Friday Update July 9, 2021

Woah there 621 existing single family homes on the market today!  Looks like the booze and hot dogs are wearing off and all the people that could have listed last week listed this week instead.  Median price is steady at $450,000 with 310 sales closed already in July.

Interest rates are doing something kind of interesting.  Pun fully intended. The yield on the 10 year US treasury bottomed out at about .4% in August of 2020.  These were the "lowest interest rates ever" as published by every thirsty lender and buyer's agent on social media.  Then rates shot up like a rocket Q4 2020 and Q1 2021 peaking at about 1.75% at the end of March.

Since then the main stream narrative has picked up on the fact that there is indeed obvious inflation throughout the market place and that maybe the Fed should do something about it.  The Fed came out saying that this here inflation is just transitory, that the higher prices you're paying now will magically fix themselves as supply chains are restored, and that letting inflation run hot for a bit is really a good thing.  This is a form of deleveraging where the central bank dilutes existing debts by printing off a ton of new money.  The people paying on the debt sure appreciate it but the people barely making ends meet are left wondering how the hell they're going to pay the rent that keeps going up at >10% yearly.  Important fact here is poor people's problems don't worry rich people until the poor people start shooting.  Delicate balance of life between letting people eat cake and getting your head chopped off by a mob.

So now you would think we should have rates continuing to climb.  After all the Fed said they're going to raise rates here soonish and all the Realtors and lenders on Facebook are like yea yea, refinance or buy today, this is the best day to buy/sell in the history of humanity.  But instead rates have dropped from the March 31 high and yesterday the 10 year touched 1.25%.  Today its at like 1.34%.  That volatility in interest rates suggests a debt market that is unsure about this "economic recovery" and basically that money doesn't know if it should be scared or not.  All this talk about Delta variants of Covid and some countries shutting back down isn't helping the sentiment.  But it is lowering rates.  Lower rates mean more money has made it's way into the debt markets, more money in the debt markets theoretically means good liquidity, which means people are going to borrow it, buy shit, and continue to drive prices up.

All of the short term bumps in interest rates, drops in interest rates, little jump in inventory, little drop in inventory are really just good for me to bitch about every Friday morning.  In the long term they really don't matter and won't even be rememebered.  Here is what matters in the long term as far as prices go.


This is the same tired graph I've been posting for like a couple years now.  This is the M2 money supply in the United States.  Without going too deep into the nerd stuff I subject myself to, the more money is out there, the higher prices go.  The higher prices go the more people need to earn to pay for the stuff they need.  Thanks to fractional reserve banking the more the more the more becomes exponential as can be seen on the graph above.  What do you think this line is going to look like next year?  Think it's going to reverse?  Or keep shooting upwards?  You can place a bet by either buying or selling real estate with my suggestion being the Warren Buffett way of buy and never sell.

Let's think to the future and all the fun things we as a nation need to blow a fortune on?  We have this infrastructure initiative that seems to be kind of stuck.  But after all is said and done I bet the country borrows like a trillion dollars, at least, from the central bank to pay contractors one dollar for every 30 cents of work completed.  That inherent inefficiency that governments the world over are known for will contribute to inflation.  People may want more stimulus checks in exchange for votes, we will need to fund those too.  Maybe we can do a universal basic income and then ponder why prices are rising so fast?

We are wrapping up our wars in Iraq and Afghanistan after 20 years.  Thousands of American troops lost their lives, tens of thousands suffered injuries and the two countries aren't shining beacons of democracy still.  The total war effort cost around 4 Trillion dollars.  A huge chunk of that money contributed to price growth here in the United States as defense contractors raked in fat profits from the wars.  Do you think these companies will sit idly twiddling their thumbs?  Or do you think they will exert their massive political influence to help find bad guys elsewhere?  For every war effort more money is needed, for every round of money creation inflation follows, and hard assets like real estate are one easy way to protect yourself financially from the madness thats around us.  Legacy planning my friends for a world that will never be fair.

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