Friday Update March 24, 2023
753 existing single family homes for sale in El Paso County today. Super flat inventory. I read a little blurb the other day that said 98-99% of current mortgage holders in the United States have rates lower than the current market rates. Mortgage rates did drop a bit over the last couple of weeks and seem to have steadied some but still. If the market rate is 6% and over 50% of Americans have mortgages below 3.5% it takes all of the fun out of moving.
And that is how you get to staglfation. Or since we have to dumb everything down generationally in America, a Slowcession.
We've had 721 closings month to date with a median sold price of $459,000. Same time frame a year ago saw 999 closings with a median sold price of $475,000. So that too kind of sums up our low inventory. People are sitting on low payments, some of them with negative equity, and it makes no sense for them to move.
Before I go into my full nerd mode Iggy hypothesis I'm gonna ask my friend ChatGpt the following question.
"What is the significance of a yield curve inversion on US treasury bonds?"
Now these aren't Iggy words, these are AI words, so fucking respect them.
"A yield curve inversion occurs when the yield on long-term US Treasury bonds falls below the yield on short-term US Treasury bonds. This is a significant event because it has historically been a reliable predictor of an upcoming economic recession.
Typically, investors demand a higher yield for long-term investments to compensate for the risk and uncertainty of locking up their money for a longer period. However, when short-term yields are higher than long-term yields, it suggests that investors are more worried about the near-term outlook for the economy than they are about the long-term outlook.
When the yield curve inverts, it indicates that investors expect interest rates to fall in the future, reflecting expectations of weak economic growth and low inflation. This can lead to a tightening of credit conditions, with banks becoming more cautious about lending and consumers and businesses becoming more hesitant to borrow.
Ultimately, a yield curve inversion can signal a significant economic slowdown or even a recession. Therefore, investors and policymakers pay close attention to this indicator, as it can inform decisions about asset allocation, monetary policy, and other economic actions."
Now more Iggy words. The yield on the 10 year and 3 month is inverted by 131 bps. The inversion between the 10 and 2 year is starting to correct with a spread of negative 41 bps at the moment. So what this says is that investors see economic woes hitting is in the timeframe of months rather than years. The Fed's statement from this week seems to support that sentiment as they essentially said things don't look great, we're gonna keep an eye on it, and it seems like the stage is set for the economy to slow without the Fed having to intervene much more.
Now funny, funny thing over the last couple of weeks. Maybe you guys remember 2008 when the Occupy Wall Street movement literally shut down cities over a 700 billion dollar bailout to the banks. A lot of that money went to things like TARP that ultimately actually repaid the government funds with interest, with an ultimate burden to the US taxpayer of something like 32 billion USD to rescue the system, back then. There were riots in the streets about this.
The funny funny is that the Fed bought up 400 Billion in securities on the hush hush over the last 2 weeks having the exact same effect and nobody said or did shit about it. That infusion is the reason that rates are dropping, the reason gold broke 2k an ounce, the reason the stock market hasn't dropped another 10-15%, and the reason I'm once again standing in lines to see houses.
Now I've got a few things I want to do today more than rant out on how fucking ridiculous our financial system is. So here's my prognosis. I talked about a sweet spot before which is when prices and rates both drop. This has to do with the overall economic conditions such as unemployment going up and consumer sentiment heading down. Those things generally happen quickly and in tandem.
My prognosis and bet on the market is this. Once the yield curve corrects and the Fed ends their tightening cycle, which will likely be by Fall of this year, we will see the housing market blow off some equity despite lower rates. The reason I think this is going to happen is because as rates drop more people will be able to consider moving. As more people list their homes, together with more foreclosures, we will see a genuine supply and demand imbalance where for the first time in a long time supply will begin to exceed demand. And as many sellers are sitting on a large amount of equity as they start to see it decline and needing to sell in order to buy a replacement property people will be willing and many will even be able to take substantial haircuts to make their next move.
So long story short I think it's going to be lower interest rates and a rise in unmeployment that for a brief time mark a bottom in our housing market. Maybe later this year, maybe early next year. Something like that. We're going to have a glut of inventory the minute that people are able to move, and not all of those people will choose to remain in Colorado. I'm not forecasting a disaster here, I'm forecasting an opportunity.
For now though. Stay put and see how this whole banking shit show resolves itself.
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