James' World 2

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The median price of an American house has increased by 28 percent over the last two years, as pandemic-driven demand and long-term demographic changes send buyers into crazed bidding wars.

Might the fact that corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year have something to do with it? The Wall Street Journal reported in April that an investment firm won a bidding war to purchase an entire neighborhood worth of single-family homes in Conroe, Texas—part of a cycle of stories drumming up panic over Wall Street’s increasing stake in residential real estate. Then came the backlash, as cool-headed analysts reassured us that big investors like BlackRock remain insignificant players in the housing market compared with regular old American families.

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Site of the next bidding war Tierra Mallorca/Unsplash

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The parallels are hard to ignore: the record prices, the bidding wars, the subdivisions that fill up as soon as they’re built, the resourceful buyer who clinched a deal by dropping off cupcakes that matched the home’s interior paint colors. Today’s real estate market feels a lot like the bubble market circa 2006. “The numbers don’t make sense. How do you make a rational offer on a house when you have irrational people in the game?” asks James Carmer, a software engineer who’s toured more than 100 houses in Austin.

So are we staring at another housing bubble? One hopes not, because when the last one burst, it triggered a global financial crisis and what at the time was the deepest economic downturn since the Great Depression. For most Americans, a home is their most valuable asset—as well as the collateral for a pile of debt. If housing goes down, so does the economy. “Real estate is suddenly pretty bubbly in almost every interesting market in the world,” said bearish investor Jeremy Grantham at a recent Morningstar Inc. investment conference in Sydney. “Eventually there’ll be a day of reckoning.”

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Photo Illustration: 731: Photo: Getty Images

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Last week, ProPublica published an investigation about how venture capital billionaire Peter Thiel has managed to turn a $2,000 initial investment into a $5 billion fortune inside of a Roth IRA, a type of retirement account that allows money to grow tax-free, meaning he will never pay taxes on his investment gains. The tactic used by Thiel is upsetting to people who would like to see the ultra-wealthy meaningfully taxed. The article hit different for another subset of people, though: Thiel’s strategy is now the hottest advice in the personal finance world.

The personal finance online media ecosystem consists of a large set of bloggers, podcasters, YouTubers, and TikTokers who give people common-sense financial advice like “pay down debt,” “have an emergency fund,” and “invest money.” The hottest subset of personal finance influencers at the moment are those who are trying to help people achieve Financial Independence (FI), the point at which you can quit your job and live off your investment returns, money from rental properties, or other investments (this is also called FIRE—Financial Independence, Retire Early). 

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