Friday Update July 15, 2022

Alrighty.  So better late than never right?  I do love doing these updates, and I love getting them out on Fridays but I love my son and hanging out with him a whole lot more.

We went camping for two nights and my little dude had a blast.  Found mushrooms, had some pizza, did a lot of hiking and enjoyed listening to my friend play the guitar.  Cheap and wholesome fun.

Now on Friday here in El Paso County we had 1494 single family homes for sale.  That's 79 more than the week prior.  

We had 521 price reductions which is 93 more than the week before.  Obviously the market isn't taking off but rather landing.  How soft it lands only time will tell.

That's Friday's data.  As of today we have 631 units closed out in July with a median closed price of $481,000.  Not much off our record but trending lower.  My forecast a few months ago was that we finish the year at $480,000 median but I honestly will probably have to revise that down quite a bit as these interest rates remain the shit catalyst.

The funny thing about pricing is it only really matters to investors for calculating ROI and to normal people in "how much is that a month".  So if rents went up drastically investors could pay more for houses and justify their invesment with a higher return.  If rates went down drastically then buyers could justify taking out a much larger loan because their payment remained relatively low.

Does that sound familiar?  To me it does because I lived through and hustled my ass off during 2020 and 2021.  I dealt with scumbag Karens who approached me at way too close of a distance at showings to yell at me for not wearing a mask.  I dealt with real life conversations with appraisers where they told me that 80911 is appreciating at 4% a month.  I dealt with agents allowing a 1 hour window for showings in May of 2020 at investment properties that saw roughly 200 people sharing the 1000 square feet at the beginning of a pandemic.  I dealt with the multiple offer appraisal gap dogshit, with my personal record encounter being over 60 offers on one property.  I dealt with all that and I'm happy, relieved, unencumbered to say that I'm glad to not deal with that anymore.

Fuck writing offers at red lights before the showing.  Fuck having to pull money out of your parents' retirement account for an appraisal gap.  FUCK waiving your inspection rights.  Fuck writing escalation clauses 50k over just to get beat out by a cash offer 90k over.  Fuck having listing agents who close 3 deals a year treating actual producers like shit.  Fuck the 2020 Fed response to the pandemic and fuck anyone that thought this would last forever.

Nice.  With that out of the way what happens next.  Does real estate go to 0?  All the smart ass tenants who have been waiting the last 11 years to not buy are already relishing in the slowing market.  Yet they're still broke, still tenants, and the only thing they have to show for not buying a house in the last 11 years is rent that probably more than doubled.  Why do I say 11 years?  Because that's roughly when the last real estate downturn bottomed.  And 11 years later our median price here in El Paso Co is roughly $300,000 higher.  

What I think happens next is we wobble our way down as inventory continues to climb and rates stay shitty for the short term.  It would not really surprise me that much to see prices peel off 20-25% off their peak valuations of say January of 2022.  All that would do is roughly adjust the monthly mortgage payments to be similar to the ones people at 3-4% interest have.  We will probably see a steady increase of inventory that keeps growing into roughly October.  Then it will be really curious to see if we have a seasonal slow down in inventory OR a glut of recently foreclosed and recently evicted inventory hitting the market.  

I hope for the latter.  Why?  Because it will rip the band aid off savagely and help us deleverage quicker.  We must flush the shit debt to come out of this into a healthy and legitimate economy.  Rather than one managed by the Fed playing with rates.

But playing with rates is the Fed's only real option.  And the other day one of those goons slipped up and said that 2.25% Fed rate is what they're considering a "neutral" rate.  Meaning anything above that they consider to be excessive.  We have 2 Fed meeting between now and September in which we expect to hit 2.25% for the Fed funds rate.  That means that mortgage rates should stay fairly level, maybe go up a bit on any renewed inflation concerns.

So mid term like a year or even 2 I fully expect these interest rates to remain.  But then.  Oh what happens then we can only speculate on.  But my bet is a lot of bad news, likely America having to accept it's role as the second largest global economy, like Europe realizing that them all coming together as one cohesive family is a pipe dream, likely China taking the lead with more and more geopolitical influence world wide.  How will we deal with this (probably) inevitability?  My guess is fight tooth and nail and use the dollar as a weapon some more.  And when we weaponize dollars that's generally done by printing them, not making less of them.

Me personally here's my plan.  I'm going to finish my house.  Turn one of my rentals into another AirBnb.  Then I'm going to sit back and snipe deals where the rent covers within 10% of my mortgage payment or better and pile up as many houses as I possibly can.  The more scared the market gets the happier I'll be and if you can think long term thoughts we should hang out and pillage this mess together.  We will capitalize slowly and very boringly, as real estate is supposed to be.  And then when the rates do eventually tank out we will refinance and up our ROI to happy numbers.  Or, or, we will cash out refi and buy whatever the trendy car is at that point and watch it depreciate together.  Keys open doors, and doors open options.