The Down and Dirty (TL;DR)
Many people look to the markets and the economy as a sort of game. You move then I move. The boundaries are set. The rules are clear. Knight to queen seven and checkmate. But nothing could be further from the truth. This game is not linear. Moves are not discreet. There are many players and they all play at once. The game never ends. And the future never turns out the way you expect. This is, after all…
The Game of a Billion Moves
It is a game with a billion players. They all have a shot and a move and a chance. All of the moves occur simultaneously. It is a game with rules that change and boundaries that shift. For every move you make your opponents are also moving. They are reacting. And then reacting again to yours and other’s reactions. Billions upon billions of times over. Unto infinity. And you are left stuck and grasping for why the expected never seems to happen just the way you expected it.
We, Human(s) come pre-programmed to think linearly. We think in terms of causality: if X, then Y. If I touch the flame then it will burn. If I poke a bear with a stick then it will eat my face. If I swallow that berry then I will die a horrific death. Cause and effect is how we learn about the world in which we exist. That world, after all, is a big place and complicated, also dangerous, and with too much information for one little, Paleolithic brain to grasp. Thus, to merely survive, simple cause and effect is a good enough approximation for most daily caveman dilemmas; our simple assumptions of the world were (are) true enough consistently enough to get enough of us through life.
And, for the most part, that is still true. We get through each day relying on old patterns and basic assumptions. But the modern era has a different set of problems than predators and food. Modern survival is, in fact, a different game altogether. It is arguably a much bigger world. The human population is almost 8 billion strong. We have mastered much in the way of science and with incredible innovation and technology have largely solved the old problems of dodging mastodons and starvation. We are interconnected like never before. And, I posit, while life for many of us is safer than in the Way Way Back, it is also far more complicated. In this digital age, the magnitude and velocity of available information is mind-numbing.
But despite the realities of this complicated world, our simple belief in cause-equals-effect still underlies the policies of our institutions and government. It underlies the controls of those who regulate our market economy. If I do X then Y will result. If I raise interest rates then money will become more expensive and the economy will slow. The logic looks good on paper. As one famous economist recently wrote, “the math works out.”1 But as demonstrated by the incredible fiscal stimulus that resulted from the COVID crisis (and its subsequent effect on real estate), the actual result may veer far from the path of what was intended.
The Fed Moves, I move, You move, We all move
This essay occurred to me after reading and commenting on the tweet above. The Fed is making its move to achieve its desired effect: decrease inflation by cooling the economy. But the governors of the Federal Reserve are not the Grand Masters of the game that they suppose they are. Because while the Fed is enormously influential and their game pieces very powerful, the rest of us also get to move. The biggest of us, those large companies and corporations with true market power, might even make moves to negate the will of the Fed in small ways. They have businesses to run and profits to make, after all. They have shareholders to which they must answer. It is their duty to make money, to avoid the loss of recession, regardless of the Fed’s will. It is in their best interest to react as they can. Taken as a whole, the sum of all of these little moves might be enough to completely foul the soup.
And then there is the biggest player of them all. That player is a real monster. It is the institution that represents our collective will (in theory). It is called the Duly Elected Government of the United States. I do not believe that they (the players within the government) are all amused with the Fed’s moves. Especially in an election year. Of course, these days it is always an election year. And the powers at be are not wont to let the people suffer without seeming to take some action - lest they bring upon themselves the doom of getting thrown out of office (I think all politicians learned something from the French and Russian Revolutions). The board thus set, the realm of imagined but plausible possibility is pretty expansive.
Expect the unexpected; look to the many ways in which we are blind
The point, dear reader, is that none of this (I use the word ‘this’ in its broadest possible way) is going to go exactly the way we think. In the context of housing and real estate, the path out of this recession might be close to the general consensus: the Fed raises rates and deflates (slowly) the Everything Bubble until some breaking point is reached and then rates are cut and everything is great again. So much like landing a plane before taking off again. All controlled. All on purpose. Meh, I doubt it. More likely the result of this new situation with its own set of circumstances might be something we absolutely did not expect. Something we could not even anticipate. I wonder, dear reader, what if…
My first concern is whether the Fed can, in fact, tame inflation. My intuition tells me that it (inflation) might be already off the rails. Maybe to such an extent that even Thor’s mighty hammer cannot beat the beast back into its cage. There is a global realignment occurring. And I don’t know that the Fed’s piddling with interest rates is enough to tame that Titan of change.
The Fed is (supposedly) outside the political fray. It is neutral. Agnostic of political party. Even if these lofty ideals are true, other parts of the government are highly partisan. And their moves make big waves. And we seem to be testing the waters on how a government, and therefore the party in charge at the moment, can win people over by killing their debt. I speak here, of course, of the student loan forgiveness currently in the works. I can’t help but wonder, if the Biden administration gets this one done, if they get the ball past the defense and over the goal line, does it become precedent and precursor to mortgage loan forgiveness in the future? Are we headed to a modern debt jubilee?
The Federal Housing Finance Administration (FHFA: the one in charge of setting rules for federally-backed loans) might increase conforming loan limits (yet again) to over $700k this November. This allowance for sky-rocketing home prices, however, does nothing for payments in the face of increasing rates. And, let’s be honest, our average home-buyer usually tries to get the most house that they can manage on a monthly payment basis. They are concerned mainly with payment within their income and budget. Might we then see the creation and rise of 40-, 50-, even 75-year conforming mortgages to lower payments to levels which the common home buyer can afford?
And what about loosening lending standards? Did you see this doozie…
Dear reader, these are simply shots in the dark. These are NOT predictions. They are merely questions I consider as I stare into a mirror in a dark room. Are the scenarios possible? Absolutely. None of these are defying gravity type of situations. Are they plausible? Yes: We, Human(s) are brilliant at changing the rules mid-game. Look at Quantitative Easing and TARP in 2008. And how about the enormous fiscal action in the wake of COVID in 2020 (mortgage forbearance, eviction moratoria, and direct-payment stimulus). So are these scenarios therefore worthy of consideration? At the moment I think yes. I’ll let you know if I change my mind. Are they worthy of preparation? Yes, if I could only figure out how to prepare for them.
Finally, will there be years of reverberating and unintended consequences of each and every single move made? Absolutely, one hundred percent for sure, yes. To this day, our economy hums in tune to the vibrations of COVID, the 2008 crisis, the Great Depression, the Civil War, the Revolution, etc, etc. Like a big slinky, the past causes the present to wiggle. Each of the aforementioned events caused us to change established norms and rules and alter forever our Culture of Exchange. Unintended consequences is an assumption upon which I base my entire worldview. Unintended consequences are a necessary byproduct of The Game of a Billion Moves. These Unintended Consequences become the Black Swans, the Unknown-unknowns that We, Human(s), with our linear, cause=effect thinking, can’t even conceive until they are nigh upon us.
What does this mean for real estate (and for you)?
In the process of writing these essays, I often come to the conclusion that I’ve lost the point completely and am flying in darkness (such is the immense difficulty of writing - a challenge that I find exhilarating). I wonder just what the hell it is that I am trying to say. What lesson am I attempting to impart? How exactly am I trying to serve you, dear reader? What actionable intelligence can I offer? This essay was, after all, a deep dive into philosophy so the practical application is not always obvious.
The original point, a very important point to keep in mind when you read or listen to the bumblings of the ‘expert class’ (this includes me), is just how complicated (chaotic) a system that our Culture of Exchange is. There are so many inputs. There is so much information. There is so much going on that it is too much for any one person to grasp. The best that any of us can do is to explore widely to get as much information as possible in order to identify patterns and trends which will help us make decisions. At the same time we must try to understand the limits of our knowledge and accept that there is so much that we will never truly grasp. We must also accept that the particulars of the future are absolutely unknowable: e.g. I am pretty sure that winter will be cooler than summer but I have no idea to what magnitude, when it will start, how long it will last, etc.
The very good news is that we do have laws and rules and norms that guide our society. Humans do also have basic tendencies which define patterns and trends. These can be approximated into assumptions that guide our everyday decisions. These interlocking patterns and trends are the metaphorical slinky in which we all exist and it is possible to see how it will all shake in a very broad and general sense. So the world isn’t all chaos and terror.
Another subtle but important conclusion is that each of us has individual circumstances. Each of us have feelings, one way or the other, about real estate and the various markets that comprise our economy. Each of us is looking for different types of real estate in different regional markets. And while each of us, being very small players in a very big game, must necessarily abide by the ever-changing rules that the Bigger Players set, we each also have a choice. We each also have a move to make. Individual circumstances require individual analysis. Just because “the market” is making some big move on average does not mean that you should or should not buy (or sell). The constant chattering of “the market” is just more information to decipher to come to your own conclusion.
Oh, and I happen to be here to help, dear reader, if you need it. I just happen to speak the language of the market. While every decision is yours, you need not decide in a vacuum. The world is too much for any one person and true wisdom is honed upon the steel of your fellow humans. I am, after all, a big real estate nerd who wallows, much like a pig, in this cesspool everyday. Willingly. Because I like it. So feel free to reach out: email me at dustin@grandlandco.com; or comment on this post; or find me on Twitter @thedirrt (my social addiction of choice); or send smoke signals. Okay maybe not smoke signals. In any case I wish you great luck in The Game. Your move.
Texas Land This Week.
The following information comes from LandWatch.com. (Read Data Disclaimer2)
As of September 9, 2022 there were…
13,470 acreage properties listed as Available
1,122 acreage properties Under Contract
Five counties with the most listings:
Grayson County - Texoma Region (263 listings)
Hunt County - Dallas Prairie Region (261 listings)
Edwards County - Edwards Plateau West Region (242 listings)
Smith County - Piney Woods North Region (220 listings)
Van Zandt County - Dallas Prairie Region (211 listings)
Price per acre trends for these five counties:
For the last 7 days there were…
587 properties listed or changed
8 properties marked as under contract
0 properties identified as Sold
Five counties with the most listing activity in the last 7 days:
Edwards County - Edwards Plateau West Region (28 listings)
Gillespie County - Highland Lakes Region (18 listings)
Harris County - Houston Region (13 listings)
Denton County - Dallas Prairie Region (12 listings)
Van Zandt County - Dallas Prairie Region (12 listings)
Price Trends for these five counties:
Important News.
Interest Rates (Compliments of the Mortgage News Daily app for iOS and my iPhone).
Financial Markets (compliments of the MarketWatch app for iOS and my iPhone).
Stuff about Texas.
The Dirt Recommends.
I have two recommendations this week. First, if you are at all interested in further reading on the philosophy of market chaos, I highly recommend starting with The Black Swan by Nassim Nicholas Taleb.
Second, I highly recommend you check out Morgan Wade’s newest EP: Acoustic Sessions. I have been a fan of her raw, Americana twang for a couple of years now. While her newest album is good, it is very produced. My favorite Morgan Wade is her voice and a guitar which makes this release very satisfying.
Where I get my information:
An analyst’s analysis is only as good as the information they possess. As the old programming saying goes: garbage in-garbage out. The following is a list of my sources…
I follow a bunch of smart people on Twitter. A sample is represented above. You may also follow me on Twitter:
The Amazing Realtors with the Grand Land CompanyLandWatch.com and
MarketWatch App (market quotes and data)
FRED: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis
North Texas Real Estate Information System and Heartland Realtors
Houston Association of Realtors
Paul Krugman in The New York Times.
Disclaimer: The information is based on properties that are greater than 10 acres and which I refer to as ‘acreage properties’. This information is single source. Which means that this is NOT an exhaustive list of all properties available and sold everywhere in the Great State of Texas. Texas is a non-disclosure state and is therefore a Dark Market. This means that there are a great deal of data that are hidden, dispersed, not allowed to be shared publicly, or just plain unavailable. The following information is for reference and entertainment purposes only.