Friday Update August 12, 2022
Word is bond we have 1,751 existing single family homes available for you to make a lowball offer on today. This is about 100 more than last week and our trend of rapidly climbing inventory continues.
For the record in April we had less than 400 SFR units on the market. So like yea, this isn't the sellers market you've been hearing about anymore. Now its not a reason for panic as there are still buyers out there, just not at the price they would of paid 6 months ago.
The way our MLS tracks active listing data is MLS wide single family and patio homes. Our MLS covers roughly the Colorado Springs MSA plus a bit into the surrounding counties. This time last year we had 1,009 total active listings by that metric. This February of 2022 we had 487. That same metric today we have 2,793. That's a huge shift in a very short amount of time. These spikes in inventory levels are happening across America. That's important because the rate of change in pricing in various areas will impact migration patterns within the nation. Areas where the prices drop more than others may attract more buyers to move there. Areas where affordability issues persist may see their populations decline.
I hate to tell you this but Colorado Springs is not the only city with military bases and close to mountains. Colorado Springs also has notably less problems than a lot of the cities on either coast, so while we're not uniquely amazing we're also not doing remarkably bad.
619 price decreases in the last 7 days is on par with what we've seen over the last month or so.
Our foreclosure numbers are running steady and below 2019 levels. July 2019 we had 79 foreclosures here locally and this year it's 58. The whole foreclosure system is resetting after the massive and illegal over reach by the CDC with the whole foreclosure and eviction moratorium. Those jack asses created a backlog and artificially kept housing inventory from turning over which in turn helped drive up pricing on rent and sales. I'll keep an eye on foreclosures as some smart people are expecting a spike towards the end of this year and into next. I don't doubt it, and time will tell.
Interest rates keep bouncing around within a range but have been relatively stable since peaking in mid June. Yields on 10 year t notes are at 2.84% and yields on 2 year t notes are at 3.25% giving us an inversion of 41 basis points. This again is like a flashing red light for upcoming economic conditions but the stock market is brushing this off and responding with pure FOMO. The SP500 is up something like 15% off its recent bottom in mid June.
Consumer sentiment is also starting to rebound together with the stock market. This is probably in large part due to the fact that the market thinks the worst of the inflation is now behind us. Wednesday's CPI numbers came in at 8.5% which is terrible, but not as bad as the 8.7% that the market expected. So in turn on those news all commodities like oil, gas, lumber and pretty much everything else rebounded.
Lumber I called out last week and said that the $450 price level has acted as support. Low and behold lumber bounced to over $600 by the middle of this week, and pulled back slightly to $589 today.
Basically the bet that many participants in the stock market are making is that the Fed will now have to ease off on the interest rate hikes because inflation is not as bad as it was last month. Yet those news are contributing to once again rising commodity prices which in turn drive inflation higher. Long story short I'm not really buying this whole "soft landing" narrative and I think we are in for a lot more pain before we see the market truly stabilize and recover. By that I mean both housing and stocks.
Also full disclosure I'm the dumbass taking it in the shorts on a bunch of short positions on both housing and stocks right now. So maybe my viewpoint is skewed by the fact that I have actual dollars on the line.
That being said my money is where my mouth is for two reasons. Logic and the ability to tolerate losses in style.
Let me tell you about another instance in which my money and my mouth cohabitate a space. The house I'm building for my family. You see we started building in 2021 and are now nearing completion. The house appraised twice this year for 875k. And with the market now I would probably consider myself fortunate if I could actually sell the property for 700k or so. But you know what? I don't give a shit.
The beauty of having a long term outlook on your real estate investments is that you can afford to seriously not give a shit. It's because time in the market beats timing the market and long term trends continue while playing short term trends can leave DAT ASS BROKE. I've seen a lot of chatter on the interwebs where REALITURDS are advocating to their sphere to fire sell their properties and I honestly could not come up with worse advice if I tried.
Hey if you need to sell a house so that you can carry on with your life and make the next move then sure. Sell it. It's not going to be quite as bad ass as selling 6 months ago but stuff still moves. It's not the top of the market, its not the bottom of it, and your goals are your goals.
But fire selling shit out of panic benefits the agent collecting the commission and the buyer taking advantage of your panic. Don't make big decisions out of panic or out of pressure from commission breathed sales people. Here's a number picture you can look at before bedtime to help you calm yourself down.
You see the gradual drift up in median home prices, with the pandemic spike on the right? That spike is going to get leveled out, maybe aggressively, but the trend will remain your friend until the end.
Now if you're afraid of buying a house today and having it lose value tomorrow do not be distressed. Your alternative is guaranteed to lose money as 100% of your rent goes into someone else's pocket. View your real estate purchase from a long term perspective, do not subscribe to any Zillow updates, take the tax benefits, have a garden, get a dog and chill the fuck out. Oh yea, and don't sell when everyone else if freaking out around you. Have a BBQ instead. Make it BYOB because you've got a morgage to keep up on.
I bought a house in 2010 that I was upside down on till like 2014 and not once did I give a shit because I needed a place to live and wasn't going to sell it. I still haven't sold it, and I still don't really give a shit what it's worth, because I'm not selling it.
Real estate is my retirement plan. Let me break it down in the simplest terms I can. On average roughly a third of a person's income usually goes to housing. Whether rent or mortgage its roughly a third. Sometime 28%, sometimes 34%. About a third.
So my logic is if I have 3 properties paid off I will make roughly the median income of 1 person from the rent. If I have 9 properties that are paid off then I will make 3x the median income, relatively passively, and when I die that can go to my son or what not.
Now on the Facebook in the last couple of weeks I've caught some hate for this logic. I guess its evil to try to capitalize on market downturns and then provide afforable housing to tenants. Which is what I do and have done since turning my first house into a rental. If you think making money off real estate and providing tenants with a decent place to live is worthy of talking shit about online its because you're a shitty person. #staybroke
For anyone that understands that markets are cyclical, that booms and busts are a byproduct of human nature, and that taking advantage of these cycles is a wealth building excercise. Call me. I'm not greedy and I'm happy to share my experiences, my connections, and my opinion.
I'm going to share one little bit of my personal story with you guys because I'm getting to this weird point in my life where I truly don't care if people like me or hate me. It's probably because I finally more or less like myself after 25 years of punching myself in the balls (emotionally). I'm sharing this because the people that relate to it will hopefully join me on my business and life journey, and the people that don't relate to it can work themselves out of my life.
My mom and I moved to the United States when I was 9 years old. She brought $635 with her as I remember it. My mom used to keep a notebook that she would turn into kind of a spreadsheet which she would use to track her budget. This is before internet and all that. So thanks to hard work and budgeting my mom was able to save up some money while taking care of us in the shithole country we're from. The money that she was able to save up took care of my grandparents as we left and provided us with a comfy cushion of close to $700 when we moved here. I probably will never forget spending the last of that money on a #2 cheeseburger meal at the McDonalds in the Citadel Mall food court. I ate that meal and felt so guilty and helpless because now I knew for a fact we we we're actually completely broke and dependent on my stepdad. It was not a good feeling.
I got my first job at 13 years old putting one half of a newspaper into the other half of a newspaper. That job sucked as bad as that last sentence. If there were 2 pieces to the paper we got 2 cents, if there were 3 pieces it was 3 cents. Our hands would get covered in ink and the boredom was enough for me to do that job for 2 weekends and then quit.
By 14 I discovered that there is a form of arbitrage between buying things in bulk and selling them in smaller quantities. I got super good at counting in 3.5s, 7s and 28s.
By 16 I had a job at Taco Bell for $6.27 an hour.
Then I hustled newspaper subscriptions door to door. I saved up for my first car doing all this dumb shit.
Then I waited tables from 18 to 24. We would run 15 hour doubles like it was fun and made fantastic money because we would literally run. By fantastic money I mean like 50k a year hustling bar tips. Some of my best friends are from this day and age.
I bought my first house at 24. The house I bought had a small cottage behind it. It was a modest house in a poor neighborhood. It's now a modest house in a up and coming area close to downtown. On the one hand that is gentrification. On the other hand that's how you fight blight.
5 months after closing on the house I almost joined the Air Force because I had quit my job and the new job I was promissed didn't materialize. Mortgage payments were due and money was beyond tight. My credit card got mad traffic. However in hindsight I could not be more grateful for that job falling through and for my inability to leave my beautiful dog Stoli to join the Air Force.
So with that cottage out back I turned to botany. Figured out how to grow money on trees and then started a small business selling a product that killed spider mites. Out of the trunk of a 98 Saturn SL2 we got that product that was made in my kitchen into 35 stores. The project was funded by Capital One and competed with massive players in that industry. It was undefunded and ultimately failed.
At that point I learned from a friend how to flip cars. It was one of weirdest periods of my life where for like 3 years I just existed in the shadows and skipped title on 100s of cars to make a profit. I'm not proud of this shit, but we ate ok, I kept the house, and learned a lot about how if you don't ask the answer will always be no.
Then that same friend of mine made me go to real estate school for emotional support. It was hands down one of the most boring and uninspired months of my life. Some cool people were in that class with me. They crush it here in real estate to this day.
Then I was like fuck it, lets give this a real shot. So I worked like 70-80 hour weeks for the first 5 or so years of my real estate career. There is a lot of luck in 80 hour work weeks so I was able to sell a good number of houses in the first few years.
But I was unable to save money because I drank too much, ate at restaurants, took amazing trips and was just overall loose with my money.
Then at about 30 years old I made a game out of saving money. It's a game I still play today. It's a self designed series of rewards and punishments for doing the hard stuff and skipping out on the fun stuff. Make my own coffee at home, plus 10 bucks. Don't drink, plus 25 bucks. Don't eat out, plus 10 bucks and so on. This little gimmick allowed me to save a downpayment for my second house. And my third. And my fourth...
And now that little gimmick allows me to look at this shifting real estate market and say to myself "damn self, this shit might get rough for a minute but we will get through it". And that's the peace of mind that a little bit of savings can give you. Yea, its not easy, but damn does it help take the pressure off.
The point I'm trying to make here is that people can change their situation. Everyone starts in a different place with different circumstances. Some people have it substantially harder than others in some ways and easier in others. But we as human being livings in the United States are fortunate enough to be our own masters. We are in charge of our own destinies. And while it's not easy to do, not always obvious how to even go about it, changing your financial position in life is absolutely doable.
It just takes a bunch of work and consistency.
Coffee for $5 a cup, cigarettes for 9 bucks a pack, eating out at 10-20 bucks a meal, bottled water and all this other stuff people can cut back on. Anyone can cut back on it. And with a little bit of discipline and consistency it can seriously change your life for the better. Fuck keeping up with the Joneses, get ahead of those fools and STAY ahead of those fools by living within your means.
In the words of Brother Ali "I don't feel that God is obligated to touch you if your ass would rather live in shit than work a shovel."