Friday Update March 3, 2023
Yo what up dawg welcome to March. This gonna be the way I talk from now on no cap. Cap dawg, I can't do it. I'm gonna have to revert to normal Iggy talk. And so be it amigos, regular Iggy talk upcoming now.
Today we have 809 existing single family homes available for sale. Last year we had 288. It's a difference that has become extremely obvious.
February must have been a super lucky month as we wrapped it up with 777 units sold across our MLS. Median price wrapped February at $442,000 with a median sold to original price ratio of 97%.
Same time last year we bangaranged out 1,070 closings for a median price of $466,750 with the sold to list price ratio at almost 102%. So in effect it's not true that houses always go up in price and it seems that maybe buying a house in January and selling it in September doesn't always work out well. Hmmmmm. Weird right?
I want to talk a little bit about macro, local, hyper local and life in general ok? On the macro level basically a blind person can see we are heading towards a recession. We have the yield curve still inverted at 90 bps between 10 year and 3 month T bonds. We have interest rates that went back up over 4.07% on the 10 year yesterday before pulling back below 4% today. We have mortgage rates around 7% ish once again just like we did in November.
We have pretty much a perfect correlation between yield curves reversing to normal, stock market crashes and corrections in the housing market. We have that to look forward to. Germany just posted 8.7% inflation rates, France popped higher and there isn't a super strong argument to make that inflation in the United States will suddenly get better so the expectation becomes higher interest rates for longer.
Blackstone, a company with almost a trillion dollars in various real estate and non real estate holdings, just defaulted on the payment of a $565,000,000 bond. The bond, which is debt if you're not tracking, is backed by commercial space in Finland. Apparently valuations have dropped a lot and now the company is having a difficult time paying the debt to the bond holders. Naturally, absolutely fucking naturally in this distorted environment, their stock popped up 2% on the news.
Amazon just froze construction on a big office project they were building. Layoffs are continuing yet somehow the unemployment rate remains crazy low. Personal savings is at historic lows and credit card balances are pushing a trillion dollars for the first time in history, at some of the highest credit card rates in decades.
Defaults on automotive loans are 27% higher than a year ago because them stimmy checks are wearing off homie. The average monthly payment on cars in America right now is $717. Add another $100 for insurance, another $100 for maintenance and another $250 for gas and you realize that the average American is spending about $1,150 a month on having a car. The median individual income in 2022 was $54,132. So the run of the mill average everyday normal mothafucka (Jon Lajoie reference, pardon the language and google the song) is spending about 25.5% of their income just so they can have a way to get to work! That's dope.
Median rent in the US in 2022 was $2,305. Median mortgage payment as of October last year was $2,012. This is data from the mortgage bankers association and I'm just using it to drive home the point that people are broke.
Ok so $1,150 for the car, $2,305 for the rent. That is 77% of our income. It would probably make sense to marry a sugarmama or get a few roomates that will help with this math but that comes with its own costs right? Maybe start hustling that onlyfans but keep in mind the doing stuff with your feet category is played out. Don't ask how I know or what my profile is under unless you've got $19.99/month to spare. Then slide into my dms.
So, macro, how do you expect this to go? If over 40% of Americans can't afford a $400 emergency how do we expect to keep inflating the everything bubble at this point? There is an answer to that question which is called quantitative easing, aka cranking that money printer, but we're not at that point yet.
Ok locally and hyperlocally. According to Realtors we have two things that no other community has. We have the military bases and pikes peak. It is of scientific and historical record that no other community in the United States has a military base or mountains near by and therefore Colorado Springs will be insulated from any corrections in the real estate market. The thing about Realtors, on the median, is that we're idiots. On the super duper median broke and thirsty idiots with an 80% turnover rate every 18 months. This very pervasive logic about the Springs being special and this time being different misses some important data points like every single recession that did in fact impact the Springs housing market, 1988 being a super good one when COS was named foreclosure capital of the US. But pikes peak!
Life in general and how it relates to housing. You really need like 3 things for survival yea? Food, clothes, and shelter. Maslow's hierearchy of needs kind of nails down the fact that it's pretty hard to excel at life unless you're well fed, well watered, and housed. The breakdown of this structure and it's effect on peoples' lives can be see daily along Fountain Creek and Monument Creek as well as most intersections around downtown.
Markets go through cycles. Fear and greed tends to drive those cycles. For the last roughly 12 years greed has been more dominant which has led to the inflated valuations we see across various markets. At some point, in my opinion sooner than later, fear will take over and we will have a reversion to the mean. The cause for this will be some form of ugly deleveraging and an ensuing liquidity crisis and I fully expect shit to suck pretty hard in the short to medium term. But guess what, we all still need food, clothes and shelter. And with the shelter component you have essentially 2 options yea? 100% guarantee of no equity by renting or buying real estate and hoping it works out. Seems like if option 1 is a guaranteed L and option 2 at least has the potential to go well long term then I'm all for ownership regardless of how gloomy the short term out look is.
Also on the life kick guys. This Sunday we're doing a fundraiser at the Purple Onion to help the victims of the earthquake in Turkey. Please join us all day for delicious food and drinks. I'm bringing this up not to pander this fundraiser on you so much but to try and provide some perspective on some things the Springs truly does have going for it. We are lucky enough to live in an area that gets 300 days of sunshine a year, more than San Diego. We don't get struck by hurricanes or earthquakes, tornadoes are like a one off thing that happens maybe once in a lifetime. We rarely see flooding and when we do it's in predictable areas. We get some nasty wildfires but for the most part our city is pretty well protected and safe. We get new roofs and new cars courtesy of hail and our insurance companies. We live in an area where we have clean drinking water and ample space to grow. We're fortunate enough to be 6,000 feet above rising sea levels and thousands of miles away from any country that could be considered hostile. We are lucky to live here. Colorado Springs is not the only community that has this type of good luck and our market absolutely does compete with other cities that share a lot of the same features, believe it or not Pikes Peak isn't the only mountain in the US, but we're lucky to be here for a fact.
All of that being said guys I personally do believe that we're going through a little portion of this graph right here somewhere right between bull trap and return to normal.
And like a small part of me wants to kind of sort of feel slightly bad for even selling real estate to people right now but then I think about the long term. The long term is gonna be fine, everything is ok in the end, and if it's not ok it's not the end, ok? I think I've been beating the point of real estate being a long term investment to death and I personally own 3 houses with full intentions of buying several more. I practice what I preach and for that reason I don't feel bad at all selling you a house today that I honestly think will probably drop in value this year. Am I just a heartless asshole that values commission checks over relationships? I hope not, and the truth is that the vast majority of us, myself and you included, would not be able to capitalize on the very bottom of the market because of a variety of factors such as availability of credit, fear and just the amount of luck it takes to actually pick a bottom.
So in summary count your blessings. Make good choices. Plan for the worst and hope for the best. Understand that cycles repeat because human nature doesn't change. And always trust, but verify.
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