[XBoxBoy]

The employment report came out this morning and it was pretty strong. In a strange twist, the stock market is dropping because strong employment means the economy isn’t on the verge of collapse, thus interest rates will have to be higher to slow inflation. Meanwhile rates on the 10yr jump this morning as well. It will be interesting to see where Mortgage News Daily ends up reporting today’s mortgage rate. Strange times indeed!

[XBoxBoy]

[quote=EconProf]To an and others:
What is clear is that San Diego’s competing cities in Arizona, Nevada, Texas, etc. are growing rapidly, as are their RE values. People (and companies) are voting with their feet.[/quote]

What a bunch of laughable malarkey. San Diego County’s population drops a third of a percent (0.33916 percent to be exact) and EconProf calls it a sea change, and claims that this drop of less than one percent is proof that people are voting with their feet. All hoping to justify their previous claims of California going to the birds. Give me a break, have the decency to put together a slightly coherent argument before posting such rubbish.

[XBoxBoy]

[quote=EconProf]As reported in early May, it lost 11,183 people from July, 2020 to July 2021.
[/quote]
Not sure if your statistic is for City of San Diego or County of San Diego. But if it’s for City of San Diego then the city is losing 0.35% per year. If for county it’s losing 0.16% per year. Either way it’s a pretty tiny decline.

[quote=EconProf]
No longer. I suggest the factors causing this sea change are only just beginning. Implications for real estate values in San Diego vs. comparable cities of AZ, Texas, Utah, Nevada, Florida–you be the judge.[/quote]
Sea change? Less than 1% per year is a Sea Change? The fact that you extrapolate this tiny decline into the end of good living in San Diego is showing your prejudices and biases.

[XBoxBoy]

Totally awesome. I’m curious, how much are you assembling from off the shelf parts and how much fabrication are you doing yourself? For instance, looks like the frame is aluminum. Are you welding the frame yourself? Maybe there are no welds, just bolted together pieces. But overall how much fabrication of parts do you need to do? Maybe being in the Navy you have access to a machine shop?

[XBoxBoy]

[quote=sdrealtor]Just found this in my daily real estate reading. Prices appear to be cratering and that’s without an inventory build up

Washington County, UT (St. George, fastest growing county per capita in US during pandemic): June Inventory, 1,175; Current Inventory, 1,203; Peak inventory from 7/2016 through current, 1,878 in 3/2019, pre-Covid average inventory, around 1,600
June Median Asking: $749,500; Current Median Asking: $685,000, peaked in March at $795,450[/quote]

Still too early to tell. Current inventory is below pre-Covid average and asking prices are just meaningless. Not until we get closed prices that clearly show a trend will you have a cratering.

[XBoxBoy]

Here’s the deviation chart btw:

[XBoxBoy]

Here’s an updated version of the chart comparing the Case Shiller to what we would expect the price of a house to be based on historical inflation and mortgage rates. Just to remind you the red is Case Shiller and the blue is the expected price.

I’m guessing that most of you will find that to be a pretty big eye opener, like I did. It shows that things are way more out of balance than I expected. Of course we all know things are out of balance, prices shot up the last two years and now that mortgage rates are rising, this has really opened the gap between where prices are and where they should be based on inflation and mortgage rates.

For those of you who prefer a log scale here’s the same data but with log scale for price:

When viewed with a log scale (which arguably is the correct way to view this data) things look less dramatic, but still a sizeable imbalance.

After looking at this, two questions come to mind for me.
1) What will be the path that brings these two back in balance?
2) How long will that take?

(On a side note, I also wonder if it is reasonable to expect that these two do come back in balance. Most the time I think about this, I come back to thinking they should, but I’m open to anyone who’s got a good argument why this isn’t so.)

Anyway, I’ll post the above now, and potentially later I’ll share some charts about where these graphs go with various assumptions (guesses!) as to where inflation, mortgage rates and prices go. If anyone has a scenario they think is particularly likely feel free to post and if there aren’t too many I’ll try to create the charts that show how that plays out.

[XBoxBoy]

[quote=gzz]a gentleman-rentier.[/quote]

Is that a fancy way of saying “Slum Lord”?

[XBoxBoy]

There is a post in the reddit thread that claims the data is erroneous:

[quote]Hi, I work with the econ team at Redfin. While I believe there is a correction beginning in Boise, this particular data is erroneous. We’ve got an issue with the weekly new listings data there that is causing it to look like they’re shooting up in recent weeks, but that’s not accurate.[/quote]

[XBoxBoy]

Watched an interesting Netflix show, “Keep Sweet: Pray and Obey”, about the FLDS and their ties to St George Utah. Made me wonder if EconProf has any ties to them.

[XBoxBoy]

[quote=davelj][quote=XBoxBoy]

Yes, and while that chart is certainly concerning, I don’t share the belief that that chart proves the fed caused all the inflation we are seeing.

[/quote]

I agree that the Fed has not caused ALL of the inflation we’re seeing. I’m not sure anyone believes that. But it has surely caused a lot and almost certainly most of it. If you look at the expansion of all Central Bank balance sheets since the pandemic began, that expansion (alone!) is roughly 1/3 of global GDP. It doesn’t take an Economics PhD to see how that would cause a fvck-load of inflation. Yes, fiscal policies, Putin’s douchebaggery, etc have all contributed to the inflation we’re seeing, but the Big Source is… the Fed and the other Central Banks. It’s math. (Paul Volcker turns over in his grave.)[/quote]

Hmmmm…. not finding your argument particularly convincing. Seems you’re mostly saying that since the start of the pandemic the fed and other central banks have increased their balance sheets a bunch, so ipso facto the fed caused the inflation. I’m looking for a stronger analysis to be convinced.

Also, if increasing their balance sheets causes inflation, why didn’t we have inflation (at least some) since the start of QE? The fed has been active with QE since November 2008 but the fed couldn’t even reach it’s target of 2% inflation for years. Why now did QE suddenly become the so effective at causing inflation when it wasn’t for so long? Sure, there’s more QE now, but shouldn’t we have had some inflation for the last decade prior to the pandemic? If it’s merely due to the increase in the size of QE what’s the inflection point that causes it to go from having no effect to having a bunch of effect?

[XBoxBoy]

[quote=Rich Toscano]I do think they matter. More than you seem to think they matter anyway.
[/quote]

Well, don’t get me wrong. I’m not really arguing that the fed doesn’t matter, more I’m questioning if they are as important as general wisdom says they are.
[quote=Rich Toscano]
– Supply chains and the war — federal govt stimulus

– The above two thoughts don’t actually really address the question of whether the Fed matters, though. Which is to say — it doesn’t really matter what caused the inflation… the Fed’s job is to make the inflation go away. Or put another way (and Jpow said this himself) – supply is what it is, and the Fed has to calibrate demand to that supply in order to get inflation to target.
[/quote]

That’s an interesting way to look at it. I guess what I’ve been wondering is how effective is the fed? We had bubbles before the fed was around and we still have bubbles with the fed. Maybe bubbles happen and the fed has fairly little impact on them. Maybe fiscal policy has a much bigger impact than fed policy. Keep in mind that most fed policy is much more reactive than proactive.

None of that is to say the fed is completely helpless, More to say that the fed’s tools are slow to take effect and the power of those tools is for the most part much more limited than people currently think.

[quote=Rich Toscano]
– So, if you think the Fed doesn’t matter, that’s the same as saying that they can’t – or won’t – reign in demand. I disagree on the “can’t” — they can jack up rates until they cause a recession, if need be. The “won’t” is more arguable but my view is that they really are committed to fighting inflation.
[/quote]

Just to clarify, I don’t think the fed doesn’t matter at all, or that I think they can’t or won’t try to stop inflation. More I wonder if this wave of inflation was caused by factors other than the fed policy why do we think fed policy will be what matters to stop it? And assuming it does go away in a year or two, how will we know that it was the fed that was responsible for stopping it? If forces outside the feds control, (ie pandemic stimulus, supply chain disruptions, war in Ukraine) all reverse and inflation dies out, how will you know how effective the fed was?

[quote=Rich Toscano]
– Also, I would argue that they’ve already proven they can make a difference. My view is that we’ve had a raging equity bubble going, and it’s probably in the middle of bursting, and you can more or less trace the beginning of that bursting exactly to a big pivot in Fed policy.
[/quote]

I’m not sure I’d agree we’re in an equity bubble, but I would argue equities went down because the equity markets believe the fed is super important. I don’t argue that an awful lot of people do believe the fed is super important. (Actually, my point of this thread was to say, “ahem… actually I don’t believe that.” And saying that I knew darn well I was not in the mainstream.) Also, trust me, I don’t in any way fault you for the original quote, it was totally understandable. I just thought it would be good to have a thread to force myself to think through some of these issues a bit more.

[quote=Rich Toscano]
– More directly you can see the impact on bond markets. So far this is the worst year EVER for bonds… I think that can be traced directly back to the Fed pivoting to a much more aggressive policy.

– And then there’s housing… you can bet that the housing market of this summer will look very, very different from that of last summer — due entirely to the change in the bond market, which is due in turn to the Fed-driven rise in rates.

– You might think – maybe rates are up because inflation is up, not because of the Fed. But if you look at rates and inflation, you will see that inflation was running quite high while rates stayed low for a while… the main inciting incident for higher rates was a pivot in Fed policy.

A lot left out here but in brief, that’s why it’s my view that “the Fed matters a lot”.
[/quote]

At this point we probably end up diving off to arguments about what “a lot” means. Not sure this distinction means anything, but I would think of the fed mattering a lot if their policies directly affect the economy in a substantial way. What I see you describing is how market participants react to the fed who they perceive as being important. Maybe think of it this way. If market participants actually believed that if Punxsutawney Phil saw his shadow on Groundhogs day the market would tank, and sure enough that happened, would you say that Punxsutawney Phil mattered a lot? I wouldn’t but I can understand the view that others would argue that. So, I wonder if we have an ineffective fed but a market that believes the fed is very powerful, and sure enough any little policy change has repercussions that are larger than the policy and far reaching. I’m not sure I fully believe that myself, but I think it’s well worth pondering. (And I think Bernanke used to remark about how managing investor expectations was more important than actual policy, but maybe I’m misremembering Bernanke’s quotes.)

[XBoxBoy]

[quote=deadzone]I would be more interested in knowing what % of cash buyers are living in the house as their primary residence. Probably can’t know that for sure from available data. But I would assume that most cash buyers are NOT purchasing a primary residence with all cash. I’m not saying it doesn’t happen, but doesn’t really make sense with mortgage rates so low in recent years. [/quote]

I would disagree, and I’ll use myself as an example. For a number of years my wife and I have been looking for a bigger house. We have been steadily saving money and due to stock market gains have amassed more than we would have thought possible. In early January a house we really liked came on the market in La Jolla. It was virtually all the things we had been looking for. When the house went on the market, the listing agent told everyone that cash offers would be preferred. So we made a full price cash offer, with an escalator clause. (30 day escrow) There were several competing offers and for reason I won’t get into here, while not the top price (but close) we were selected as the purchasers provided we would switch to a 15 day escrow. So, we agreed. Before January was out, we’d sold a shocking amount of stock and paid a ton of money for our dream house.

But, despite this being our dream house, that’s not to say it didn’t need some work and updates. So… we are in the process of getting plans for the remodel we will do, and it will easily be a year before we move in. So, looking at tax records, you will see that our primary address is the house we are currently living in, but will probably sell in a year or so when we move to the new house.

All of this is a simple example of how people buying houses for their primary residence with all cash exist out here. We aren’t investors, despite owning two houses, nor are we that unusual. I’ve know several other people in the area who have done the exact same thing we are doing.

[XBoxBoy]

[quote=deadzone]Have you looked at the chart of the Fed Balance sheet? [/quote]

Yes, and while that chart is certainly concerning, I don’t share the belief that that chart proves the fed caused all the inflation we are seeing.

[quote=deadzone]
If the Fed policy doesn’t control everything then why do the financial markets literally move based on Fed action (or inaction). Do you ever watch CNBC or other financial news?
[/quote]

Sorry, I just find this argument to be, “Everyone else believes this, it must be true.” Which to me is not a reason to go along with the crowd, but a reason to step back and question the wisdom of this view.

[quote=deadzone]
The Free money given away by the US Treasury for Pandemic relief was because the Fed printed trillions of dollars and purchased US Treasury bonds. If it were up to a free market, or without Fed money printing, those trillions of pandemic giveaways couldn’t have occurred.
[/quote]

hmmmm…. I don’t think I agree. My guess is that fed buying US Treasuries helped the US govt. but I think the US govt. probably could have floated a lot of bonds without the feds help. They might have had to pay a bit more interest, but I’m unconvinced that without the feds QE policy the US govt. wouldn’t have been able to give away all the money they did. (Or least close to what they did.)

[quote=deadzone]
But you are right it is impossible to know exactly how much of the inflation is caused by Fed money printing (i.e. QE) compared with the other factors.[/quote]

So, if you really mean what you say, that we can’t know how much inflation was caused by the fed, then you have to agree that maybe they aren’t nearly as effective as people claim. If we don’t know how much inflation was caused by the fed, we probably also don’t know how much inflation we are seeing is from fiscal policy, supply shortages, Ukraine war and companies reevaluating their pricing strategies. And if that’s true then maybe it’s time to admit that maybe, just maybe, the fed really doesn’t matters all that much. (And that’s my point.)

[XBoxBoy]

[quote=sdrealtor]Ok lets put this one to the test. Lets pick 4 zip codes and I’ll do research on what cash buyers look like in each. I get to pick one, DZ picks one, FLU picks one and I’ll throw out one wildcard to the piggs at large. [/quote]

I pick La Jolla. 92037

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