Friday Update October 16, 2020

On this day in 1964 China detonated their first ever nuclear weapon.

This year 2020 the Federal Reserve used up the last of their conventional weapons in lowering rates down to 0% and so the next logical step is the monetization of debt, the debt A Bomb.

Real Estate Market Update first then the rant

***524 Existing Single Family Homes for Sale***  About same as last week

On the 700 sales so far in October prices are staying steady with a median of $380,000.  

Interest rates just hit record lows for the 10th time this year.  Yea, seriously.  Refi if you haven't.

So I don't know if you know this but we have some problems nationally yea?  If you understand those problems you can better understand our local real estate market.  I talk to buyers and wannabe buyers everyday and get the same question over and over, isn't this too expensive?  Isn't the market overpriced?  And again my response is as compared to what?  Let's look at some numbers outside of our market.

The national debt of the United States just surpassed 27 Trillion USD.

The federal government's budget deficit for the fiscal year 2020 is 3.1 Trillion dollars, and that is the public facing number.  Real number is slightly over 4 trillion dollars.  This is about triple the worst of the deficits during the 2008-20xx shitshow.

Why does this matter?  Because unlike you and I the government can devalue its debt by monetizing it.  That means any shortfalls in the budget can be satisfied by printing more money into existence.  Keep in mind the US Dollar has the words Federal Reserve Note on them, meaning they are a denomination of debt, not a denomination of any type of commodity or asset.

Ok Iggy another rant about the Fed, shut the ef up already.  This is important to understanding that the environment we are in is not normal and so normal logic and pricing methodology is dead.  So I can't shut up because as the saying goes this is "the new normal."

You put money into your savings account and get what?  .1%?  

You put money into a CD and get what?  Less than 1%?

You put money into a mutual fund that is supposed to be a high dividend fund and get what?  Maybe 4% with the risk of losing a portion of your investment?

And the real rate of inflation is what?  Like 4-5%?  So you're losing money on all of the above options.

When you talk to real estate people they will usually tell you that around a 10% capitalization rate is ideal on investment properties.  A house you pay 100k for should bring 10k a year in rent, and so on with that ratio.  But that assumption was created during times when interest rates we're much higher than they are today.  So if you're getting 10% cap and have a 6% mortgage that's one thing, but if youre getting a 7% cap with a 3% mortgage that is basically the same thing right?  Also as the rates drop the valuations of the assets rise so each % means a bit more than before as the properties become more expensive.

Unlike savings account, CDs, mutual funds and all that other stuff real estate offers

1.  The possibility of serious appreciation

2.  Massive tax benefits in depreciation and mortgage interest deduction and

3.  More leverage such as cash out or heloc options.  

Long story short is we are entering what is known in economics as a lost decade.  This is where investors scratch and fight for any real returns as their money seeks safety anywhere outside of cash.  The smart money is betting against the dollar, and one easy way to short the dollar is to borrow a bunch of them today and buy a piece of real estate with it.  The dollar depreciates against the real estate, you live in the real estate, I get a commission and buy you burritos, everyone can win!  

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