With the employment numbers jumping to 528000 from an expected 250,000 an upset of the apple cart in forecasts and the direction of the economy has occured.
People are going back to work. The people going back to work were those who were laid off or idled due to the pandemic. It was the service industry and the travel industry. It was all those who couldn't pay rent or their mortgage that the Government protected from eviction or foreclosure. So why the upset?
The low interest rates that created the situation we are in created a wealth of opportunities for risk takers and the growth industries. Investment are measured against "Risk free rate of return". That means 90-day T-Bills. When T-bills went to 0% or less the sky was open and mana fell from heaven. Every idea under the sun came out of the minds of the aggressive risk takers with little or no alternative to invest measurement of risk to.
The majority of investors in America are institutions. That means your pension fund, your insurance company and even your bank and broker. The risky investment took off, earning per share became another useless measurement of the past. There was a new normal. ( How often have I heard this comment.) A rationalization to keep the money flowing to high risk investments as there is no other choice. Does the investor keep their money in fractional return risk free investments or do they plunge with the crowd into stocks selling at multiples of income growth and no earning now or for the foreseeable future. What they offered now is appreciation. The Greater Fool theory in operation.
More assets created more disposable income created and excess savings with no place to go; other than, joining the crowd. Price became a useless measurement. We have money and we want it! I will show you how much money I have and over pay for it and make you give up. I WIN! REALLY?
Somewhere in the latest research from the McKae Properties Research Team came a report from either RedFin or Zillow that the last 10% in home prices was all worthless over bidding.
Open house are a common site along with Garage Sale signs today. A welcome return to the past?
The cost of living, is even putting into question the weather of California?
WE BUY HOUSES are still common so the correct has not taken hold. That leaves those who were considering to sell a chance to get out with something near the top their neighbor got.
Buyers now have the chance to buy a house without over bidding and or worry of over bids. Bank financing and appraisals save buyers from getting into over their heads. Things are beginning to get back to normal. The High End Market is seeing a stronger supply of sellers than the past. The low end market is seeing some relief in affordability
Price cuts are not a local situation, they are all over the country. Even realtors are in dismay of the situation. Take an Hawaii or Incline Valley cut of a $5 million property of $5-10,000 to our cuts of $500,000 to $1 million. I take that as the highly educated of our area see more risk ahead. Best position is to be n cash while interest rates are rising and the return on T-Bills go higher and higher.
Where to Go? I saw that Intel was building a massive chip factory in Chandler Arizona. Wife and I stayed in Chandler many times at her parents home in a +55 Community. Christmas and New Year's was fun. Cold in the evenings, parties at the Club House, Formal dressing with bands. Sunrise brought out shorts and 3 different golf course to choose from, Laying by the pool, water classes, or just sipping a "cool one" by the patio talking to new friends.
I looked at Zillow prices....My Word. The town house we sold there was up almost 100%...That was 18 years ago so it is logical. I asked the same McKae Properties Research Department for forecasts in Chandler on home prices due to the Intel Plant. DOWN 46% they said from Zillow forecasts! It doesn't matter what potential an area has the trend has reversed.
Is the the worst or can it be a collapse in housing? Poppy Cock!
The FED is only bringing rates back up to a level where inflation, asset inflation subsides and people can once again afford a home and pay rent without have two jobs. Remember it was the ultra low interest rates that created inflation and risk taking that escalated asset prices.
What you really have to worry about is the FED"s balance sheet. At present there is $8.9 Trillion dollars in assets. Those are all the bonds the FED has bought to put money into the system to keep from a collapse. A collapse from the Lehman Crisis of 07-8 to the Pandemic of 2020. The average balance before the FED embarked on Quantitative Easing, damn that word and concept, was less than $1 trillion.
The big risk is money is pulled out of the Money Supply. The you know what will hit the fan!
We are going through a transitional phase when the business cycle changes and high risk tech and growth stocks cannot compete with risk free rate of returns. Money does not flow like water from the horn of plenty.
Recent balance sheet trends
Choose one of the 5 charts.
As the economy grows bonds can slowly mature. Money supply created by the FED s replaced by economic growth and investments in corporate America.
Minimum wages will increase, labor will get higher wages, home price will come down and affordability will match off and all will remain level. Inflation will come down as home price increase attribute to inflation will offset other increases.
People want to own a home, it is not a trading vehicle. They raise families in them. They grow old in them. We need to get out of the will it go lower syndrome. So what if it does, you refinance at a lower interest rate. You save more. You work in the garden on weekends, have family over for cook outs.
It is time to get back to basics!
