First Friday Update May 5, 2023

We made it through April and now it's Cinco de Mayo.  I hope you're reading this hung over after eating all the tacos and drinking all the Corona or Modelo or Whatever you're into.

Inventory ticked up ever so slightly over last month to 882 available single family homes on the market today.  The last roughly 2 months have seen a serious shift in the market from a slowing and much more buyer friendly market to a resumption of the shit show we became accustomed to in 2021 and 2022.  I don't have a great explanation for why this is happening aside from maybe people feel like prices will only keep going up and are FOMOing into the market despite the >6% rates.

This morning I submitted an offer and was 1 of 21 offers on the table.  Earlier this week we we're one of 6 with another client.   And so on.  

The month of April saw our median sold price rebound to $460,000 with an original list to sold price ratio of 100%.  The weakness that we saw in the market early in Q1 is completely gone and aside from #pikespeak I have no real rational explanation for what happened.  It's like the weekend that the SVB bank collapsed the housing market kicked back into gear.  It's weird, I don't fully get it, I super don't trust it and I am taking advantage of the timing as I literally just now listed one of my rentals for sale.

April of last year saw about 50% more sales volume than 2023 and at a median sold price of $485,000 with over a 103% original list to sold price ratio.  So while the market is picking up steam and showing signs of exuberance we do still have some room to go dumber to get to where we were last year.

The yield curve is literally screaming at this point.  The yield on 10 year T notes today finished the day at 3.44%.  That 3.4% level has held as a support like 3 or 4 times over now.  The yield on the 3 month bonds is 5.26% and the yield on the 4 week bonds is 5.47%.  The bond market is basically screaming that the amount of short term risk in the system is dangerous, yet the stock market and obviously the housing market are showing no real signs of fear.

Earlier this week gold briefly touched an all time high before peeling back a bit.  That's not generally something that happens during times of robust economic growth and certainty.

March data from the El Paso County trustee shows no uptick in foreclosure activity.  We had 82 properties go to sale in March, 91 last March and 81 in March of both 2018 and 2019.  So no huge flood of foreclosures hitting the trustees sale.

We're in such a weird predicament right now that I've discussed before.  We have something like 99% of all current mortgage holders in mortgages with rates that are lower than today's market rate.  People took the opportunity to refinance between 2020-2022 and everyone that bought during that time got blessed with historically low rates.  Those folks now have next to no incentive to move as any move they make will end up costing them significantly more than what they're paying.  Like check out this scenario from real life of a guy I know here locally.  He bought a house in 2021 for like $335,000 and his payment is something like $1,600 a month.  That dude could probably list that house today for something like $400,000, make a few bucks, and the next buyer's mortgage payment would be something closer to $2,700/month.  Why move if you don't have to?

And so people aren't moving, and so inventory remains relatively low, and so prices remain propped up.  And I've been wrong many, many times before.  But what I think is going to happen is that the yield curve will correct, we will have some kind of a black swan event like maybe the US defaults on it's debt or something, and rates will come down significantly.  Once rates drop to a more manageable level like let's say into the 4% range there will be a lot more sellers that will consider moving.  A lot more sellers means a lot more inventory competing, and a lot of sellers with a lot of equity means that there will be room for folks to reduce prices without losing their asses.  I truly believe there will be a sweet spot where rates drop and prices do too as inventory picks up.  I do not think that when this happens that the news cycle will be talking about a booming anything market.  I think there will be a lot of fear out there and I really wonder if it will feel like 2011-2012.  That's what I'm betting on personally and I'm putting the first house I've ever owned up as a bet on my idea.

It really is hard to make sense of all the conflicting data that we're getting.  We have layoffs surging across multiple large companies while the unemployment rate drops.  We have productivity numbers dropping while the cost of labor is going up.  We have a healthy uptick in average hourly earnings and a large jump in consumer credit usage.

We have $31,727,xxx,xxx in national debt.

Our Federal Budget deficit is at $1,423,698,xxx,xxx

We spend almost as much on our debt service as we do on our military, give that a minute of thought.

At our current pace within 4 years the national debt will exceed 42 trillion dollars and the cost to service that debt will roughly match the amount of money it takes to fund the social security program.  Debt service will run almost double the military budget.  Think about that for a minute and realize that we will be throwing as much money at just interest payments, mostly to the Fed, as it takes to fund social security for an entire nation.

Keep in mind that while historically other countries, most controversially China, held a large portion of America's debt that is not really the main story today.  While foreign nations do hold over 7 trillion of America's national debt the Federal reserve holds over 12 trillion of it with the rest chopped up between financial firms, pension funds, individual investors, municipalities etc.  Point being though that over a third of our national debt at this point is held by the very Federal Reserve that allows us to create the debt in the first place.  It's like being able to print money out of thin air, collaterize that bullshit money with tangible assets, and then hold the note.  Amazing hustle, Andrew Jackson (the guy on the 20 dollar bill) is probably rolling in his grave.

I realize I'm getting into some tinfoil hat shit and I'm probably losing some of you at this point.  Andrew Jackson was able to shut down the first American Central Bank that he referred to as a den of vipers and thieves.  About 80 years after his death the filthy shit reanimated itself as the Federal Reserve we have today.  And since that day in 1913 the US dollar lost something like 99% of it's buying power.

So as we continue up the hockey stick of the exponential curve of debt I think it's important for us as Americans to at least ponder some questions.  Who do we owe all this money to?  Why do we have this political theater about a debt ceiling yearly?  How is it that the most powerful nation in the world is a debt slave to an entity it chooses to allow to exist?  How does this benefit you, your children, your grandchildren?  Just some stuff to ponder on.

Big brain shit though guys regarldess of what today or tomorrow is like people will need housing.  There is no AI algo that will be able to solve the human need for shelter except the "detroy all humans" algo, which if that happens then you know, who gives a shit about anything then right?  But barring the fact that T1000 and all his AI homies from skynet come to eliminate the human race we will have a need for housing.  Tangible things like places to live will always hold value regardless of what the monetary system is up to.  Monetization, remonetization, dollars, pesos, rubles, euros all of these things they happen and they come and they go.  And yet people live in houses that are sometimes older than the currency.  Real estate has the capacity to survive revolutions, wars and changes of the political lines drawn on maps that we call borders.  Owning a little piece of the world gives you the certainty that maybe you do have a purpose on this planet.  Even if it is just keeping code enforcement off your ass.