Monday, December 23, 2013

Is 2013 a Bubble Like 2008?

Joe Fahmy is a well known blogger, investor and twitter guru.  He recently had a blog post about the internet frenzy in 1999, contrasting it with the stock market in 2013.   Things are not nearly as crazy as then.

I spent a few moments thinking about how different this market is from 2007, the height of the housing bubble. 

I posted on about Beazer Homes.  The stock went from $23 in 2000 to $360 in 2006.  Now, if this was a great company, maybe that kind of increase would be justified.  But Beazer was one of the most poorly regarded of the homebuilders and fairly quickly crashed right back to the $20s.  All split adjusted numbers here.

A lot of the home builders had similar moves, to say nothing of the mortgage companies, banks and reinsurers that imploded over this period. 

Check out a chart for MBIA group ($MBI).  I remember getting an email from a friend saying that if I had bought $MBI on his recommendation, to sell it NOW.  The stock dropped from $64 to $8 in a month.  Countrywide was bought by Bank of America and was a drag on its finances for years. 

The craze had a personal aspect for me.  I had been planning to buy some investment real estate on Hilton Head Island.  Prices tripled in short order during those days, well beyond what could be recouped by renting the unit.  I could have gotten zero down financing from fly-by-night lenders, but decided I couldn’t make any sense out of it, despite what everyone else was doing.   It turned out I was right.  It didn’t make any sense. Lucky. 

I did visit a condo that was an old apartment building that was being refurbished.  The selling price was $200,000.  It was nothing special, and five years later lists for $89,000.  I suspect they are going to have a hard time selling it at any price, despite its relative proximity to the ocean. 

My point is that although prices are fairly high by some historical measures, they are nothing like the bubble that occurred in housing in the mid 2000s. 

This post is informational and should be considered a recommendation to buy or sell securities or rental real estate.  

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