Friday Update June 4, 2021

478 Single family homes on the market today.  I think psychologically June 1 means something to people and so we saw quite a few new listings hit the market.  Guess what though?  Not enough, just not enough.

Interest rates have been pretty steady the last few weeks, little minor moves up and down but nothing drastic.  Mortgage applications have been dropping slightly as rates remain steady, refi demand isn't running rampant, and buyers find themselves priced out of the housing market.

Lumber hit a peak first week of May at $1,700/thousand board feet and has since come off to $1,275.  This is still 400% higher than 15 months ago.  Supply chain issues are now the norm with everything from roof trusses to cabinets to gutters running behind.  Things that are normally readily available are now often 3 months out or more, and naturally prices on these sought after items are going up.

From what I'm seeing with our local builders most have figured out the best way to do business is to slow way down.  Instead of going under contract on a blank lot many builders are now signing contracts once the homes have been framed.  That way they are better able to control costs and the pace of production.  On the plus side this avoids ridiculous situations like selling a bunch of houses they can't afford to build and causing serious problems (homelessness) for a bunch of buyers all at once.  On the downside as with resale, supply is way short of demand and buyers are paying serious sums for new builds.  

Many builders have switched to a highest and best auction format, mostly for the lower end homes in the mid 300s.  What's a lower end new build in the mid 300s?  That would be roughly a 1300-1500 square foot townhome with apartment grade finishes.

A new build in Lorson Ranch right now is going to come in at pretty close to $200/sf.  Further north into Bradley Ranch which is off Powers and Union prices on new builds are pretty much the same on a per square foot basis.  That affordability factor we used to have down south is about gone.  The surge in resale pricing has been astounding, the surge in new build pricing is totally insane.  And its not even builders being greedy, its just that thanks to the fact that the whole world shut down for a year we're now short on everything except the number of people wanting to live here.  Oh yea and money, seems like there is a whole lot of that going around too.

We continue to see strong investor demand for single family homes with several corporate entities buying heavily in our market.  That's an ongoing thing and I don't see it changing.  First time buyers are up against institutional investors and generally they can't compete.  May 2021 median pricing came in at $432,095.  Last year it was $350,000.  That's like a 23% jump.  Guess what else jumped by about 28% in a similar time frame?  That's right, the money supply.  The shaded yellow area is the "new normal" aka deficit spending to the fullest.

I've said this before I'll say it again in words and then I'll use pictures with a lot of numbers on them.  This trend will not stop and it will not reverse.  If you for some reason believe that the Fed has any mission other than issuing more debt as in printing more dollars then I envy your ignorance.  Let's focus on just national debt and M2 supply.  Currently at about 28.5 Trillion in debt and about 20.5 Trillion in M2.  Check out today's figures:

Now at the current pace of things check out 4 years from today

Sweet so at the current pace just 4 years from now we should double the money supply!  What do you think that will do to pricing of assets and commodities?  Just for fun let's look at 8 years out:

78 trillion dollars of M2 money within 8 years if we keep spending like we're spending.  It would not be too crazy to assume that with a 400% increase in the money supply we could expect to see 400% increases in the cost of living.

But please feel free to rip me apart for being an inconsiderate asshole when I say things like $15/hour minimum wage laws are irrelevant.  Giving away stimulus checks is basically irrelevant.  All that does is saturates the money supply and raises the cost of living.  And the very people that are supposed to benefit from the higher minimum wage find themselves completely unable to keep up with those rising expenses.  Legislating fairness into a market does not work, and printing an infinite amount of money is absolutely disastrous.  You're seeing that play out on a small scale now and unless we see a change in monetary policy ie significantly higher interest rates soon we will continue on this exponential curve towards a society of the extremely rich and the extremely poor. 

If I had to guess what the next 10 years holds for us I would sum it up like this.  We will probably see prices surge to the point where the Central Banks have to admit that we have an inflation problem.  This will be blatantly obvious to normal people but the financial news will report it as "unexpected".  The Fed specifically and central banks around the world will then raise rates, potentially steeply, to curb inflation.  This will instantly raise the cost of borrowing and will put the brakes on major purchases such as real estate.  This will probably cause some turbulence in asset prices including real estate and will shake up the stock market real good.  People will lose their life savings because of these unexpected, couldn't see it coming, totally calculated events.  Some people will call this a whatever crisis but the reality is it will be once again the largest wealth transfer in human history with the wealth going up, not down.

Then at some point the bleeding will become too intense and the Fed will once again lower rates just like they did in all the red circles below.  This will spur yet another wave of new debt and a further push up our exponential curve in pricing.  This is all made possible by the fact that our money isn't secured by anything except by rappers holding it to their ears pretending its a cell phone in their videos.  It's so stupid.

Notice the gray lines generally to the right of the interest rate peaks.  Those are economic recessions aka periods of time where the wealthy buy up assets on sale while poor people struggle to put food on their tables.  The wealthy anticipate recessions with excitement, the poor tend to borrow entirely too much money with terrible timing and then are unable to repay their debts upon missing 4 weeks of income.  Is this too blunt?  Whatever, it's true.  Notice how all that volatility in interest rates was not so drastic in it's impact on median house prices across the US.  The issue is that even a plateau in pricing puts most buyers under water if they can not afford to hold real estate for the long haul like they should for generational wealth and other bourgeois shit like that. Notice the correlation between median housing prices above and M2 money supply below on a similar time frame.  Not a perfect correlation but pretty damn similar if you just look at it with both eyes.

So in summary, vision for the next 10 years.  You buy what you can afford and you do so when you can afford it.  Specific to real estate you should buy with the intention of never renting again.  Meaning you buy whenever it is you can and then you either hold that property forever, live in it, rent it, or you sell it only to buy another property immediately after.  This is how you keep inflation hedges.  This is how you build generational wealth.  To the moon!

PS if you think this sucks and is totally unfair then we need to completely restructure the entire nation, probably get rid of private property rights, for sure go through a civil war over it.  We could do all that and end up with a centralized economy run by the very geniuses we bitch about daily, OR, hear me out, or, we could take control over our lives and finances and invest in our own futures with diligence and discipline.