Stock Market Bubble Now Greater Than 2007 Pre-Crash Levels, Largest In History, Real Estate Also In Bubble

At the end of November, the total market cap of US stocks exceeded US GDP by a new record of nearly $9 trillion. This alone indicates that the US stock market is currently experiencing its largest bubble in history. What makes this current US stock bubble unprecedented and especially disturbing is how far the overall global stock market has been left behind – with the total global market cap of stocks trailing global GDP by $8 trillion.

 

 

The total market cap of all US stocks is currently equal to 146.42% of US GDP, which is slightly above its 2007 pre-financial crisis high. The U.S. is the only country that currently has a market cap/GDP ratio that is above its 2007 pre-financial crisis high.

 

 

Only the U.S. has seen its market cap/GDP ratio more than double from its 2009 financial crisis low. America’s market cap/GDP ratio bottomed in March 2009 at 70.3% and has since rebounded 108.3%.

 

 

Check out NIA’s New Exclusive Global Stock Market Valuation Analysis Tool, which includes the ability to instantly view a long-term chart of any country’s market cap/GDP ratio

IRVINE, Calif. – Dec. 4, 2014 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released a report identifying county-level housing markets with early warning signs of a possible home price bubble — where prices overinflate and eventually decline. The report also identified markets with little risk for a home price bubble.

The report analyzed 475 U.S. counties with a combined population of more than 221 million — accounting for more than 70 percent the total U.S. population — based on three early warning signs of a possible home price bubble: if the market was less affordable in October 2014 than its peak price during the 2005 to 2008 housing bubble; if a market was less affordable in October 2014 than its historical affordability average since January 2000; and if a market had a rising foreclosure rate on loans originated in 2014 compared to loans originated in 2013. See full methodology below.

In the 475 counties analyzed, buying a median-priced home in October 2014 required 26 percent of median income on average compared to an average of 41 percent of median income in each county’s respective peak month during the housing bubble. The historical affordability average going back to January 2000 for all 475 counties was 28 percent of median income needed to purchase a median-priced home. Meanwhile the average foreclosure rate among the 475 counties on loans originated in 2014 was 0.25 percent, up from an average of 0.20 percent for loans originated in 2013.

“Affordability and foreclosure rates by loan vintage are two key metrics that will help consumers, investors, institutions and policy makers identify if a housing market is at risk for another price bubble,” said Daren Blomquist, vice president at RealtyTrac. “While 99 percent of markets have not returned to the irrational affordability levels during the previous housing bubble, one in five markets have now exceeded their historical affordability norms, which is a strong sign that either a new home price bubble is forming in those markets or that home price appreciation will soon plateau until incomes can catch up.

“Meanwhile, foreclosure rates on loans originated in 2014 are still significantly lower than for loans originated during the previous housing bubble in most markets, but there was an uptick in foreclosure rates on 2014 vintage loans compared to 2013 vintage loans in more than one-third of the counties we analyzed,” Blomquist continued. “This is concerning given that the 2014 loans are newer and have had less time to sour than loans originated in 2013.”

21 percent of counties less affordable than their historical affordability averages There were 98 counties (21 percent of all counties analyzed)  with a combined population of nearly 62 million where the October affordability percentage was higher than the county’s historical average affordability percentage, including Los Angeles County, Calif., Harris County, Texas in the Houston metro area, Orange County, Calif., in the Los Angeles metro area, Kings County (Brooklyn), N.Y., Dallas County, Texas,  Bexar County, Texas in the San Antonio metro area, Alameda County, Calif., in the San Francisco metro area, Middlesex County, Mass., in the Boston metro area, Oakland County, Mich., in the Detroit metro area and Travis County, Texas, in the Austin metro area.

30 counties both unaffordable by historical standards and with rising foreclosure rates There were 30 counties (6 percent of all counties analyzed) with a combined population of nearly 19 million where the October affordability percentage was above the historical average and where foreclosure rates on 2014 vintage loans were higher than foreclosure rates on 2013 vintage loans, including Kings County, N.Y. (Brooklyn), San Francisco, San Mateo and Alameda counties in the San Francisco metro area, Suffolk County in the Boston metro area, Orange County in Southern California, Honolulu County, Hawaii, Denver County, Colo., Washington County, Utah in the St. George metro area, and Deschutes County, Ore., in the Bend metro area.

“We expect prices to peak in Q2 2015 before leveling off in the Southern California coastal markets,” said Chris Pollinger, senior vice president of sales at First Team Real Estate, covering the Southern California market.

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12 percent of counties with higher median prices than peak during 2005 to 2008 bubble There were 58 counties (12 percent of all counties analyzed) with a combined population of more than 26 million where the median price of a home in October was higher than the peak during the housing bubble, including Kings County (Brooklyn) and New York County (Manhattan), N.Y., Travis County, Texas in the Austin metro area, Honolulu County, Hawaii, Fulton County, Ga., in the Atlanta metro area, Mecklenburg County, N.C., in the Charlotte metro area, Erie County, N.Y., in the Buffalo metro area, Wake County, N.C., in the Raleigh metro area, San Francisco County, Calif., and Monroe County, N.Y., in the Rochester metro area.

Six counties less affordable than during 2005 to 2008 housing bubble But thanks to lower interest rates and higher incomes in some of the 58 counties, there were only six counties nationwide where a median-priced home in October 2014 was less affordable for median income earners than at the peak of the 2005 to 2008 housing bubble: Suffolk County, Mass., in the Boston metro area, Travis County, Texas, in the Austin metro, Jefferson County, Ala., in the Birmingham metro area, Brazos County, Texas in the College Station metro, Allegan County, Mich., and Montgomery County, Tenn., in the Clarksville metro area.

37 percent of counties with rising foreclosure rates on 2014 vintage loans There were 178 counties (37 percent of all counties analyzed) with a combined population of nearly 100 million where the foreclosure rate on loans originated in 2014 was higher than the foreclosure rate on loans originated in 2013, including Cook County, Ill., in the Chicago metro area, San Diego and Orange counties in Southern California, Kings County (Brooklyn), N.Y., Miami-Dade County, Fla., Queens County, N.Y., Clark County, Nev. (Las Vegas), King County, Wash. (Seattle), Santa Clara County, Calif. (San Jose), and Broward County, Fla. (Miami).

“With the stiff competition for homes in Seattle, one might think that our market is well on its way to a bubble, but buyers have gotten more savvy and aren’t overbidding at levels we saw a year or two ago,” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. All three counties in the Seattle metro were more affordable than their historical levels in October despite a slight increase in foreclosure rate in two of the three counties. “We also have a strong job market with wages that are keeping up with appreciation — especially in the growing tech sector. As a result, prices in Seattle are appreciating at a healthy pace, but they’ve slowed from the double digit increases we saw last year.”

48 percent of counties still historically affordable with flat or falling foreclosure rates There were 229 counties (48 percent of all counties analyzed) with a combined population of nearly 79 million where median home prices in October were more affordable than their historical averages and where foreclosure rates on 2014 vintage loans were flat or declining compared to foreclosure rates on 2013 vintage loans. Among these counties with a low risk of a home price bubble, the most affordable were in Lansing, Mich., Syracuse, N.Y., Buffalo, N.Y., Cincinnati, Ohio, and Atlanta, Ga.