Let’s get into it. Last month we had 1,897 active single family homes on the market here locally. A year ago we had 1,298. Today we have 1,644. Is this because of a slowdown into the holidays or because a lot more houses are going under contract? Let’s look and see.
November saw a drop in sales from October by 104 units. We closed out just shy of 900 units total in November which is actually a huge improvement over November last year where we only had 715 sales. That makes it not the slowest, but the second slowest November since 2015. One truly remarkable metric is the resilient median price hovering near all time highs still at $485,000.
Days on market continues to creep slightly higher into the mid 30 day range and the sold to original list price ratio is at a fairly unremarkable 97.5%. Honestly 2 years into the rate hiking cycle I thought we would see more of a consequence to pricing but so far that is just not the case. Perhaps part of the reason is this. 
I know I’ve beat this point to death but the M2 money supply has a .88 correlation coefficient to real estate pricing here locally. What we’re seeing now on the far right of the graph is M2 money supply creeping back up to all time highs. This truly is kind of scary if you think of inflation as a bad thing. It’s pretty amazing if you stay glued to your zestimate and measure your self worth through your home’s equity though.
We are truly living in fascinating times. The yield curve inversion that we sunk into October of 2022 damn near ended and uninverted right around the election, then poof! Right back down into weirdville.
Let’s zoom out a bit to the beginning of this graph going back to 1982.
This inversion is making history for being the deepest and longest. At least that’s what she said.
Now look. We as a world have fully embraced funny monetary and fiscal policy as a norm. The way that the US and other leading nations behave themselves, families never could. We keep running insane deficits and just printing off the deficiency as you can see on the M2 graph, at least partially. Our national debt is above 36 trillion dollars and our federal budget deficit is 1.8 trillion dollars, which is up by 8% over last year. This is all happening in an alleged economic boom. Interest payments on US debt are up by 34% year over year to almost a trillion dollars, per year, for just interest. There are 195 countries in the world. 170 of them have a GDP of under 1 trillion dollars, which is what we’re pissing away in interest payments to whom?
The conventional MAGA answer is “Chiiiiiiiinaa”. It is true that China holds some US debt but has been dumping it actively for the last several years. The leading foreign holder of American debt is Japan at just over 1 trillion. Overall foreign countries hold about 8.6 trillion worth of US debt leaving another 27 point something outstanding. Foreign countries hold American debt as a security because they feel that like American music and cinema it is better than the local shit.
Of that 27 trilly, 8 trillion dollars of debt is being held by……….drumroll………the US government itself. So its like you know, you borrow money from yourself, but then have the taxpayer pay you back. I tried to make this make sense so I asked AI to make it make sense, here’s what it came up with:
“Intragovernmental holdings refer to the portion of the U.S. national debt that the federal government owes to itself. This occurs when one part of the government borrows money from another part, typically by using surplus funds from trust funds or other accounts to purchase U.S. Treasury securities. These holdings are an essential part of how the federal government manages its finances and accounts for nearly $8 trillion of the current U.S. national debt.”
This is basically social security, medicare, and federal retirement plans that are holding US debt while also owing this money out people in the future. So it’s money that has already been spent, that is promised to be repaid to organizations that owe money today and tomorrow with more owed tomorrow than today. Fascinating times indeed. I imagine if private companies operated this way their CEOs and CFOs and the entire accounting team would go to prison. But basic economic principles and also laws do not apply to those nearest the money printer.
Now on the macro macro picture we have some serious global conflict and power struggle. You may turn on the news to see that the middle east this morning is not the same as it was last night. I mean, it’s kind of still the same in the sense that a variety of religious fanatics are trying to end each other, but like the names are changing. As the intro to one of my favorite video games states “war, war never changes” but the outcomes of these wars do change the world. WW2 brought us the financial system that we have enjoyed since then. These systems do not last forever and the fight for the next new world order is happening now.
Probably the biggest challenge to the dollar today aside from American exceptionalism is our own monetary policy. The second biggest challenge is up for debate and it could be argued is BRICS, or crypto, or by some geezers like myself maybe gold or something? But the dollar isn’t going anywhere fast and we have plenty more devaluing to go before it starts to really show on the global scale. You can just look right now at the strength of the dollar versus other global currencies, yet at the same time can look at the weakness of the dollar when you go to pay for anything here in the US.
As I’ve said before we essentially have 2 options in the short term. We either allow for this short term monetary cycle to end and embrace the suck that it creates……or…..we print off more money and kick the can yet further down the road. Let’s look at the pros and cons of the 2 options.
End the short term cycle and let the shit hit the fan. This means a rise in unemployment, which goes hand in hand with a rise in foreclosures, a drop in real estate valuations and probably a battering of the financial markets overall. Some people will “lose everything” and some people will capitalize. The people who “lost everything” will mostly recover everything they lost within 5-10 years of losing everything in my experience. This means a drop in housing prices together with a real drop in the cost of ownership i.e. lower monthly payments. This would allow more people, like your truly at age 24 in 2010, to buy real estate. 24 year old server, mind you, with a ton of bad habits. Who suffers in this situation? Again I asked AI to help me narrow it down and it basically said that the people who got hurt the most are home owners who had to sell at a loss, renters who got kicked out of properties that were foreclosed on, poor people, young people, and minorities.
You aren’t going to believe me but the very same people are going to be hurt by option 2 as well, however hold up.
Who benefits from a deleveraging then? Well the list for this question is much longer. First of all as always the devil himself benefits the most. These are your too big to fail banks, your hedge funds and any recipients of government bailouts. Props to you who put money and profit over everything, props to you.
But it’s not all bad. You see from a deleveraging you get opportunities for ambitious and hungry people to take advantage of. You get massive innovation out of crisis, you get better risk vs reward ratios that savvy investors are open to, you get things to happen like Detroit, MI that is seeing a revival after decades of neglect because it finally got so bad that investors could no longer avoid it.
You get opportunities for every day people like myself in my 20s to buy a house that served as a building block for everything I’ve been able to stack on top of it since. You see the failure of a few create an opportunity for many.
OR
We could just continue to print money, fund our deficits, pretend like everything is alright and embrace the $20 burger of 2026, the $30 burger of 2030 and so on. I joked in 2019 on these Friday updates about $17 burgers and $8 beers and now in 2024 I don’t find my stupid jokes funny at all. Also I’m sick of being asked for a tip in like every check out situation but I digress.
Who benefits from no deleveraging is the group of people that will win regardless. You see the top 10% of Americans control 67% of the wealth and the top 1% controls roughly 26% of the wealth. The bottom 50% of Americans hold, wait for it, 2.5% of the wealth. So the people at the top will see the value of their assets continue to rise while the people at the bottom will be increasingly priced out. Now before you think I’m going on some Marxist tirade here about how the proletariat needs to grab the means of production and yada yada yada, it’s not that. Point is a continued run up in asset pricing is only going to help the people that don’t need the help.
So I’m very much personally hoping that option 1 takes place sooner than later because I’d like to see an opportunity for people like myself 15 years ago to be able to get on a solid footing. I’m rooting for the little guy and the underdog. And going back to the macro macro picture if we really do get into a cycle of tariff wars and potentially more countries ditching the dollar then things really have the potential to get very interesting. Imagine if all those trillions of dollars that are being held by other nations and investors started to make their way back to the US. This is of course all kind of metaphorical because it’s not like ships worth of dollar bills will arrive at ports but the supply/demand balance for dollars could shift. And an abundance in dollars domestically can absolutely make our inflation of 2021 look like child’s play.
So my bet and my advice is that if you do see any type of downturn in real estate in the next 2-8 years then you should absolutely find a way to go long on it. Because the scenarios I’ve presented here about our two choices are both short term. Long term we have no choice but to print money and then at some fine point remonetize the system with a new dollar, or bitcoin, or shit coins of some sort. There is no long term outcome where we magically pay off our debt and go to balancing check books.
However, they don’t make land anymore. Oh and to answer the question from the top of the article, yea, more houses went under contract in November by a lot. I did notice this myself in the market with things selling faster, with iBuyers offering higher offers, and with even a few bidding wars. We legitimately did see a significant surge in buying after the election. Will it last? Time will tell.
And on that note good night and thanks for reading this mess.