, so once the attitude goes away, the confidence in pricing bursts. Ben believes this is beginning to happen, noting what is going on in Miami Beach and Manhattan.

In This Episode Ben Jones says...

• [2:00] Who he is and what he does
• [4:04] Ben's experience with the S&L crisis
• [6:15] What is property preservation
• [8:12] What he saw in Sedona's market that made him nervous
• [10:58] What pricked the bubble
• [15:09] Ben shares what actually happened during the collapse
• [19:44] What he sees now in the real estate market
• [21:37] Why more expensive homes fall first
• [23:47] What data Ben uses
• [28:48] What is driving the price appreciation around the country and world?
• [35:45] What Ben sees coming next
• [41:53 The results of our current market

Resources Mentioned In The Episode

• [email protected] - Learn to be an asset manager and Investor
• Bellwether Enterprise(sponsor) - contact Will Oldham [email protected]

Connect with Ben Jones

• www.HousingBubble.Blog
• TheHousingBubble (at) Gmail.com

Connect With Jonathan and Real Estate Launchpad

• To invest with me go to www.TwoBridgesMgmt.com/investors
• To learn from me go to www.MultifamilyLaunchpad.com
• Join my free Facebook community

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