Popular fitness group Peloton went from being a COVID wonderkid to a bad-boy financial disaster. The stock lost 80 percent of its value in the past few months, and its CEO and founder, John Foley, was pushed out.
A tech investment darling, the New York-based company attracted a pack of all-stars from venture capital and private equity, including Technology Crossover Ventures and Tiger Global.
The COVID bump to the home fitness business was expected to be permanent. It didn’t last. The Peloton situation is proof that some of the smartest people on the planet can all be wrong, when the pack embraces careless market enthusiasm and ignores problems that may be afoot.
The herd mentality has played out many times in history, including with the housing market.
In our industry, the euphoria is characterized by a common sentiment that a real estate market boom can go on forever. It never does.
Spreading the gospel, Realtor optimism is a necessary attitude for their survival. They point to the multiple offers at sky-high prices on a deal that closed yesterday. Turning up the glow, current market snapshots can paint a pretty picture that seems irrefutable.
Compounding the delusion are industry experts who construct forecasts that rarely consider risks to their forever good news outlook. They are not rewarded for negative thinking.
But collective giddy optimism is often a sign that something is amiss. The pack can be wrong.
What am I worried about? Simple: home prices are too high as the cost of owning and transacting have gone up, led by rising interest rates.
Plus, as people return to office work, old constraints on mobility are back in place. During COVID, we were like a flock of birds who could fly anywhere. That trend, like the home fitness craze, is coming to an end.
Wages are rising and savings are ballooning, yes. And the pent-up demand for homeownership is at record levels. For sure.
But our financial confidence is being tested by a bearish stock market, record inflation, the crypto downturn and a daily dose of bad news like a threat of a world war. Egads.
When do more buyers get cold feet?
The last two years, homes were our forced decampment from everything that went wrong in the world. And their new-found value — thrust onto us by COVID — will endure. But it may not be as central to our lives when we are free from lockdown. The home fitness bubble bursting may be a larger signal.
Plus, existential value is extraneous when it comes to markets. They act as they wish, on their own clock, not ours. Check your 401k for proof that your financial expectations did not matter.
What is the best way to make sense of it all? Only try to control what you can. Stay liquid, have a plan B. Be realistic and stay positive.
We are not at our best when we are down and out, in bed with an iPhone and a comforter over our heads, watching Inventing Anna on Netflix.