📈Crash and Burn
Over the last several weeks we have highlighted some parts of the market starting to crack under the stress of higher interest rates and continued inflation. Translation: We were right and you are about to be reminded about it.
Of course, this included crypto (a lot fewer people are telling me to have fun staying poor these days), which, btw had another multi-billion dollar scam, Celsius, exposed just weeks after our post…
Everyone's favorite, stonks…
And now the big bad market is coming for real estate…
Unlike stocks and crypto, the price of real estate moves much more slowly, largely because this is not a liquid market, and there aren’t millions of identical shares. Each market, neighborhood and even house are different, and the sales can take months. So while stocks can crash overnight it might take months for the real estate market to unravel.
Now, this does not mean we are expecting an unraveling to happen, but with rising interest rates, it is becoming much harder for people to afford the same priced house. That happens when the mortgage rate doubles in twelve months, a fact alone should give potential home buyers pause and, hopefully slow down the pace of home price growth we’re seeing today.
We highlighted this phenomenon several months ago and you can see why home pieces are no longer rocketing to the moon.
That is a huge difference in price!
So it is not surprising that the next thing you will hear is real estate prices might be coming down, or that we are in a “bubble”. Again this might be correct, and some millennials have even clamored for a drop in housing prices so they could finally afford a home. But since rates are so high, it is unlikely many could afford the home, even at these potentially lower prices.
Tallying up the state of current investing markets.
This is probably the point where you would ask me: what the hell do I do, then? Crypto is toast, stocks are tanking, and real estate is likely to be problematic.
The first response is to just keep buying into the market. We don’t know how long this bear market is going to last, but it doesn’t matter because we know that most people reading this will not need to touch their retirement savings for a long time. And in the long run, dollar cost averaging - that is, continuing to buy into the market at regular intervals (for most of us, when we get paid) - even when it’s scary, makes you more powerful than God himself.
It is a strange twist of human psychology that stocks are one of the few things that people get upset about when they go on sale. Buying the dip is all fun and games when things rally immediately but times like this will challenge you to keep buying even when it becomes uncomfortable
As for real estate, this could be a great time to buy.
Of course, you have to be able to afford the newer higher payments discussed above but if you can, let’s remember that real estate should not be viewed as an investment if it’s your primary residence.
So, if you can afford it, and you want to live there, do it! Take advantage of what might be a great price because guess what?
They let you refinance mortgages lower when rates drop! That’s right those idiots at the bank will just give you a better mortgage later on.
(In reality, they make a lot of money doing this and resetting your amortization schedule but that's a different story for another day, and huge drops in interest still make it worth it.)
What’s the Upside?
You will hear a lot of people saying things like “the real money is made in a bear market” or something dumb like that. The reality is nothing changes in a bear or a bull market if we are thinking long-term.
Buy stocks now when they are on sale, and keep buying when they go up again.
Buy the house you want to live in now, and enjoy lower rates and higher prices in the future.
Hit it Kunu.
For Your Weekend
When Shipping Containers Sink in the Drink by Kathryn Schulz (The New Yorker)
There is a stretch of coastline in southern Cornwall known for its dragons. The black ones are rare, the green ones rarer; even a dedicated dragon hunter can go a lifetime without coming across a single one. Unlike the dragons of European myth, these do not hoard treasure, cannot breathe fire, and, lacking wings, cannot fly. They are aquatic, in that they always arrive from the sea, and they are capable of travelling considerable distances. One was spotted, like Saoirse Ronan, on Chesil Beach; another made its home on the otherwise uninhabited Dutch island of Griend, in the Wadden Sea. Mostly, though, they are drawn to the windswept beaches of southwestern England—to Portwrinkle and Perranporth, to Bigbury Bay and Gunwalloe. If you want to go looking for these dragons yourself, it will help to know that they are three inches long, missing their arms and tails, and made by the Lego company.
Under the Banner of Heaven (Hulu)
Andrew Garfield anchors this twisty police thriller that explores the intersection of faith and community to solve a grisly murder. Based on the Jon Krakauer bestseller.
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