State of the Market

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Real Estate

Even this is selling at record prices right now.

So are we in a bubble?  Yes, possibly. 

Are we seeing the beginnings of more than "transitionary" inflation that the Fed claims we are seeing?  Yes, probably.

So is it a good time to sell? Possibility of a Definite Maybe.

No one has a Crystal Ball towards the future, except for what we find in the Bible, but we need to read the Tea Leaves to try to make sense of the current environment.  Disregarding the Political atmosphere which is extremely toxic right now, we have to consider the Real Estate market and the economy as separate entities for the moment.  We are seeing the Fed create money out of thin air at rates never before seen and that dilution of the dollar is having an impact on inflation.  We are also seeing crazy prices and extremely low inventory, which has been a long term trend for over a decade now.

Long term Real Estate Listing's Trend

HOWEVER, while the overall trend in that graph shows declining inventory, if you look closely at the DFW chart-line, you'll see a trend-line for increasing inventory since bottoming out in 2016.  A quick predictor for when prices will rise and when prices will fall is the amount of inventory.  With limited inventory, prices will rise and with a glut of inventory, prices will fall.  It's basic supply and demand.  So right now we have an environment where new home builders cannot build as fast as they want to and it's not just because of a lack of materials such as lumber.  While lumber prices have risen dramatically by almost 300% in the last year, the biggest issue facing new home builders is the unpredictability of the buying market and the fact that prices for all their construction costs are rising so quickly that they don't want to price a home until they know what all the costs will be.  So new home are being released sparingly and only at the last minute.  Builders are not constructing to a customer's order, and are only building generic spec homes because they know the typical build time for a customer order is 9 months and prices are rising so quickly that by the time the home is complete to customer order, the builder will have lost a ton of money because the pricing would have been determined when the contract was originally signed.

We also have a situation where homeowner's know that if they sell, they won't be able to buy something similar to what they have without having to spend a lot more money to get something comparable to what they already have.  So homeowners are upgrading and not moving.  

We also see here below that home price increases are currently in line with the trend-line from the 90's.

Home price increases since '91

(FHFA House Price Index)

So are we in a Bubble?  Most likely, not yet.  But when we see home inventory increase dramatically, then yes that would be expected to be the peak and we are not there yet.  But we'll keep an eye out for that key indicator as to when the market might burst.  My guess would be that inventory might increase once the Fed runs out of bullets to fight inflation, which will happen soon and they've already said that they aren't going to be as aggressive fighting inflation going forward.  If inflation really takes hold and mortgage rates rise dramatically, that will slow home price increases and that seemingly stable market will attract sellers and that glut could be the peak of inventory that we are keeping an eye out for.