Friday Update April 23, 2021

That's four twenties on the photo.  Haha get it?  Or are you all still too ripped from Tuesday?

361 single family existing homes for sale here in El Paso County.  Roughly the same as last week and far from enough.  I think enough would be like 2000 or more.

Interest rates on mortgages dipped back down a bit.  Rates on the 10 year T bonds dropped from a high of 1.74% a couple weeks ago down to about 1.57% now.  When these yields are adjusted for inflation you get negative yields.  There is a product the US Treasury sells called TIPS which stands for treasury inflation protected securities.  These basically yield the true yield after inflation, this weeks auction for the 5 year TIPS had the lowest yield in history at negative, yes negative 1.6%.  As in every year you actually lose money on your investment.  Who buys such garbage notes?  The Fed.  Why would they do that?  Cause they're doing using your money to do it.

How does this relate to real estate though?  Negative yields explain why people aren't selling real estate.  For example I have a couple of rental properties.  I have a good amount of equity in both.  I could cash them out and pay something like a 20% capital gains tax and then watch the rest of the money get devalued by inflation quicker than anytime since 1974, or I could take care of my tenants who take care of me.  Easy decision, oh and I'll take the depreciation on my taxes too thank you very much.

If real yields were substantially higher investors would have other options for investment, the way it is now real estate is one of the few safe havens that can guarantee a rate of return AND is tangible.

Funny news story from yesterday.  President aviator shades proposed this idea that maybe he wants to raise the capital gains tax rate from 20% to just over 39%.  The 21 year old Iggy inside of me says do it!  Don't be a coward Joe just tax the shit out of the rich, eat the rich Joe, we need equality in this world right?  Well 35 year old Iggy sits here thinking man, if that was to actually happen no investor would sell anything unless absolutely forced to do so.  That would remove even more inventory from the market and drive prices and rents even higher.  This is how trickle down economics actually works.  The government forces higher costs onto owners, who then pass them down onto the tenant or consumer.  My personal opinion is that you don't solve a housing crunch by taxing it further, that's delusional.  I know the proposed tax increase isn't specific to housing, more aimed at stock traders, but it would have an impact on housing too.

Another funny news story from this week coming from Denver.  They have this idea to require rental licenses for every long term rental unit in the city.  Short term rental permits like for airbnbs are a common thing around the country, and apparently long term rental permits are required in about 60% of American cities.  That's the context. 

The idea in Denver is that the city wants to track their rental inventory as a whole, which seems rational.  They want to ensure that the rental stock is up to some sort of code and that basically the properties that are being rented to people are fit for living.  All of this seems pretty fair.  They would like to charge a relatively small fee for the licenses which isn't an issue, and then they propose that a home inspector (who isn't licensed by the state since Colorado doesn't license home inspectors) would come into your rental property and perform a home inpspection. 

You as an owner would then be required to remedy the problems the home inspector finds.  Failure to do so would result in fines and the requirement that the tenant would then be allowed to live out the rest of their lease there without having to pay rent.  This is so wildly stupid that it's hard not to laugh about it. 

To recap the city would require the homeowner to hire an unlicensed person, who basically has to take an online class to be deemed competent, who then rips apart your house with their opinions and then if you refuse to fix the real or imaginary issues you will be fined and stripped of your income.  Fuck.  That.  All this will do is create a black market for rentals and drive the rent up across the board.  If the city wants to catalog their rental inventory they can do a census survey.

Back to ranting about debts and deficits.  In 2012 our national debt was about 15 trillion dollars, today it's over 28 trillion.  We're going through a curve that many pyramid scheme ahem multi level marketer people know as critical mass.  This is the part on the exponential curve where the line goes from being relatively horizontal to going relatively vertical.  Being that we live in the United States we are fortunate enough to have our debt denominated in American Dollars that we print.  This allows us to take our roughly 4 trillion dollar federal deficit for the year 2021 and just "print off" the money to cover it.  The Fed buys the treasury notes which yield negative real rates because they don't give a shit about the return, and the Treasury in turn cranks out the currency.  Sounds great right?

It's fantastic news if you own tangible assets and trade commodities.  Every single year that we run a budget deficit more money is printed into existence which dilutes the cost of debt service on existing loans.  It also drives up the price of tangible assets such as real estate.  So while the average person sees sticker shock of a $7 2 by 4 (which will be $9 here shortly) or maybe the median price of a home here locally of $423,000 investors and owners see massive profits.  Being that those are the people writing laws and sponsoring congress I would not expect any of this to change any time soon.

And as far as the "free market" is concerned, that died a long time ago.


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