Friday Update April 8, 2022
454 existing single family homes live on the market today. Inventory is picking up because its April and that's what it should do. I could do the news media thing and say "inventory is up over 50% in the last 2 months, the sky is falling". But that would be misleading, uneducated and wrong.
April we pick up listings, May we pick up listings, June we pick up listings, by July we start to plateau and generally by late September the inventory starts to drop off again. Warmer weather=busier agents.
Interest rates. Yes. Up substantially. Yes. Did I tell you guys before that rates aren't going to go up? No, I said they can't afford to stay up. What happens in the short term is irrelevant why? Because we invest in real estate for the long haul. We flip SPY options when we feel like gambling. Or Gamestop if you're fully committed to degeneracy.
The yield on 10 year treasury notes closed this week just above 2.7%. This puts us at May 2019 levels. In the fall of 2018 we had the 10 year yield over 3.25% with mortgage rates in the mid 5s. We also had roughly 4x more inventory. The housing market did not crash then, although it did briefly slow, and I don't believe it will crash now.
Fun fact I talked about last week, the yield curve inversion. That has been corrected quite suddenly. The yield on 10 year bonds is now like .25% higher than on 2 year bonds. How does something like this happen so quickly? I'm guessing, and only guessing, that the harsh note the Fed took this week implied that they won't be buying a ton of government debt at the upcoming auction on April 12th, which in turn drove the yields up suddenly. We will see how the auction goes and I'll try to remember to touch on that as soon as the results are posted.
Bottom line is the Fed doesn't have to actually do anything to move markets, they just have to imply that they're willing to or are considering doing something. The implication alone is enough to reprice bonds and move the stock market. It's like when you're not actually going to sell your house, but you imply you might, Realtors won't stop calling you.
How about some super partial incomplete data? Sales from the beginning of April till today, we already have 322 closed units. These are your March contracts starting to close out. Median price jumped by 10k to $485,000 and average is over $561,000. The increasing rates so far have not softened the market much if at all.
I'm gonna reiterate something. Yes interest rates matter, and yes they are impacting people's ability to afford and buy real estate. However, not every buyer in the market is as rate sensitive as the next buyer. Not every buyer in the market is buying at the very tippy top of what they can afford. And not every buyer is buying with the intention of moving next year, so they can afford to wait for rates to come down and then refinance.
Now for all the buyers that are getting pushed out by rates right now as you've lost close to 20% in buying power in the last year. What are your options? Wait it out? Maybe, maybe this actually isn't the worst decision since rates rising will ultimately slow the speed at which prices are going up and may afford you an opportunity to pick from a more saturated market later on. But this is a gamble and you seriously need to consider your options. Are you living in your parents basement and stacking up cash every month to be able to pounce on something in a year or two? That's dope, you should absolutely keep doing that.
Are you spending $2,000 a month or more on rent? That's 24k a year getting blown out, guaranteed, for nothing in return. This would make me look at buying in a totally different light.
Are you currently living in a house you bought in the last 10 year and have a super cozy payment, but are just looking around for other options. If you are, you already know what that's like out here. It's nutty.
It's nutty because inflation has found its way into everything at this point. From lumber which is still around $1,000 to cheeseburgers which are now pushing $20 at some places (Till, its specifically Till). There is no avoiding it. You see it, its no longer just me ranting in my blog, it's real. Will there be an end to it? Yea. Probably fairly soon but it's not the good news you're looking for.
Chances are that rising rates and the increasing squeeze on every day people will ultimately take the edge off the 8% plus inflation that we've had for a few months. Chances are people will have to cut back on discretionary spending. This is somewhat apparent in the massive spike in consumer credit in February that saw Americans rack up 42 billion in credit card debt versus under 10 billion in January. People are getting squeezed by inflation, I know I feel it.
So yea chances are between higher rates and less spending we will likely see inflation cool off. If that happens then we may see the Fed soften their stance on rate increases which could then fuel another rush of money into equities and housing.
Long story short guys its easy to print money, its easy for the Fed to manipulate markets, but it is super difficult to make new land, to grow new trees, to build new houses and to do so quickly and affordably. My bet is that in the short term something happens, but in the long term real estate remains a great investment. As they say the best time to plant a tree was 20 years ago right?