Friday Update April 29, 2022

Listen up girls and guys.  Real estate is, has and always will be an inflation hedge.  If for no other reason than for the fact that land isn't being made anymore.  And on top of that very basic reason is the price of commodities that make up each and every house.  More on that later.

With that understanding out there let me rant off on a few things.

Current inventory right now in our MLS at 6:04pm on Friday is 508 single family existing units.  Slightly down from last week and I expect we will see a nice bump next week going into May.  Keep in mind what May means to the real estate market.  Kids are out of school, so you can move easier.   PCS season is in full swing meaning military folks are moving.  And then in general moving in May just is a lot easier than moving in December.  Your beer and pizza offer goes a lot further when the sun sets after 8pm.

It's crunchtime.  Now through late August is go time for the real estate industry.  

Month to date in April we have seen almost 1,200 sales in our local MLS.  Our median sold price is at $480,000 where as our median list price is $460,000.  We're seeing on the median that buyers are paying close to 4% over list price.  This is similar to spring of last year.  This shows no actual weakness in our market.

But what about interest rates murdering the market?  Well they haven't yet, but a persistent push on rates will for sure put a damper in our party.  As I mentioned over the last couple of months I think the price projection for gains for 2022 and 2023 by companies like Zillow is insanely optiministic and I personally feel like we will see 5% or so appreciation in a 12 month period rather than the 20% we have seen in the last 12 months.  Let me rephrase that because I could easily be so wrong.  If you're buying a house today you should hope for a 5% increase in the next year, below the inflation rate, and do not bank on 20%.  Real estate is a long game and the gains that your friends and family had in the last 2 years are not normal nor are they sustainable.  Hope for the best and all, but don't prepare for it you know?

Does what I just said make real estate a bad investment?  No.  Real estate is an amazing investment and if you do it for the long haul an insanely boring investment.  And a profitable investment.  Every single year inflation does you a favor, you bump rents, make your place nicer, bump rents again, rinse and repeat.  Or like don't bump rents, don't fix your place up, slum it up and probably still do fine.  How many other investments allow you that flexibility?

Commodities.  Guys this is a real issue.  Shit is fucked up.  Is that a politically correct way of saying it?  Copper is at its highest level since 2011 and it actually broke its 2011 top.  Copper has never been more expensive than today and that is referring to just the raw material, not to the finished electrical components that go into every house.

Steel has broken the highest levels since 2011.  Steel goes into every single house in the form of support beams, rebar, flashing, gutters and several other ways I can't think of.  

Lumber.  Processed wood from forests is now experiencing speculation akin to I guess every other commodity.  Lumber is still hanging over $1,000/1,000 board feet or roughly 3x as much as we paid before the Covid.  2x4s fell slightly to below 7 bucks at Home Depot, or roughly 3x as much as in 2019.

Plastics are up, steel mesh is up, paint is up, flooring is up, counter tops are up, LABOR IS WAY THE F UP, and the cost of construction is up.  A lot.

What you're seeing in the new build market isn't pure profit taking or greed.   The pricing you see is a reflection of the reality of today's commodity pricing.  Most builders work on a 8-12% profit margin.  So lets look at our local, very limited, but local new build data.

In our MLS we show 185 new built sales YTD, which is way below the real levels, builders step your fucking game up buds!  But on this limited sample size what we see is a median sold price of $647,706 with a median per square foot price of $208.  

Guess what our median sold price per square foot for all the almost 5,000 homes year to date is?  $214/sf.  Original listing price of $208/sf.  Seems like people are willing to pay a small premium for houses ready now rather than wait a year to get one built.  I'm kind of surprised to see this correlation as I was not expecting to find it.  It seems that the cost of housing is very accurately reflecting the cost of the production of housing.    Hey, if you own a house guys, get replacement cost coverage.  A lot of the folks in the Marshall fire are learning that lesson the hard way.  Make your insurance work for you, don;t just pay them for bullshit.

Long story short this inflation isn't transitory.  The Fed is lying to all of us when they make their little cheesy presentations about full employment and price stability.  They fudge the numbers to make their narratives work whil every day working class people take the brunt of the economic pain that our central bankers inflict.

Hard assets that you own outright are your best and only bet out of this garbage system.

#endthefed