Little by little, the crazy is returning to financial markets.
Borrowing money against your overpriced home in order to gamble in the stock market is the sort of bananas thing people did before the housing bubble popped and the stock market crashed. But a story published on MSN Money and the financial-news website Benzinga earlier this week encouraged people to do just that.
Specifically, author Jonathan Yates suggested you could take out a home equity line of credit and use the money to buy shares of hotel real estate investment trusts, which pay dividends that might be higher than the interest you'd pay on your loan. Then just sit back and wait to be rich. Try not to think about how stock prices are at all-time highs after a five-year bull market, or about how home prices have been inflated by Wall Street investors, putting them totally out of line with normal incomes again.
And try not to think about this factoid, from Wall Street Journal personal-finance columnist Jason Zweig (who is obviously just jealous he didn't think of this genius idea first):
— Jason Zweig (@jasonzweigwsj) March 18, 2014
Zweig and many others denounced this terrible, terrible financial advice widely and thoroughly almost immediately after it was published. TheStreet.com's Herb Greenberg called it "the scariest thing I've read in a long time."
But just in case you happened to see the story, missed the village stoning, and think this approach might be your ticket to riches, let me just say:
DO NOT DO THIS.
Still not convinced? Maybe this handy flowchart will help you in your decision-making process:
An simpler approach could be to set your house on fire and collect the insurance money. Although you could also, as MarketWatch reporter and aspiring financial planner Ben Eisen pointed out, stay in a hotel after your house has burned down, which will nicely boost the value of those hotel REITs.
There's no evidence yet that anybody has actually taken this terrible advice, or that the stock or housing markets are about to crash. But this is the sort of thing that starts to happen more and more frequently the less detached from reality markets get.
As Business Insider's Joe Weisenthal put it:
"This is the top, right?"
Avg. listing price: $1,230,880 Median household income: $110,929 Pct. households $200,000+ income: 30.3% As of 2010, the median income of households in San Carlos was more than double the U.S. median of $51,914. Over 30% of households in San Carlos earned more than $200,000 per year, more than five times the national rate of 5.4%. San Carlos is one of the most expensive housing markets in the San Francisco metropolitan area. Over a twelve month period, ending in October, it had the nation’s highest median home price per square foot at $473 among all homes listed, according to Trulia. In San Francisco, the median age of home inventory was just 45 days as of the third quarter of 2012, according to Realtor.com, lower than in all but seven markets. Read more at 24/7 Wall St.
Avg. listing price: $1,232,167 Median household income: $74,489 Pct. households $200,000+ income: 18.7% Carmel-by-the-Sea, a small coastal city in California, is well-known for its former mayor, actor Clint Eastwood. Currently, the average four-bedroom, two-bathroom home in the city lists for more than four times the nationwide average listing price of $292,152. With nearly 19% of households earning more than $200,000 in 2010, many families and individuals in the small town can afford expensive properties. One house, despite being not much larger than 2,000 square feet, is currently listed for nearly $4.5 million. Read more at 24/7 Wall St.
Avg. listing price: $1,238,208 Median household income: $91,082 Pct. households $200,000+ income: 14.7% Kailua is one of just two cities on this list not located in California. The O’ahu Island city is 12 miles northeast of Honolulu, which had a vacancy rate of 2.7% — better than most areas but considerably worse than the other areas on the list. As of October, the median price per square foot for a home in the Honolulu area was $398, more than in any other metro except for San Francisco. According to Trulia, a 0.75 acres plot of land, which includes 128 feet of beachfront, is currently for sale for $16 million in Kailua. Read more at 24/7 Wall St.
Avg. listing price: $1,312,250 Median household income: $146,069 Pct. households $200,000+ income: 53.0% The average listing price for a four-bedroom home in Rye is more than $1,300,000, or more-than $1 million above the U.S. average. Employees in the often high-paying finance and insurance industries accounted for a 27.8% of employed population in Rye in 2010, well above the 7% average rate nationwide. As of 2010, 53% of households earned more than $200,000 annually, more than any other expensive city, and nearly 10 times the national rate of 5.4%. Additionally, just 1.3% of households lived below the poverty line versus 13.8% nationwide. Among the properties available for sale are a five-bedroom, 7,446 square feet waterfront home for $12.9 million and a 34.2 acre plot of land for $19 million. Read more at 24/7 Wall St.
Avg. listing price: $1,444,214 Median household income: $120,971 Pct. households $200,000+ income: 37.5% Los Gatos is one of several cities near San Jose on this list. Like these cities, Los Gatos likely benefits from the overall boom in the San Jose real estate market, which currently has the lowest vacancy rate of all metro areas surveyed by Trulia at just 1%. Currently, a number of unique properties are available in the city, including an 11,000 square feet property with an eight stall horse barn and a garage that fits 12 cars listed at slightly under $13 million. Also for sale is the former home of Apple Inc.’s co-founder Steve Wozniack. It is currently listed for $4.5 million. Read more at 24/7 Wall St.
Avg. listing price: $1,495,364 Median household income: $120,670 Pct. households $200,000+ income: 39.3% In Palo Alto, 48.7% of adults have a graduate or professional degree — well more than four times the national rate of 10.3%. The city’s proximity to Stanford University, one of the top universities in the nation, may be partly the reason behind the city’s highly educated population. Among the companies headquartered in the city are Hewlett-Packard and Tesla Motors. The city is a large employer of highly skilled employees, as 25.3% of its workers are employed in professional, scientific and management occupations, well above the 10.4% of workers nationwide. Perhaps the most famous resident of Palo Alto is Facebook founder Mark Zuckerberg, who Read more at 24/7 Wall St.
Avg. listing price: $1,506,909 Median household income: $107,860 Pct. households $200,000+ income: 34.9% Menlo Park is one of just four cities where the average listing price for a four-bedroom home exceeds $1.5 million. As of 2010, the median income in the city was slightly below $108,000. However, the recent Facebook IPO has been a windfall to the area. In June, real estate listing service Zillow reported that the “proportion of million-dollar listings” in Menlo Park — where Facebook is headquartered — rose by 87% between the company’s IPO filing and its first day as a public company. Among the houses available in Menlo Park are a five-bedroom home with a gym, theater area and wine cellar, which is listed for $4.6 million, and a six-bedroom 5,200 square feet home that’s listed for slightly under $5 million. Read more at 24/7 Wall St.
Avg. listing price: $1,582,434 Median household income: $145,023 Pct. households $200,000+ income: 43.1% Though home prices in the nearby San Jose metro area fell by 25.1% peak-to-trough, Saratoga is yet another example of how the Silicon Valley housing market has recovered. Currently, the median price per square foot for homes in San Jose is $337, according to Trulia, more than all housing markets except San Francisco and Honolulu. Prices for many homes in the area have skyrocketed, according to listings on Zillow. A home currently listed for nearly $10 million last sold for just over $2.1 million in 2000, while a home listed for $14.9 million last sold in 1994 for just over $1 million. As of 2010, 43.1% of Saratoga households earned more than $200,000 per year, while 40.9% of adult residents had a graduate degree, versus 10.3% nationwide. Read more at 24/7 Wall St.
Avg. listing price: $1,658,000 Median household income: $107,007 Pct. households $200,000+ income: 37.6% Outside of Northern California, Newport Beach is the most expensive city to buy a home. Home prices are so high in the city that in 2009 legendary bond investor Bill Gross bought a nine-bedroom, 11,000 square feet home for $23 million — and then tore it down. In 2011, Gross listed the empty plot of land for $26.5 million. Orange County as a whole has a vacancy rate of just 1.5%, among the ten lowest in the nation. Despite a 32.7% drop in home prices from peak to trough during the recession, Orange County’s median price per square foot is $265. This trails only the Honolulu, New York, San Francisco and San Jose metro areas. Read more at 24/7 Wall St.
Avg. listing price: $1,706,688 Median household income: $149,964 Pct. households $200,000+ income: 43.6% In Los Altos, the average four-bedroom, two-bathroom home lists for nearly $50,000 more than any other city in the nation. According to Coldwell Banker, for that price a buyer could purchase 28 similar homes in Redford, Mich., the nation’s cheapest housing market. In Redford, the average home lists for just $60,490. Currently, asking prices in the San Jose metro area have risen 12.7% year-over-year, according to Trulia. This is more than nearly every other metro area in the country. Read more at 24/7 Wall St.