"It's Different this Time!" - Why we can't lose in RE! :)

[J. Martin]

This kind of attitude scares the SH*T out of me!!!

“This time is different” are the words scrawled on the wall of every financial bubble - from the South Sea to the DotCom Bust (1.0) to RE Financial Crisis - before it comes crumbling to the ground. The new era of international trade; The new era of a super-productive online world; The new era of RE where prices cannot go down; The human mind is a funny thing!

When have you heard people using this phrase recently? Did it scare the sh*t out of you too?!

This is what another BP'er wrote recently  on a post of mine, where I was questioning whether us first-cycle investors are as smart as we think we are..

“I watched the last disaster unfold. I know lots of people that lost everything. This time is different. Sure, there will be market cycles, but the days of no income and only a pulse required to qualify mortgages are gone.”

DISASTER!

I totally disagree!!! The only thing that is different, is that financial asset bubbles and busts are always a bit different. The money might be coming from a different place. The asset might be in a different form. But common themes are greed, a “can’t lose” attitude, leverage and/or "funny money", and amazingly enough, thinking that we’ll be OK because it’s different this time!

It’s usually coupled with a lot of late-comers piling into the asset after years of sitting on the sidelines missing out, driving it ever higher above its intrinsic value, further increasing the odds and magnitude of a correction when everyone sees how naked the king is..

It doesn't matter if the "funny money" ("hot" money) is coming from loose loans (see Great Recession), an overheated sector (See Tech Bust 1.0), an overheated country (Japan in 90's; see 2-3 lost decades..). Their will always be another bubble filled with risk; it will just look a little different next time. Stay agile ;)

 *I also had a front-row seat to the extreme losses, watching RE borrowers and developers go from 8 & 9-digit net worth to negative in the matter of a couple years*

“An asset bubble is like an orgasm; It feels the best right before it’s over.”

Most recently, here's the questions I've heard answered with "It's different this time."

"Isn't the tech bubble in the San Francisco Bay Area unsustainable? Is it also unsustainably contributing to near-record unaffordability for RE in the Bay Area?" (New York City, Boston, Austin have any similar folks..?)

No stupid! It's different this time! Small tech companies not only have unique visitors, like DotCom 1.0 - but they also have *gasp!* some revenue! (Let's not mention the P(rofit) Word! ;)

"Won't near-record unaffordability levels make it difficult to sustain these prices, or cause a reversion if it continues?"

No stupid! It's different this time! With the hot tech sector, insatiable foreign demand for RE, and the "never-ending" flow of capital into the best place on the world to live, it can go way further! (Never mind the cyclicality of tech & some foreign demand, and the fact that both of these things STILL EXISTED during the last crisis, right?)

"What if interest rates go up?"

No stupid! It's different this time! The era of interest rate cycles is over, and rates won't be above 5% in our lifetime. Just look at the 30yr chart! With a new, smarter Fed that knows how to control inflation, European recession, strong dollar, and cheap oil, how can they go up? (Never mind that they've never been this low before, and historically not anywhere close.)

My question to all of you:

Is it different this time?
What was the last question you heard answered with "It's different this time?"

*The greatest trick the devil ever pulled was to convince the world he didn't exist*