Friday Update February 17, 2023

Somehow someway our inventory levels are even lower than last week at 804 available single family homes.  Our median sold price month to date is $441,150 on 336 units sold.  Last year we had a median price of $450,000 on 598 closed units.  Our standing inventory right now features 311 single family homes below the current median price point.  Compared to last year this is a much, much buyer friendlier market.  Without a doubt that's true but its not so friendly that sellers are just bending over, not for the most part.

We've seen some pretty decent volatility in the bond market this week.  Yesterday the 10 year t note hit a 3.9% yield, today it pulled back to 3.82%.  This is the highest level we've seen since the end of 2022  The yield curve inversion remains historic with the 10 year and 3 month yields still inverted at around 100 bps.  The 6 month bonds right now are yielding 5.03%.  What's kind of funny and sad at the same time is that a year to two years ago investors were fighting for cap rates around 5-6%.  Today you can go put money in a CD and get about that much.  Robinhood pays 4.15% if you just park your money there and do nothing.  What a difference a few percentage points one way or the other makes, nutty huh?

Earlier this week we had the producer price index come out super bad.  Annualized expectation was something like 4.8%, "real" numbers as in the published ones came in an annualized 8.4%.  That's a pretty big miss and its important because the prices producers pay are ultimately reflected in the prices we pay as consumers.  So the elevated wholesale pricing will ultimately make its way down the pipe and into our shopping baskets.  That could of course pull the CPI upward which will then put more pressure on the overlords at the Fed to raise rates even further.  And so this week the bond market took the initiative on itself and rates went up to reflect this sentiment.  This obviously had a negative impact on mortage rates and we saw a 7% drop in mortgage applications after a 7% jump last week.

All things considered the housing market is surpising me with how resilient it is.  After we saw a pump of over 30% in pricing over 2 years to see just a 1-2% correction at this point really is kind of amazing.  The used car bubble for example is blowing off something like 10-13% each month right now as the prices of used cars come back down towards the mean.  Housing, not so much.

I have a feeling that resilience is going to get checked but then again all that has to happen for me to be compeltely wrong, again, is for the Fed to drop rates back to 0%.  Then the orgy will resume as inflation just becomes the norm as it is in some many places around the world already.

Things that make me scratch my head and ponder how the market is so resilient.   Local foreclosure starts for December did go up somewhat substantially.  We now have a level of foreclosure starts higher than 2018 and 2019, just below 2017 levels.  So that's a thing that will probably continue.

Layoffs have been kicking off pretty hard nationally yet the unemployment rate remains near record lows.  Also a real head scratcher.

If the inflation numbers keep steady of bounce rates will stay steady or climb.  At some point this will have to start affecting real estate valuations more than just 1-2%.

But hey, every time I've called for some kind of downturn in the market over the course of the last 10 years I've been wrong.  In 2016 I was wrong because the Fed cut rates.  In 2018 I was wrong because just a few months after the market slowed down the Fed cut rates.  With the thing in 2020 who could have seen that one coming, I was wrong then too.  At some point I'll be right but before that, until then, and well after that I'm going to keep owning real estate because it just feels like a safe invesment in a pretty uncertain world.  My advice is you try to do the same especially if your alternative is putting rent money into someone else's pocket.