What is going on with Real Estate and Interest rates? This is a question that many are asking right now, including myself. I started in the mortgage business while I was in college in the early 1980s, so I have seen a lot about the industry. My father was in the mortgage business before me so you could say I grew up in the business. I received my bachelor’s degree in economics and started full-time in the mortgage industry in 1986. Things have changed over the years in the business, but the core of the business has remained the same. When I started in the business there were no computers and everything that is now printed by a computer was hand typed and there were no fax machines or cell phones at that time either. From a technological standpoint, there have been many changes but the way we qualify a potential home buyer for a home loan has not changed. The Stock Market’s DOW Industrial average was around 2500 in the early 1980’s so things have changed there as we are over 38,000 today. I have observed many changes, some for the good and some not so good but overall up to this point in my life I can say the business cycles have been pretty consistent.
What I am seeing now is something I have never seen, nor did I think I would see in my lifetime. Like I said above the business cycles have been pretty consistent over the decades until now. With all the economic data I see and more importantly, what I am observing is happening right now is scary. I have always trusted the economic numbers that have been spoon-fed to us from the government until now. Yes, I have lost confidence in the system I helped create throughout the years. When the executive branch of our government stands in the public eye and lies directly to us I have to believe that everything that doesn’t fit their agenda is a lie and that is very sad for America. When I hear the powers at be say that Bidenomics is working and America is thriving I have to call B.S. We all know that things cost more than ever at the store, at the gas pump, and with housing so why is it that the powers at be say otherwise? I try my hardest not to get into politics on this blog but is has gotten to the point that I have to bring it into the conversation as this is why the Real Estate markets are sluggish and interest rates remain high.
My observations in the Real estate markets are that people want to buy but with prices so high and interest rates that are too high, they can’t buy. Inflation has made the cost of everything go up and the value of the dollar goes down. So, when prices of Real Estate should have gone down with higher interest rates and lower demand, we have seen Real Estate values stay the same and, in some markets, continue to go up. The reason for this is that inflation has caused the dollar to go down so much that housing prices have stayed the same which means that they have gone down as inflation has eaten away the buying power of consumers. To put in in other words as inflation makes the price of things increase it also devalues them in that fewer people can afford to buy them. What higher interest rates should have done without inflation is to cause fewer people to be able to afford housing thus slowing the demand and making sellers of real estate have to lower prices in order to sell. As we have observed with the higher interest rates over the last 2+ years Real Estate prices have not reduced as they should have or were intended to do. They have stayed steady or have gone up and this is due to the inflation or the devaluing of the dollar which is the same thing.
What is going on here, you ask? It is pretty simple from my standpoint, but I am not sure our education system is actually teaching these concepts for the younger generation to fully understand. To be clear, how the dollar devalues is simple economics. The government is spending more money than ever, thus putting more dollars into the world economy. When you have an oversupply of anything the value of that item will go down and that is what we are seeing with our US Dollar. The national debt has risen over the last 3 years from $30 trillion to north of $34 trillion consumer debt (Revolving debt credit cards) has risen to historic highs of over $1 trillion in the US alone. This means that every Citizen of the US bears the liability of government spending. When we send Billions and Billions of US dollars overseas this becomes a double whammy in that there more dollars are in circulation but no benefit to the American Citizen. Ironically a lot of the money the US is sending overseas is to protect the borders of other countries while our borders are wide open. This poses many problems for our economy, the most obvious problem is that as more dollars are pumped into circulation the value will continue to decline, thus inflation. You may have heard that” core inflation” has come down which we all know to be a lie, however, core inflation is the price of those goods that exclude energy (gas and fuel) and food prices which is what most middle-class Americans use the most. When your cost of living goes up so high that you can only afford food and housing you have lost wealth and wealth potential.
How do we get out of this cycle of lies and deception from those we used to trust to give us the truth and who are constantly lying to us? I would say vote them out and start over, however, deception, lies, and corruption have taken over the media, social media, and the voting booth. You see when the average citizen loses confidence in the voting system, we have lost our constitutional Republic. When you hear that the United States is a democracy it is not, it is a Constitutional Republic, that is the kind of rhetoric we are hearing that is either a lie or something they want you to believe. I am tired of people blindly believing everything they are told; we need some real changes quickly or our way of life we grew up with will be gone forever. We as a nation are as close to a tipping point as ever before in our history and my fear is that with spending for foreign wars, out-of-control illegal immigration, and corrupt leadership we are very close to something we all should fear. What we need to do is to come together to see what is happening right before our eyes and collectively do something about it. If we don’t stand united, we will fall divided.
To conclude, the Real Estate and Mortgage Markets are being drastically affected by the ridiculous monetary policies put forth by the current administration. With out-of-control spending outside of our own country, cutting oil production in our country, and starting foreign wars we stand to be in this type of crazy economy for a long time without some significant changes. My next big concern will be a crash of the stock market due to American companies not being able to profit like they have been able to in the past. We must also watch the emergence of the BRICS monetary system that Russia and China are spearheading this could cause further inflation by the devaluing of the dollar on the world stage and if the BRICS system replaces the US Dollar as the world’s reserve currency, then we have more problems than I can write here. This has not been covered in the media and is one of the biggest threats to the US Dollar in our lifetime. This could also be one of the underlying reasons it seems we are marching into World War 3 to prop up the dollar. To think how many people will die in a war so the US Dollar is protected when other moves could have been to avert this situation. This is a very pivotal time in our history, and it seems that our media is more concerned about who’s feelings are getting hurt rather than the hard-hitting stuff we all know is going on and we should be concerned about. So, if you are reading this I hope you understand the magnitude of what I have written and I pray it doesn’t get censored in our so-called free society.
PS
I fear we may have gone too far with out-of-control corruption to the point where the economy as a whole is suffering from incompetent leadership. If we don’t get immigration under control we will have too many people trying to get the same jobs and the same housing that American-born people need. As it is those same immigrants are getting government checks or taxpayer money to compete with natural Americans for housing, food, goods, and services not to mention that these people have not been investigated properly at the border so there may be bad people that could hurt Americans or damage property or worse we don’t know. This is causing a higher demand for housing and the longer it goes on the more it will hurt the American people. Crime is also rising in the cities where these migrants have gone and is getting worse every day.
Have you checked the price of Gold lately? If you do you will see that it is bumping up against $2,000 an ounce. This is about a $700 an ounce gain since March. It is fantastic if you own gold, but what is this signaling? Traditionally gold prices rise as an offset to inflation, but we don’t have any nor do we see any inflation in the future with more people out of work due to the COVID-19 scare. So why the sudden increase? So many questions as to what is going on in the world these days that things of late seem to be backward. The stock market hitting new highs during a pandemic with so many out of work. Interest Rates are at all-time lows. And the government is handing out money like it is nothing.
Unfortunately, the ladder is probably what the reason is for the increase in gold and silver prices. The reason is simple and yet complex. When the government puts so much stimulus (money) into the economy eventually that money will make it back into the economy, which is good right? Not always, as people view the government stimulus checks as “free money” so they spend it on other items than food and necessities. This effect has not been quantified yet in the economic world as we have never seen this in the history of the U.S. People that didn’t need the money to survive simply put it in their savings or invested it in the stock market. The government is considering another round of stimulus checks as I write this and there are a significant amount of people that really need the money yet there are significantly more that don’t need it. There is no real way for the government to determine who needs the money and who does not. Tax returns can show what people make but they are not accurate as most people write off as much as they can. So, the Government sends the checks out to all Americans to keep people spending and since we are in uncharted territory with all this stimulus gold and silver (precious metals) see this as a potential for future inflation.
The Government has also implemented the Paycheck Protection Loan (PPL) Program for small businesses. This program provided small businesses (businesses with less than 500 employees) with loans that can be forgivable under certain circumstances. Some of these “small businesses” received millions of dollars with no oversight. We are seeing news now of people buying expensive cars and other things with the PPL money. We have no idea who received the money, how much, and how they are spending it. I myself was offered $150,000 for MAE Capital Mortgage Inc. which I declined as we remain busy even though I had to lay off our receptionist and my wife. I might be too conservative in not taking the money given to me, but I was raised to borrower money only under dire circumstances or to leverage Real Estate. In addition, we don’t know what the payback terms will be as the government has not done its due diligence and could end up hurting more than helping, we just don’t know yet. This could lead to even more bankruptcies when these loans become due. Precious metals are taking this into consideration in a belief that there will be inflation due to this uncontrolled government spending.
Then there are the unemployment benefits that were pegged at an additional $600 a week and that was in addition to the state unemployment money that was, at it’s maximum, $400 a week. So, people have been getting $4,100 a month, and for most people that was a raise without work. This has created a disincentive for employees to go back to work and employers that have seen a slow down will not feel a responsibility to hire back the laid-off employees in the short term knowing they are getting paid by the government. This has created people with more money then they had before when they were working full time and time to spend it. This has contributed to more investment in the stock market in hopes of making even more money from “free money”.
These effects are why precious metals have been rallying. We are also seeing an extraordinarily strong Real Estate Market. These are assets that will grow if there is inflation or the devaluing of the dollar. The devaluing of the dollar to other currencies worldwide will cause an immediate increase in cost for goods that are imported to the U. S., and you guessed it, China will be the big winner of the U.S. Stimulus packages. It appears, as I write this blog post, that the U.S. government is negotiating for yet another stimulus package. This is a huge reason for the increase in precious metals prices as people are looking to the future to see the inflation coming. People will also ask the question; “is this political”? I won’t go there in this post as I believe there is definitely politics involved on both sides, but if and when the next stimulus package is released it will pump even more money into, what some believe an already bloated economy. We have all been hearing how people are really hurting with this pandemic, I would argue that sure there are some hit hard, but the majority of folks are doing just fine and more money will mean more spending which will put more inflationary pressure on our economy. As we are starting to see shortages of some products since a good portion of the U.S. labor force in manufacturing was laid off for a month or two or more. This shortage of supply of goods will drive prices higher thus creating inflation in areas where there would not have normally been. All these factors are scaring the economically minded person, and if you study basic economics you will read that holding assets during inflation is the best thing to do other than holding on to cash. The reason is that assets will increase in value and cash will decrease in value and precious metals are the original assets to go to during inflation. These are the reasons for looking at precious metals and why they are increasing at an alarming rate. On the Real Estate end of this discussion, we are seeing a rising real estate market outside of big cities. I will be following this discussion as the world evolves and posting more updates as we move further into stimulus and the pandemic. www.maecapital.com