As a resident in Upstate South Carolina, I must admit that it is not only incredibly beautiful, but our real estate is incredibly well priced relative to California.
I love California as well and have watched with a combination of bemusement and dismay as real estate prices have, over the past few years, reversed course. Watching that reversal, I feel a sense of relief that we still have proof that trees do not, as the saying goes, grow to the sky!
In the case of stocks, such as Apple below, this has yet to be demonstrated.
Let’s dial back the clock three years. There is a small house (about 900 square feet) just around the corner from one of my buddies. It was being put on the market for $10 million. Let me be clear, the 900 square foot house was not made of gold bullion. It was just a little cottage. But here we have it:
To be fair, the cottage is on, for this neighborhood, a lot of half an acre, which is gargantuan for here. Most lots are like 6400 square feet or so. All the same, a Chinese buyer snapped up the place for $10 million, and it has sat there, unoccupied, for three years. I know this for a fact, because he walks his dogs in front of it every morning, and although a gardener is evidently paid to keep the yard tidy, not a soul has crossed the threshold in all these years.
Having said that, present estimates for this property are a bit south of $10 million. I’m sure the rich Chinese national who plunked $10 million into this place was doing so as a “safe haven”, but I’m not so sure she can celebrate a $6 million deflationary plunge in value:
$10 million and now worth $4 million? Deflation is painful when it happens quickly to you!
2016 was definitely some kind of peak California frenzy, when multiple all-cash offers, people camping out in front of sites where a listing was going to be posted the next morning, and a scarcity of inventory ruled the day. Just north of here, in San Francisco, there was this tale:
It was typical of the time: 27 offers (most pure cash) and a sale price nearly double the offer. And all this for an “uninhabitable” place. Glancing at Street View, I’m inclined to agree.
Times have changed. There aren’t multiple offers anymore. The Chinese seeking a safe haven have fled. And the new tax code has splashed cold water on California real estate. As for scarcity of inventory – – back in 2016, I think at one point there were a total of 11 properties listed for sale right around my buddy’s home – – that has changed too:
The most poorly-situated sellers are those with ultra-luxury properties. Another deflationary effect is that nobody wants what you are selling. At 40 cents on the dollar they do, right?
It took me all of three seconds to get this example for you. Below we have a $39,998,000 property (far more appealing than if it was priced at $40,000,000, LOL). You may have noticed that little mention of a $10 million price cut as of last month (deflation).
Added to which, this sucker has been on the market for 535 days already. It was not that long ago that the “days on market” was invariably a single digit. Helpfully, Zillow lets you know the monthly mortgage payment at this reduced price would “only” be a $191,068 twelve times a year.
At this price, it’s obviously a lovely place. They’ve even decided to dedicate a portion of this expensive property to a statue:
Wait, here comes my historical memory bank. I couldn’t help but instantly think of the statue of the children in Stalingrad after the Nazi bombing of the city. It’s eerily similar and once deflation expands over the next decade, probably extraordinarily prescient.
We are currently enjoying a rising stock market and real estate prices, unfortunately deflation will rear its ugly head again shortly.
In the next few days I will be posting a full explanation of deflation, the destruction it causes and how you can help your family walk out of its ashes alive and well with your retirement portfolios buying power fully in tact.
InterAnalyst has been serving over 500,000 investors globally since 1990. Authoring hundreds of financial articles, publications, and almost a million buy and sell trading charts. Mr. Nespoli’s Premier Bull & Bear blog is been read by more than 500,000 investors globally.