October 21st, 2023

The Stalemate of the Century: Housing Facing an Existential Moment

It was only a matter of time that the housing market hit a giant wall of apathy and the level of denial is deep out there. People are starting to understand the cost of easy money policy which has created an insane level of moral hazard and rent seeking behavior. I’ve been following the FTX story and that is a picture perfect example of the market – tech as a religion, nonsense charity, easy money return chasing, and shiny new object syndrome with no real work being done. The day of reckoning is here and with mortgage rates at 8 percent, those million dollar crap shacks are no longer looking tasty. This is the new normal and we were in an artificial market for such a long time, that people do not realize that an 8 percent mortgage is actually affordable relative to historical norms. Let us look at the market overall.

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July 9th, 2023

The Housing Stalemate and Why Prices Will Continue Going Down: A California Housing Story in 5 Charts.

The housing market is facing conflicting headwinds like a dog being asked to “come here” from both owners at opposite sides of the room and reading through the countless market indicators can drive you dizzy like 3am at an EDM concert. But the reality is, the market had grown accustomed to record low mortgages rates like a crackhead looking for their next hit and a flood of money during the pandemic and now, we are dealing with the usual reckoning. It is rather amazing how Taco Tuesday baby boomers fell deeply in love with the Fed in a codependent relationship, either with eyes wide open or naively, in terms of favorable policies that enriched their lifestyle of rent seeking behavior. Just browse social media and you’ll see all the 2nd home buyers and AirBnB “investors” that are suddenly starting to understand the true cost of capital. Who pays for renting an AirBnB or any rental for that matter? People that need to generate income in the real economy. And the real economy is flashing massive red signs of capitulation. The credit markets are stalling out, the student debt jubilee was stalled, and the easy money from the government from PPP to stimulus checks is now reversing. And because of all of this, people are going to learn a quick lesson of the perils of artificially low rates that went on too long. There are five indicators telling us something in terms of where things will be going. The punchbowl at the party has run dry my friends and the hangover is just beginning.   

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February 25th, 2023

The Correction is Here with Home Values Declining by $2.3 trillion in 2022: Personal Savings Plummets With Record Consumer Debt.

The housing market is entering a massive slowdown and only the naïve and delusional will ignore the red warning signs. First, there is this odd narrative that housing continues to excel and thrive in the current market. “Inventory is low therefore the market is hot” or “7% interest rates can’t stop the equity train baby!” This seems to be the mentality at this point. But the reality is, $2.3 trillion in housing wealth was wiped out in 2022, the most since the Great Recession in 2008. $2.3 trillion is a lot of equity that has gone up in smoke but somehow, the delusional housing brigade continues to beat on the “real estate never goes down” tagline. Keep in mind why real estate prices shot up. First, we had dangerously artificially low interest rates brought on by the Fed during the pandemic. Those rates were never “healthy” and with inflation raging out of control, the Fed has had to slam on the breaks. The idea of the free lunch is strong in a lot of people. Second, people were confined to their homes for two-years and many thought remote work was here to stay. That is absolutely not the case as companies bring people back either full-time, 4-days a week, or 3-days a week. In other words, being stuck at home is over and 2022 cleared out a ton of inflated equity.

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November 19th, 2022

The Housing Correction is In Full Swing – Gear up For Years of Housing Challenges as Inventory Grows and Low-Rate Years are Over. 4 Charts Showing Housing Correction Just Started.

There are many Americans that are going to painfully realize that the Fed does not necessarily love housing. Their focus is the overall economy and when housing is juiced up by low rates, we realize that creating a housing bubble as a consequence of low rates has repercussions. One of those is that once the low-rate spigot is off, you have a bunch of industries that get slammed because of this, including those in the housing cheerleading section. Another industry is the mortgage sector and banks like Wells Fargo and other brokers have seen traffic completely dry up. New home buying is being impacted and builders are now needing to give incentives and cut prices. Potential buyers with the economy slowing and high rates are unable to squeeze into crap shacks at inflated bubblicious prices. Does this story sound familiar? It should because housing bubbles are simply a reflection of artificial rates and easy money – this can be with absurdly low rates as we saw this time around or subprime debt and lax lending in the Great Recession. Same book, different chapter. Let us look at some data first.

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