Friday Update September 10, 2021
621 single family homes on the market today, 3 less than last week. We should over the course of the next couple of months start to see inventory drop back down towards the new year. People ask me sometimes about like an influx of inventory on the market, and maybe in a couple pockets there are more for sale signs that usual, but overall the trend of low inventory has not changed.
Interest rates are steady chillin as well. 10 year treasury notes still around 1.34%, slightly higher than last week but insignificantly so. Mortgage demand fluctuates greatly week to week so if you read headlines about mortgage demand plummeting 8% that's actually normal. The following week there will not be a big news story about demand bouncing back 8%, not news worthy. So steady as she goes on the financing front.
Producer price index which tracks the prices that producers pay to create the goods we all consume is up 8.3% on the year. That means on average the companies that make the stuff we all use are spending 8.3% more than a year ago on the materials to make it. You better believe that this leads to three things in the marketplace, inflation, shrinkflation, and product shortages.
What you are seeing with your eyes and feeling in your wallet is not temporary. The only reason the news keeps bringing these clowns on to tell you that inflation is temporary is to keep people as calm as they possibly can. In my opinion one of the reasons they keep making such a huge deal out of this virus is that if ALL THE PEOPLE went back to living life like normal the money velocity rebound would drive the inflation rate through the roof. If that happened the Fed would be forced to act by drastically raising interest rates and cutting down on asset purchases. This would stick a needle through the everything bubble and they know it. So as long as at least half the population is scared into hunkering down for a while money velocity has no chance of bouncing back fully. Thanks to this our inflation rate is artificially suppressed. A reminder money velocity is how quickly money changes hands in an economy, a way of calculating how quickly a dollar moves through the system. The faster it moves around the more transactions there are, the higher the GDP, etc. Graph time:
Hey Iggy that's not that bad and even the people that are locking themselves down are still spending money, so how can this be of any importance. Here is context, graph time:
With the inflation rate we already have if people's spending habits went back to some form of the old normal, because fuck your new normal, we would have a massive spike in inflation. Like probably closer to 15% than to 6%. And guess what? At some point those normal spending habits will resume.
Why? Because of the graph I love the most. Super graph time:
In an economy where prices are denominated in USD the main thing that matters is the supply of USD. It still baffles me how people miss the correlation between the amount of money in circulation and the prices of goods and services. Something super important to remember, the market doesn't care about what you have as an individual, it cares about the conditions of the entire market. It's like fair and unfair at the same time. Fair because that's how it works. Unfair if it doesn't work for you.
There will at some point be a housing crash. It will be driven by a sudden increase it interest rates. The deleveraging brought on by that is going to be biblical but we're not there yet and renting from someone else is not how you prepare for it.
So like I always say, buy whatever you think is a good buy at a time when you can afford it. Play the long game, look out for your people and for the love of God stop believing all the bullshit on TV and social media. Especially this blog.
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