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The second hand market will become much more turbulent. I think theme by theme we will see highs and lows. For example, with the 10 year extension to the SW line all those older sets are going to get redone and therefore the second hand price for the older sets should drop. As an example I wonder what the price of the 2003 Jabbas Palace will become in a few months now the truly great remake has been produced? But say in 10 year the SW licence is dropped we would probably see an increase in all SW Lego prices in the second hand market.
Overall older set prices will be governed by popularity, as people have said, classic space etc do well as they are loved and sought after by 'collectors'. But as almost all collectors by old and new, and often many new sets if they have children of their own, the overall price of the new Lego sets will have a bearing on the second hand market, after all people only have a finite amount of money and if you have to pay £100's for a new set you can't pay that for an old set, choices, choices...
Now to disagree :-D.
I think there is plenty of evidence to show a complete disconnect between the actual value of lego and what people pay for it. The example I will choose to use is Cloud city. This, whats is admitted by all to be a poor set, had a RRP of £60. It now sells for £300-400 mint. That, via my terrible maths, is roughly 6 times increase. Now if lego produced cloud city exactly as it is and charged you £400 for it you would never pay for it. But people wanting it to complete their collection have taken it way beyond a reasonable price point for it.
Granted not every set does increase but I would say that 80% do.
I feel, as well, you contradict yourself. You seem to say that a bubble is caused by people paying way more than its intrinsic value. But that collectors paying way over the odds for a set does not cause a price bubble. Actually it is collectors paying way over the odds for something to complete their collections or build that drive up prices that create a price bubble. They are willing to pay way past what a sets is actually worth to finish the set. These aren't as you argue slight price growths these are massive increases. But what happens when they have got the sets that they want or prices become unaffordable which is where some sets are heading. Those prices crash. This is happening at the moment.
We are very much in a bubble and at some point its going to burst. Fortunately I don't resell. So im not fussed if it does.
You mentioned, "...if lego produced cloud city exactly as it is and charged you £400 for it you would never pay for it..." I think you are obviously correct. However, that would be an entirely different scenario, as supply would exceed demand. As it is now, demand appears to exceed supply, so that would explain the higher price on Cloud City. Just like almost any free enterprise, it all boils down to supply and demand. What something is worth, is entirely up to the market, generally speaking.
The free market is comrpised of all types of people, including people such as yourself that assert something is only worth so much, but also other people who assert that same something is worth more. Something, anything, is worth what someone is willing and able to pay.
There are lots of financial rules and definitions about what constitutes a "bubble", including, in some texts, the use of leverage to fund purchases (in spirit of the previous post we could debate how to pronounce the "lever" word either side of the pond - alright, it's a Friday night here and I'm not feeling entirely serious :-).
However, for me what would make this a bubble is where people are prepared to pay something for a set, not because they actually want it, but because they think someone else is prepared to buy it later at a higher price. And I don't mean here buying sets at RRP to resell at something above RRP, but if for example you get to a position where a set exchanges hands several times from one reseller to another at an increasing rate, that looks like a bubble. This is when you start getting capital in from outside of the normal lego market which increases the market price it appears people are willing to pay.
If it is just that "collectors" (or very keen "consumers" in prof's terms) are prepared to pay a high price to complete their collection, then the set retains some "value" for them over and above the price, because of the desire to be complete. So they may not be as valuable in future if not as many people want to collect them, but that misses the point. The action above though does force the price up and desperate collectors to pay more than they ever wanted to.
So therefore I see some sets where there is just a short supply relative to "collector" demand which just supports high prices (you could argue this about certain pieces too on Bricklink), and others which seem to have got(ten) into bubble territory because people are buying them sealed in order to keep sealed only for the purposes of selling on at a later date. Ultimately this is the bit that I think looks questionably sustainable. We could probably all put forward examples in each category - I can see Cloud City being more of the former (the price has stayed around £300-350, and to me it looks like completists), whereas the UCS Falcon could be another sort.
Many financial bubbles tend to last longer than any rational valuation might suggest, because people observe others getting in at lower prices (and making money) and the peer pressure to follow suit comes.
So now I must have my 2 light bley boat riggings at $170 each, my friends just got them at $120 and I'm missing out!
But the reason that the prices are increasing is because collectors assign high value to those sets in order to complete their collections. The intrinsic value of those sets lies in their rarity and desirability. The disconnect would come if large numbers of people started buying second hand sets solely for investment purposes based on the belief that they were justified in paying ever higher prices because they will be able to turn around and sell the sets later for even more than they are paying. There may be a little of this going on with certain sets, but I have certainly seen no evidence of rampant speculative buying of sets after they are EOL and have doubled or tripled in value. I sell a lot of sets both used and new, and my experience has always been that the people who are paying 2x-4x RRP are generally buying sets for personal use or for their own collection. I do have some transactions where I am clearly selling to other resellers, but those sales typically happen when I have been able to buy sets at 75% off RRP and can afford to sell them in bulk after EOL for less than RRP and still double my money. We are certainly in a period of extreme popularity for Lego, but I see no evidence of a bubble. For there to be a bubble, it would have to be conceivable that prices for sets like CC or MF could fall 50%-100% with no buyers in the market willing to pay the depressed prices. Can you see that happening? I can't.
If Lego produced it in volume, they could never move very many of them at that price, but keep in mind that the set isn't moving in volume, it is moving in a trickle.
According to Bricklink, in the past 6 months, 62 total units have been sold marked as "new", but since the min price was $5.99, someone clearly sold either a minifig or box or something that isn't a complete set there.
So the average price of $462 perhaps isn't an honest one. The max price is interesting, someone paid $990 for the set, probably mint perfect condition from someone willing to ship overseas.
The Lego Group is not interested in making Lego sets that sell 62 units in 6 months, they want to move 62 units a minute. That is why they would price the set at $60, because it will move hundreds of thousands of units at that price, but only a few hundred at a much higher price.
Cloud City, the lowest new sealed price on BL is $938, and that is a Hong Kong seller...
In the USA, there is a seller at $975, then it goes above a thousand... For a set with 698 parts?
In my mind these prices have been caused when we werent in recession people could splash £400 on a set and it would not be a problem. If the good times had continued then it would have pushed prices further. Like the housing bubble people were valuing their homes at stupid prices because people could pay for it. However once people stopped being able to pay for it then thats when it burst and people suddenly found themselves in negative equity. The same will, if the outside world doesnt begin to recover, happen to lego. There comes a limit when something cannot go up any more and it doesnt level out it has to come down. I am again going to respectively disagree with you again. If you look at the other post on re sellers there are a number of examples of people who are using it in the hope it will increase with value. Ill use @LegoFanTexas as a example (sorry LFT). He has just begun reselling lego as his main business. He goes and buys a few sets in the hope that they will increase in value for him to make a profit. Again I dont see there being anything wrong in this, I use him only as an example. However he is (and im sure he may agree a little) is speculating that these sets will increase in value. Sure not every single one is success. Atlantis is hard to shift but others he will make a very nice profit on. But he is banking on their being a price increase. And from some peoples behaviour in shops. Especially, being in the UK, over the sun promo. People are doing exactly the same thing. Like people did in the property boom. They would buy land cheap build a house and then hope that the market would allow them to sell it at a profit. Again nothing wrong with that but people have to realize that things might not always carry on up. Actually I can, if this depression continues then you will start to see prices fall because people wont be able to afford them. Also if collectors carry on bricklinking things rather than buy on the second hand market then to try and move those ten death stars will be harder as those who want it have gone and bought it. And to them its a lego set that they own and can tick off the wanted list. So that leaves only a few people who can afford to pay the prices but that soon becomes unsustainable or kids who cant afford either to brick link it or buy it at the cost.
Further to my evidence for a price bubble I would like to quote some of the above examples. As Ive said I have no issue with prices going up. However I feel these reflect price points which at some point will become unsustainable.
I recently purchased a new in box UCS Darth Maul (probably to go along with my new Darth Texas name). :)
Paid about $650 for it, and I will open it and build it and enjoy every bit of it, and that takes one more of those "sealed" sets off the market forever...
Just yesterday, I opened my last Green Grocer I had been saving to sell... Building it this morning, that takes one of these sets off the market forever...
As an AFOL, the sets have an inherent value because I can always use new pieces and I am not borrowing money so if I have to wait a year or more before selling I can live with that. If the going rate was below cost I would probably prefer to build than sell.
I think the market demographic is also important. Most AFOLs are fairly well off, maybe not the top 2% but let's be honest, Lego is a luxury toy/product and that demographic would be somewhat insulated from the first round of layoffs (I'm well aware that many of the middle class lost jobs in the recent recession) but I feel that most engineers/computer science jobs are doing well.
The tulip mania had a consumable product but i guess it was different because production wasn't controlled by one company. I won't say it will never happen but if it does it'll be a great excuse to open those sets.
Also, there is no real analogy between the housing market circa 2003-2008 and the current market for Lego. The run up in the housing market was driven by the availability of cheap credit and the aggressive sale of mortgages. There is nothing comparable happening with Lego.
As I have freely recognized in other posts, this certainly goes on and I am aware that it goes on. However, to have this type of behavior create a bubble, it would have to the be the primary driving force behind the run up in value of sets like MF. The reason that the price of tulip bulbs soared in Holland several hundred years ago before crashing and the price of stocks soared in the 1920s before crashing was largely because speculation was the primary driving force behind the market. There are always speculators, but bubbles form when the speculators are driving the market because at some point people stop being willing to take the risk of further price increases and the market loses its liquidity, which is when the crash happens. The problem with this theory is that the run up in prices of many sets has happened during the recession. Also, the option of bricklinking EOL sets exists now, but does not in any way stop sets from increasing in value after they are retired. If you think that the market for the MF and CC could dry up over night, you're dreaming. There are plenty of people on this board who would snap up CC or MF if the prices started to fall. The fact that there are sets that sell for a lot of money does not necessarily indicate the existence of an asset bubble. I agree that the prices of certain sets are unsustainable and will likely fall over time. At some point, interest will wane or people will move on to other things. However, the natural ebb and flow of a market is very different from the creation and deflation of an asset bubble.
I believe that the crash really started to bite 2010 but that is based off my experience here in the UK. However recessions dont bite automatically. They are like a large avalanche they start slowly and then gather pace as long as they carry on. No the run up did not happen when the economy was booming, But as I have said recessions dont arrive straight off; and this in my opinion is what allowed those prices to rise. If people tried to do the same now I think they would struggle and the price would reflect its intrinsic value. Look at Obi Wans fighter that is an awesome set worth every penny and I would say alot more. However even though it sold really badly those prices haven't shot up its barely making its RRP as people know much more what its worth. And I think this is something we will see alot more of as people either cant sell the expensively priced set and this will cause the price to fall. Not because they dont have a high intrinsic value but because the days off asking 3x the RRP of a set, I believe are over. Again I refer to the resellers post (and before I get jumped its not everyone) that actually in my opinion it is becoming the major driving force behind the hobby. With the rise in legos' popularity, which is only a good thing, there are an increasing number of chancers from outside the hobby who see lego as a way to make a fast buck. Again my experince with the Sun lego Promos suggests this is true. People who are clearly not lego fans buy 40 sets to then resell. But with lego fans aided by sites such as brickset it is becoming harder for those people to shift the sets. And as they hang about they will lose interest in the hobby and go to something else and you will see prices crash as the chancers pull out. No I completely agree with you the bricklinking options wont stop sets increasing at all. But I think it will mitigate prices as well as effecting thoses that currently are going for alot of money.
I dont believe we will see a complete slump in prices at all most sets will slightly increase value. even when the bubble bursts. I certainly dont think the market for the CC or MF would dry up over night. But as you say for them to purchase one prices need to fall and I don't think it will be slow fall. At the prices they are commanding it will be a quick drop especially once lego becomes more underground again. Again for the points outlined above, I am going to have to disagree. I believe there is a difference between high prices for some thing that has a strong value naturally such as gold. And the prices we are seeing for lego. These are in my view far to unsustainable for something that doesn't have the value of what some are demanding. And wont create a slow decline but a rather sudden drop. My prediction is that we will see a quick price drop for most sets to perhaps 10 to 20% above there RRP, rather than a slow decline. Of course its something we can only guess at until it happens.
Neither of those practical uses requires Gold to be at $1,600 an ounce.
Diamonds are an even better example, there is a bubble if there ever was one... If the cartels ever lose control over the diamond supply, the price of diamonds would falls like, well, pretty rocks... :)
While they probably won't rerelease sets, they could, or they could provide the parts via PaB to do so.
Something I've started looking at is the part out value of sets on Bricklink. How far above or below the "set" value is the "parts" value.
If the various parts in a set are expensive by themselves, perhaps the set should be expensive. According to Bricklink, UCS Falcon is about $2,400 to put together new right now from parts, and a few of those parts aren't for sale at all.
If that is the case, $2,500 for a sealed in box copy of that set may be quite reasonable, all things considered... or not, perhaps that $2,400 parts value is because of a small number of rare parts that are only used for UCS Falcon and people trying to bricklink the set are running up the prices of those parts.
If TLG started making those parts again, even if only to sell on PaB, what would happen to the value of UCS Falcon, both new and used?
*But I did cave and picked up the radardish for extra $. Also already had 21 of the 60 levers, rest substituted with old light gray for now until I find some more.
No, I don't believe so, not in the macro sense. But yes in certain areas. There a a few dimensions to this.
First, look at the raw materials. Lego is made of oil - a declining resource that ain't ever going to get cheaper in the long term. Lego MAY find a substitute for oil, but that's a very long way off.
What about production costs? Manufacturing techniques might get cheaper, but major drops in production costs are unlikely as wages in China (and other skilled labour) are only likely to increase. This would probably not offset rising raw material costs.
Then look at competition. Over time Megablocks, Knex etc will only be going in one direction - getting better. This always happens when you get this kind of aggressive competition - they'll scoop up old Lego employees, learn by inherited knowledge and trial and error how to improve production and set design, and the gap will keep getting smaller. There's too much money at stake for them not to - Lego has a very nice position and others want it badly. If this competition ever gains enough traction to make the Lego brand look inferior (looks impossible now, but no logical reason why not) then the 'bubble' will burst, but it will be a very slow 'burst' that might take a decade so not really bubble-like behaviour.
Then look at demand. Demand for Lego goes up during recessions. The Asian market has barely had it's surface scratched by TLG (except maybe Japan/ Singapore). I also think the backlash against video games is a long term trend, and parents will be inclined towards Lego for some time to come. So IMO demand is unlikely to tail off any time soon.
When you come to the secondary market it's a different kettle of fish. Sets might lose value due to 'modern' competition - either due to rehashes or better designs than old sets. 'Replaced' sets will burst their bubble pretty quickly. One good example recently was the drop in the studios vampire set when the CMF vampire came out. The intrinsic value (the vampire minifig) sudenly disappeared due to 'competition' from another set. That's definitely a bubble.
Then there are over-stockpiled sets like current modulars & UCS. The FB & IS will show us by how much the bubble will burst on those when they EoL. By the way, I don't think there's much point in pursuing this line of thought as this thread is in danger of becoming the 'Predictions on ... Secondary Market Value' thread, but you get the idea.
So the short answer is ..
Primary market = No.
Reseller market = Yes or no, depending on the theme/ set.
One thing I will say, is that I have never in my personal view 'over paid' for a set ever. Would I like a UCS Falcon, of course, but I am more than happy with my other sets like the UCS Shuttle etc, so I don't feel even the slightest need to spend vastly over rrp on that, it's not like there isn't plenty of great choice from Lego these days.
In fact, the only item I can ever remember buying for over rrp in the after market in the last few years was a MISB sandcrawler that cost me around £120. So circa £10 over rrp. Virtually everything I buy now is well under rrp, so even if there was a bubble, sets would need to fall vastly under rrp for my collection to be hit, and in addition, that would assum I want to sell it, which the vast majority I don't.
First "the challenge" of getting the parts, going through sellers trying to get the best prices, coupons, digging into PaB, eBay, and so on...
Second, "the feeling" that you are not paying top dollar for a set to 1 person (even if at the end you spend more or less the same ammount, but of course distributed through a long time, this may be more affordable to a lot o people), it is like "cheating" them out if you get what I mean, this feeling may be childish, foolish, or even self deception, but it may be driving force for this also.
Your belief that an asset bubble would form during the recession does not make any sense. When recessions happen, people have less money to spend. Less money in the market inhibits price increases by depressing demand and price competition.
I think there are a large number of people who would disagree with you that Obi Wan's Starfighter was an awesome set. And the reason that we're not seeing a run up in its price on the secondary market is that (a) it was not a hugely popular set to begin with, (2) it spent a substantial portion of its lifespan being sold at a 25% discount, and (3) it closed out its lifespan being sold at a 40% discount (and, even at that, it sat on [email protected] for several months before selling out).
But this ignores the fact that there were huge price increases in second-hand sets before all of the chancers got in. I have been reselling both new and used Lego for about 6 years now and have watched the various gyrations in the market. What is happening now with the rise in the number of resellers is that prices on the second-hand market are not rising as fast as they used to. While this will have the effect of weeding out some opportunists, it is not going to cause a crash in the market. If the chancers pull out of the market, that will cause prices to rise because it will limit the supply of sets on the secondhand market. For a crash to occur, demand would have to evaporate and I have seen no evidence of demand dropping. Also, if you track the price of secondhand sets over time, there are very few (if any) that ever fall below the lowest discounted price for which the set sold before retirement. Doubtful...Bricklinking retired sets is a pain. Prices would have to rise very high to mitigate the hassle involved in acquiring used sets this way. If you don't think that prices will fall considerably when "the bubble bursts," then, by definition, we are not in an asset bubble. If we were in a bubble, it would mean that set prices have become fundamentally disconnected from the actual market value of the set such that, at some point, demand would dry up and cause prices to fall rapidly. I think you are confusing the natural ebb and flow of a market with the formation of an asset bubble. Gold is a perfect point of comparison, but I have to run now. Just ask yourself this...why does gold have a strong natural value?
Price bubbles can easily form especially as the second hand market is a very different market from that of the main one. In that we are dealing with people what they do is not look at what is selling but what will make them money and because lego has gone up and is selling well especially in a recession. They jump on board to make money and push prices up beyond what is the value of a set. Of course there are price increases as you say: Of course there have been increases but I would argue that they were not as many as there are now. What we are seeing especially now is a large scale rise in prices that are taking it beyond reasonable price increases. My example would be alot of the Ninjago sets have seen high increases from what they were on sale for. Now I dont argue that these prices will rise. What I do argue is that these sets have been pushed past there intrinsic value. True it is a pain but in my experience it is something that is becoming much more common. Of course as this is a new thing we can only wait and see what the effect will be. It seems to me unclear at the moment. Sorry I dont think I was that clear with that point. What I mean is I dont ever believe that prices will fall below RRP but they will fall and quickly especially if people carry on not buying the expensive sets. For some thing to fall from £900 to £90 (im using cloud city) is a massive price drop and to me defiantly shows a price bubble and not a natural ebb and flow from the market. Hmmm being a Historian Im gonna struggle on this one economically but I would say from a human point of view, which is clear through history. The reason gold retains a high value is that we associate it as being a rare precious metal, which if we can coat ourselves in it as much as possible displays our large wealth. By buying it we display that we can afford high end materials and we are powerful. So it retains its high value as jewelers and others know that it will sell well. I couldn't however say the same for lego, you would just look strange if you covered yourself in it.
As a complete aside do you resell as a main income or is it a side thing? Im just being curious.
How on Earth did you do it? I suppose it is possible there is something wrong with Bricklink's part out program, but when you ask it to tell you the cheapest cost for all the parts in that kit new, the number is $2,439.49, with the average 6 months sales number being $1,499.88
That includes all 5,181 items in 274 lots.
How you managed to get it done for that price, I'm quite curious...
Recession, depression, whatever...the LEGO prices are heading north. Somebody has money out there to buy these retired sets. As for the new LEGO sets, TLG has increased profits 7 years straight, through some of the most trying economic times of the past century, so kids and AFOLs are snapping them up in mass quantities. There is a passion for LEGO bricks that is rivaled only by rooting for sports teams IMO.
Bubble or no bubble, I'm not smart enough to figure that out. What I do know is that with each retired MISB LEGO set that is opened and built, the MISB LEGO sets that I have increase in value ever so slightly. And these retired LEGO sets are oh so tempting...sitting there in that beautiful box, with all those gorgeous pictures on it...quietly whispering in your ear..."Build me...Build me."
I can't explain my passion for these sets, but it is people like me fueling this LEGO secondary market and possible bubble. I love these little plastic bricks and will continue to buy them in mass quantities until I run out of space to store them. Great topic by the way. Some very smart and passionate people post in these forums and I enjoy reading their comments. Just my two cents...
I think you'd be shocked at how many parents spend $150 at the drop of a hat on their 8 year old, when clearly parts will be missing very quickly.
The sales rank on the above Barbie house tells me they are selling a thousand or more of them a month right now, they'll sell tens of thousands of this item come Christmas time, and 100% of them are going to kids (or at least 99% of them).
There are quite a few well-off parents that buy anything their child points at, there are many more who will spend this kind of money on toys in general, much less "educational toys", which is what Lego is often referred to.
The number of Power Wheels running around my neighborhood right now (I've seen two drive by today) tells me that these price points are not a problem for a segment of the population.
BTW, I do fully understand that there are many parents who can't afford this stuff, and our views are often colored by our own views and experiences, however I have personally watched multiple mothers buy 10188 for their kids in the Lego store, the feedback I've gotten from Lego store employees is that most of these sets are going to kids.
Yes, there really are that many parents who will spend $400, much less $150, on their kids for 1 toy.
I'm sure they exist, but I don't think many parents buy their kids multiple $150 Lego sets. Just my opinion, I may very well be wrong.
Every industry has a chance of collapsing, but Lego shows no signs of slowing down.I know they have gone through some troubles here and there, but they are putting out great product right now.
Again, with the sports card comparisons. Outside the US, baseball, basketball and especially football isn't all that popular. The bubble burst in that industry because too many companies put their hat in the ring and the market was flooded with cards are every kind. Outside Lego, what company has put out a quality building product along the lines of as Lego? If anyone says MegaBlocks they should be cast into the pit of carkoon.
I'm not asserting that Lego's popularity could not fall off a cliff for some reason; of course it could, for any myriad of reasons. And as noted by many here, there are many arguments for and against the presence of a bubble. But if Lego demand were to dramatically decrease, it may be for reasons slightly different that the reasons that led to the demise of the baseball card fad, a major one of which was the internet.