Friday Update January 8, 2021
Alrighty then 2021. Strong effort out of you so far you silly goose. Wow. Hold my beer 2020 and all that eh?
Guys the YouTube videos are kind of a lot of work and so I will make those into monthly updates first Friday of every month. The weekly updates will go back to this format.
Today in El Paso County we have 268 single family homes for sale. That's bouncing off the record low but not in any significant way. I would be a liar to say that buyers right now have any leverage whatsoever. The cards are being held by the sellers 100% and buyers have to cope with an environment where multiple offers are the norm on just about every house. If you're in the market to buy a house right now bring your A game. This week I looked at a few homes with buyers, one had 10 offers in 8 hours, another had 3 offers and so on. This is the norm.
The good news is that we're going into Spring and inventory tends to loosen up. This may be paired with a slight uptick in interest rates which will push some buyers out of the market. In the last couple of weeks we saw yields on 10 year treasury notes shoot up by about .3% and also rates on mortgages go up by closer to about .5-.625%. Remember every 1% hike in rates means a 10% drop in buyer purchasing power. If we had a saturated market with a ton of listings this type of action would lead to price reductions. We don't. This will push some people out of the buyer pool, put more pressure on rent, and take the slightest amount of pressure off the resale market. Do not expect prices to drop just because there will now be 8 offers on houses instead of 10.
The bad news is that everything I just wrote above does nothing good for affordability.
Let's talk about politics and how I'm right and you're wrong ok? Just kidding but let's talk about politics and money.
2020 was an unprecendented year for a variety of reasons. Reason 1 and reason 2 and whatever other reasons are important to you all led to the creation of over 3.7 trillion dollars in the last 365 days. That's over 10 Billion dollars a day of stimulus and accounts for over 22% of all the money in existence. In one year 22% of the all the money was born. Really let that soak in. This is how we got historically low interest rates, this is how we got record after record on wall street and in turn this is how we got $8 burritos at Taco Star.
Now the politics. Election years are known for theatrics and 2020 was like a daytime soap opera grade drama. I personally am super glad it's over. The year after the election and before the midterms is that golden little window where our elected officials attempt to actually get stuff done. While I'm sure it will be primarily self serving garbage that gets achieved there have to be some crumbs for the people.
Today we have something we haven't had in 10 years. That's a democratic President dude, a democratic house, and a senate split 50/50 with a democratic VP lady acting as tie breaker. Let us remember 10 years ago, the year was 2011. Obama was President dude and we were barely coming out of the 2009 financial crisis. How were we dealing with that crisis? By issuing a ton of debt through what was at first called bail outs. Those bail outs if you recall led to a movement called Occupy Wall Street that formed drum circles around the financial sectors of all major cities. Bail outs were unpopular with the common man, and I in my infinite 25 year old wisdom thought it was "bullshit".
So then we stopped doing bail outs. We started doing Quantitative Easing. Or QE. Because it's hard to pronounce and reeks of math QE was not nearly as offensive as the prior bail outs despite being the exact same thing. In 2011 our national debt sat around 14 Trillion dollars and through QE 1, 2, 3 and 4 we were able to stimulate the economy, reduce unemployment, drive asset prices up, the housing market bounced, the stock market bounced as well. Everyone felt rich and by the end of Obama's 2nd term in 2016 we had a national debt of 19 trillion dollars and everyone was happy except all the people who hated Obama, but they had equity in their homes too and didn't mind that part.
In the 5 years between November 2011 and Election Time 2016 our local housing prices jumped by almost 40%. This however would not be the end of the story.
In 2016 America elected a reality TV star named Donald Trump as President dude. He made some promises about narrowing trade deficits, getting tough on China (check mission accomplished on that one), and reducing the national debt. To nobody's surpirse the self proclaimed King of Debt did nothing to reduce the national debt, which to be fair isn't really up to him or his fault, but instead under Trump we saw our national debt grow from 19 to almost 28 trillion dollars. In the same time we saw record after record on Wall Street and record after record on Main Street. Asset prices across the board skyrocketed as the poor continued to be punished for not having any assets. Rents hit record high after record high. The trade deficit hit a record to the bad in December of 2020.
Remember late 2019 when a virus referred to by President Trump as the "Kung Flu" was going on a World Tour? At first it was just a foreign problem and America did nothing to prepare for it. It arrived off shore on the Diamond Princess cruise liner which sent the first shock wave through the stock market as Carnival and Norwegian shares cratered. But it wasn't until about March that people started dying in convincing enough numbers for the United States to hunker down. The stock market shit about 40% in 2 weeks. People panicked and hoarded cash. Interest rates briefly spiked, then plummeted, then spiked, then for real for real plummeted to record lows as we found our "new normal". The new normal of course was arguing about masks, lock downs, virus structure and a bunch of other things the vast majority of us truly don't understand. The new normal also included take out booze which was a questionable policy I took full advantage of.
In an effort to mitigate the effects of Covid 19 the Federal Reserve stepped into action. You may think it's weird that the central bank came to fight a medical emergency but that is exactly what went down. As I said above money creation became no problem as congress approved the CARES act for close to 3 trillion dollars, then bickered about some election stuff for a few months and then passed another 900 Billion dollars in stimulus. Guys please keep in mind this isn't your tax money at work here, this is all debt we're strapping around the necks of our children. Between Election Time 2016 and Election Time 2020 we saw local housing prices increase by another 48%.
So here we are. 2021. Covid is so wide spread that it is a daily reality in most communities. I personally know at least 30 people that have had it and I'm sure most of you do too. The vaccine is a point of contention between people and whatever, people have their opinions and rights and at least it's becoming available. But where we stand today is in a wildly worse financial position than we did a year ago. Say what you will about the necessity for shut downs and the efficacy of them, the reality to me is that it gutted small and mid size businesses. It will take a considerable time to recover from that damage.
Today we had an interesting news report come out stating that for the first time since April our unemployment rate went up. The Fed came out this week in all their wisdom saying they expect a significant slow down in the economy Q1 of this year. Could it be because the forced and extremely picky shut downs? Yet the stock market keeps pushing to new highs while prices on everything else grow. Why? Because the new government will be able to push through QE 5, 6, 7, 8 and continue adding to our pile of debt until we completely redefine what a dollar is. Without Republican opposition QE will roll out with the ease of 2011 and considering that the administration will super closely resemble that of 2011 the money printing is basically guaranteed.
We will see short term hiccups, we will see small spikes in rates, we will see small rushes to the dollar for safety. However the trend will remain the same as it has for the last 10 years as the only way to deal with our mountain of debt is to keep kicking the can down the road by paying off existing debts with new ones.
Expect commodity and asset prices to trend upwards. That includes housing.