This draft has been sitting in my folder for a couple months now. And is possibly some bandwagon jumping. Although at least I have been on the bandwagon a bit (Bears Watching: Observations In Real Estate). However, the transition to lower prices requires a psychological shift in the market, especially on the part of sellers, and that is going to happen reluctantly (and slowly).
I realize the residential real estate market is large and diverse. And, most homeowners are not transacting frequently making price moves somewhat less relevant for many.
However, I might be nervous if:
I bought a house in the last 18 months – to the right of the line on the price history chart below.
In an area with a price history chart that looks like this one.
I am not really a practitioner of technical chart analysis. But that is starting to look a lot like a head and shoulders pattern.
The question is – is how much of runups like the one above are due to inflation vs. speculation / an asset bubble driven by low interest rates. The inflation component is unlikely to subside. Or said differently, slowing inflation will not cause prices to retrace their prior ascent. Only deflation will cause that.
However, the component fueled by historically low rates stemming from monetary and fiscal policies that appear to be in the rear view mirror are at risk of reversing. In fact, they are reversing – you just have to squint a bit and adjust for the rapidly declining transaction volumes. Also realizing that asking prices on Zillow are not indicative of transaction prices.
But sellers will be slow to acknowledge that their houses have not doubled in price in the last two years and will be until forced to do so.
There’s a lot of commentary out there about how forecasting is fruitless.
Fruitless but fun.
So, let me call another peak (I called a couple here). You have seen peak Joe Manchin.
With the Nevada senate seat win giving the Democrats 50 and a solid and improving chance to prevail in the Georgia run-off now that the implications for control are gone (i.e., less Republic turnout), that would result in not depending on Joe Manchin for a deciding vote.
Who would have thought that would be a result of the mid-term elections? Seems like folks are getting tired of bat shit crazy.
Ukraine is on the offensive and retaking their country. Election deniers got the short end of the stick. You may have seen peak Donald – too early to call.
“If you stick to a path that is no longer worth pursuing, whether it’s a relationship that isn’t going well, or a stock that you’re invested in that’s losing money, or an employee that you’ve hired who isn’t performing, that is when you lose ground.” – Brain Food, Farnam Street
I have some thoughts here, but have not had the time to put them into writing. So I am not sure if they are good thoughts or not.
I continue to feel the risks here are massive and still mostly hidden, and there is a good chance of getting squished. Which I would prefer not to have happen. Squishing mechanisms include but are not limited to U.S. treasury market illiquidity, imbalances created by the currency market / massive USD strength, and real estate market trend changes.
Midterm elections will be interesting. But I cannot watch. There seems to be a faction of people that are “bat shit” crazy. And there is not a rational middle ground between “bat shit” crazy and not “bat shit crazy”. So, we should just stop trying. But tolerating “bat shit” crazy is not a good option.
And, I think you have witnessed peak Zuckerberg and Musk, but for slightly different reasons. Do you want to be bold and call peak Private Equity while we are at it?
Continuing to notch some “easy” reads:
And that got me to my objective:
Here are my most influential reads for the month – in no particular order:
Rare Skills – “People don’t like leaving opportunities on the table, and it’s counterintuitive to realize that you’ll likely end up with more than those whose appetite for more is insatiable.”
Brief amicus curiae of The Onion filed – “Rising from its humble beginnings as a print newspaper in 1756, The Onion now enjoys a daily readership of 4.3 trillion and has grown into the single most powerful and influential organization in human history.” SMS: Not a follower of the Onion, but this is some inspirational writing.
Summary of My Post-CPI Tweets – “It’s a mistake, the same one people are making in rents & home prices. Rates of change could mean-revert. Prices will not. Prices are permanently higher, b/c the amount of money in the system is permanently higher. This chart shows the price level. Not going back to the old days.”
You weren’t supposed to see that – “In total, the Federal government created $4.3 trillion in direct economic stimulus of which $3.95 trillion was dropped onto the economy, as if by helicopter, in a period of under 18 months.”
Note: This is based on when I read the article, not necessarily when it was first published. Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.