Why This 'Inactive Meth Lab' Has a Seven-Figure Price Tag

Peter Karasev wasn't just cooking drugs... he was building explosives, too.

The FBI arrested him in March for allegedly planting bombs that targeted San Jose's electrical grid last winter. When the cops broke down his door, they found a massive stockpile of hazardous chemicals. The police had to call in federal resources to help deal with it all.

Karasev is facing charges... and his house is still too contaminated to live in. But it's up for sale anyway...

On October 14, it was listed on Zillow for more than $1.5 million. Meanwhile, other homes in the same neighborhood are listed for between $1.2 and $1.64 million.

The seller describes the property as an "inactive meth lab." The buyer will be responsible for cleaning it up. What's more, its price just increased by $125,000.

It's absurd. But Karasev's house is a useful snapshot of the American housing market.

It shows us that the supply imbalance of American homes is as severe as ever... and that state of affairs should support home prices into the future.

If something traumatic happens on a property, people may want to avoid it as a result...

When this happens, the property becomes what real estate pros call "stigmatized." In other words, it has a bad reputation that follows it into the market.

Stigmatized properties are notoriously hard to sell. But that may not be the case for much longer...

According to a recent Zillow survey, 35% of homebuyers would be willing to buy a haunted house if it were cheaper than the surrounding market.

That's because the real boogeyman in U.S. housing is affordability...

According to the National Association of Realtors ("NAR"), homes in America have never been less affordable. We can see it using the Housing Affordability Index.

NAR publishes this data every month to track "how much house" a median U.S. income earner can buy. When the index is at 100, it means that a typical household salary can cover the payments for one home. When it's at 200, the typical salary can pay for two homes... And so on.

Today, affordability is at just 91.7. It's the lowest level since the index began. Take a look...

Today, a median salary isn't enough to cover the cost of a home payment.

You might assume that buyers would avoid such a brutal market. But folks are undeterred...

Last month, new home sales soared more than 12% to a 19-month high. And homes are selling about 34% faster than this time last year – despite all-time lows in affordability.

In other words, homebuyers are holding their noses and buying whatever property they can... even if it's stigmatized. And the reason is simple...

We have a drastic undersupply of homes in America.

The U.S. needs 2 million to 6 million more housing units if it's going to meet demand. That kind of shortfall won't end without significant effort and investment in new homebuilding.

Until that gap closes, expect to see more price tags like the one on Karasev's "inactive meth lab."

There may have been a time when stigmatized properties would send buyers running the other way... but today, not owning a house is worse.

Good investing,

Sean Michael Cummings

Further Reading

Mortgage applications are way down since 2021... Yet despite the pain in the mortgage industry, home prices have barely budged. We haven't seen a crash. And that tells us one thing: So far, housing is passing the "stress test"... Read more here.

"Housing inventory has been on a one-way trip lower since 2007," Brett Eversole writes. The U.S. underbuilt for years. But one measure shows that the supply shortage is even worse than it seems – and it's one more reason high prices are likely here to stay... Learn more here.

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