Friday Update July 30, 2021
617 is the number. That's how many existing single family homes are on the market in El Paso County for a population of around 740,000 people and 5,000 degenerates (us agents). So if you're wondering why your social media feed is overflowing with "look at me, I'm a Realtor" posts or why your phone keeps ringing off the hook with "hey guy, I'm a Realtor" calls this is why. We remain in a legitimate inventory shortage and the only surplus we have is in the amount of agents competing for the very few houses on the market. Going back to my microeconomics class at UCCS that I never attended without a hangover I seem to recall that when supply is less than demand prices rise.
In July so far we have seen over 1,400 units closed out in our MLS meaning that our supply is good for like 10 days. As a reminder a "balanced" market would be like 5 or 6 months of supply. Median price in July right now is at $445,000, down from $450,000 last month and up from $377,000 last July. That's like an 18% increase year over year in the median price. Drops in median price month over month are not super relevant as the market sort of ebbs and flows depending on inventory and interest rates, its the general trend that we're monitoring. And the general trend is that if you own real estate you're sitting pretty, and if you're renting you're a sitting duck.
If you were to read articles on CNBC and similar outlets they would have you thinking that the real estate market is somehow weaker. New home sales have been dropping for the last 3 months for example. Is that a sign of weakness in the market? Or is it the fact that builders are building less homes than they would have before the pandemic because of construction costs and the unpredictability associated with that? It's the second choice. Less supply, less sales, great for headlines that are often times generated by an algorithm. Like a Zestimate, but even dumber.
Lumber is settling into a new range in futures trading. I've often mentioned the peak we hit May 7 at $1,700/1000 board feet. Today we're around $600. Good progress towards whatever the new normal is. Pre pandemic lumber traded around $350 and I'm guessing will all the money printing for the long haul it would be safe to add like 30% to that number, so probably somewhere around $500 it should settle down. That means a 2 by 4 by 96 at Home Depot will probably cost like $4.50 going forward instead of just under 3 bucks like it has been forever. But hey, that's a lot better than $8.25 so I'll cease the bitching.
People often forget that lumber is just one component in residential construction. Yesterday I spoke with my garage door dude, his material prices are up 48% in the last 4 months. Copper costs double what it did 2 years ago, remember all the wiring in the home is copper. Sheet metal is up, plastics are up, labor is way up and you get the point. It's nice that lumber has popped its bubble but it's not taking the real estate bubble with it, only rates can do that.
You know how everyone always tells you that interest rates are gonna go up any minute and today is the best day ever to buy a house? Agents are notoriously thirsty and often full of shit, and rates have been trending slowly downward since the end of March. The 10 year T note is finishing off the week around 1.23% which is a level we blew through in early February. The spread between the 2 year and 10 year notes is also trending down, and everytime it approaches 0 or even goes negative we magically have a crisis. A war, a pandemic, a lehman brothers, whatever. Keep an eye on that spread here:
and whenever it gets close to 0 lets grab a beer and talk about the latest crisis that is dividing America on Facebook. I bet it will be stupid as fuck and people are gonna go crazy over it! Whatever it is.
Right now the US external debt to GDP ratio is 138%. If we were a regular borrower trying to get a mortgage lenders would laugh their asses off at us and say no, absolutely not. We probably couldn't even get a Discover card with that type of debt to income ratio. But we have a 3.1 Trillion dollar Federal budget deficit right now (does not include state deficits, municipal deficits, etc.). Do you think that the Biden administration is going to massively raise taxes on all their wealthy friends? Or do you think the Fed is gonna print off another 3.1 trillion to buy the government debt with. If you chose option 1 I envy your optimism and would love to stick my head in the sand right next to yours.
So yea long story short. As long as the Fed continues to print off money and buy US Treasury Bonds and mortgage backed securities with it the interest rates will remain artificially low, and the prices on pretty much everything including real estate will remain artificially high. If at some point the Fed has a change of heart and decides to let the free market have a shot at sorting this out we are going to have an absolute blood bath across all markets, real estate included. But since we as a country can't even pay our own expenses without continuously inflating our money supply the odds of us raising interest rates on our own debt seem pretty low. And by us I mean the banks that control the United States and most of the world, not the us that are upset about higher gas prices and the cost of the salmon going up at Costco (have you seen that? I'm pissed.)
A lot of people think that China owns a ton of American debt and when they come to collect there will be a conflict. Did you know that China owns just 4% of the 28.5 Trillion Dollar US National debt? And that 4% will go down as we go deeper and deeper in debt to the Fed. The Fed currently holds 8.2 Trillion is "assets", China has just over 1 trillion, and other countries like Russia for example decided to part ways with American debt completely.
Chances are the longer this deficit spending goes on, and the deeper in debt we go, the less buyers we will have for American treasury bonds. But lucky us the Central Bank will always be there as the buyer of last resort. So no matter what the deficit is, no matter how out of balance the budget gets, no matter the consequences to the middle and lower income classes, the Fed will print more until it can't. For now it seems unstoppable, one day that won't be true, and that will be the day you'll be super glad you own a little piece of this world and have a little bit of tangible shit to get you through to whatever the new normal might be at that point.
For now though guys this is the best day to buy/sell a house ever! Give me a call and I'll drop all the nerdery and come running over to help you either get in debt or out of it.
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