Down and Dirty this week

Something about an election · Inflation is still a thing · Interest rates are still inverted · Crypto cracks corn · Layoff continue · Water rights · A snake eating a chicken

There was something about an election?

Dear reader, are you, like me, quite bored of all the political blah-blah? There just ain’t nothing much (sic) substantive there other than rah-rah red team or rah-rah blue team. Someone please wake me when Washington does something meaningfully meaningful for us peasants.

But there was an election this week, and it was supposed to be a doozy. Promises, promises. But it went off more like an under-inflated Whoopi cushion. On the bright side, I don’t think either side was very happy. Which makes me happy. Epic historical Texan (and former governor) Coke Stephenson, when asked why as speaker of the Texas House of Representatives he allowed members to debate for hours on end, responded that when they were arguing they were not passing more laws to burden Texans (my paraphrase). Amen.

Iconic laconic Mister Texas himself: Coke Stephenson

At the state level it looks like we are in for more of the same. I look forward to the Texas legislature being in session if only because I will have topics to discuss that are not inflation, interest rates, Uncle Jerome and the Fed.

Soooo… inflation is still a thing (but not as much of a thing)

In a screaming demonstration of all things being relative, markets partied hardy after the release of this month’s Consumer Price Index (CPI). According to the Bureau of Labor Statistics, CPI came in at 7.7% (year over year) which was less than last month and less than what the ‘experts’ had predicted. ‘Praise Uncle Jerome,’ markets shouted, ‘things aren’t quite as bad as they were. Inflation has been solved forever!’ Ticker tape streamed from the sky and rates plummeted - with a snap and a clap the rate on the standard 30-year home mortgage plummeted below 7%. There’s nothing like 7% rates to make 6.5% rates look great. It’s okay everybody, good times are here again, right? Right?

Ummm… no.

One of my favorite Substack reads is . The author waxed eloquently about the absurdity of it all:

People are getting excited that the Fed may raise 50 basis points instead of 75 in December. In other words, raising rates to 4.5% is supposed to be some kind of bull case for stocks here. It’s absurd.
Even if the Fed raises 25 basis points in December, it is still raising interest rates and, meanwhile, we have not yet paid the tab on the rate hikes that we endured to start the year. The effects of December’s rate hikes - whether 50 bps or 25 bps - won’t be felt until well into 2023. By then, the 400 bps that came before it will be moving through the small intestines of the economy, preparing the market for an “evacuation”.

I agree with what said, and I highly recommend the read. I also reiterate last week’s Dirty Thought: all of this is going to take much longer than we’d like to think. The last real estate market debacle took 5 years to shake out. So calm down markets, and don’t count your chickens.

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Rates are down but the curve is still inverted

Yeah. This is not healthy. One can get a better return on a 1-year Treasury note than the cap rates on most investment properties. Risk and rates are completely distorted.

Crypto cracks corn (and I don’t care)

Crypto and crypto exchanges have been blowing up left and right. This week, some big crypto finance company called FTX (of which I had not even known existed prior to this week but apparently was a pretty big deal) went bankrupt and lost billions of dollars. Ho-hum. I’ve cows to move and rates to complain about. But all the hoopla is probably important because of that terrible thing called financial contagion. Which is like the Flu but for financial institutions: one really big financial institution gets sick and infects everything connected to it. I guess we shall see who remains standing after all is said and done.

I enjoy the economic philosophy touted by crypto bros but just never got around to pulling the trigger on any of it. It was too new. Too… bro-y. Whenever business-school-frat-boys get that excited about something, I just can’t help but be suspicious. Even when I like the underlying logic. I guess my gut was right on this one. Mark one down for the home team. Besides, I am a real estate person. And real estate is the original crypto: a hard asset that can’t be replicated beyond pre-ordained supply and relies on a chain of custody (e.g. proof of work). While I believe that blockchain as a technology still has a bright future (especially in the world of recording and storing real estate chains of title), I think the crypto-as-a-financial-asset space needed to go through a big bust to help shake the crap off its boots. Kinda like the dotcom frenzy so many years ago.

Layoffs continue

This week Facebook announced that they were laying off 11,000 employees. Disney will also start letting people go. Redfin is laying off employees. Builder’s FirstSource is cutting 2,600 jobs. A layoff here and a layoff there and pretty soon we’re talking about real unemployment. Layoffs on a grand and continental scale (if they materialize) will very likely be a catalyst to forced selling. This would be a game changer for real estate. There are those who say that the labor economy is still strong and that these events will remain small and isolated. Perhaps they are right. There were also those who said that COVID was not a big deal in January of 2020, and we all know how that turned out.

Craig Fuller 🛩🚛🚂⚓️ @FreightAlley

This might be the largest layoff in the history of freight brokerages, not related to a bankruptcy or acquisition. freightwaves.com/news/ch-robins… https://t.co/Qpe0iRtDrm

Advanced Water Rights

This week I attended a phenomenal class sponsored by the Texas Alliance of Land Brokers and taught by the always informative Texas land guru Dr. Charles Porter and his partner in crime attorney Jason Hill. It was 8 hours of amazing information about the absolute mess that is Water Rights in Texas. Here is a summary of the class: water rights are a can of worms locked inside of a Pandora’s box full of dyspeptic rattle snakes. Very much like mineral rights. The big take away is that when engaged in a land transaction where water is an issue, the wise land buyer should consult an attorney. Probably one who knows what they are talking about. After the class my brain felt like an overstuffed flour sack and knowledge was falling out of my ears as I left the conference room. If you are a land pro then I recommend that you take this class at the earliest opportunity. If you are not then I recommend you hire a land pro who has taken this class.

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What does it all mean for real estate?

The knowledgeable and the wary will prevail in this market. All the usual pitfalls to purchasing real estate in Texas exist (survey, access, minerals, water, etc) with the added stress of an historically remarkable increase in interest rates over a very short time period. It’s going to be quite the bumpy road going into next year (and maybe even throughout next year). The wise land investor will want to be nimble and quick to make it through the mine field. This means staying alive. This means avoiding bad deals and pitfalls. It means doing due diligence till you die. It means not moving too soon. Or too late. It also means jumping onto a really good deal like a coyote hops onto an unsuspecting prairie dog. And the good deals are a coming. Oh yes they are.

The Dirty and nerdy should not get too excited about the recent CPI print. I believe that CPI numbers will indeed start to fall over the next months. But remember that housing is one of the biggest components of CPI and that sector shot to the moon until June of this year. Also remember that the housing price measurements used by the Fed are very backwards looking and laggy (rents are only calculated every six months). So it will take months for that data to shake out and mirror what those of us knee deep in the trenches already know: real estate has come to a screeching slow. Backwards looking data are my biggest gripe with the eggheads at the Fed, and like a distracted teenager in daddy’s Mustang Uncle Jerome will almost certainly overcorrect us all into the drainage ditch. But Jerome doesn’t care. Because daddy will just buy Jerome a new Mustang because daddy can print dollars.

unusual_whales @unusual_whales

The Fed “hasn’t accomplished anything” in loosening the US labor market even after four consecutive 75-basis-point hikes, former New York Fed President Bill Dudley has said.

It’s been a while since I’ve written the following so it is time to mention it again: if you are sitting on a mountain of cash then you are the king (or queen) of real estate. The longer this market remains in quagmire, the more sellers will be willing to negotiate. If you are a seller then you will probably want to batten down the hatches and hold fast. If you must sell, you must also accept the truth that 2021 is in the history books and what was a raging seller’s market is gone for the foreseeable future. You’d better have a good sales and marketing strategy in place. And you’d better be flexible the likes of which you haven’t had to be in a few years.

Folks, we are on the early side of this mess. The chicken will take a long while to move through the snake. Over-inflated asset values are the plump and feathery chicken. The economy is the snake.

What? What did I miss?

Dear reader, I read and absorb and regurgitate as much as I can. But my vision is narrow, and I’m sure I missed something. Please help fill in the holes and leave a comment.

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Texas Land This Week

The following information comes from LandWatch.com. (Please read the data disclaimer footnoted below1).

October Price Data By County

Listing data: as of November 12, 2022 there were…

14,160 acreage properties listed as Available
- An increase of 0.60% from last week
- An increase in 0.62% from last month
987 acreage properties Under Contract
2 properties up for auction
Five counties with the most listings:
- Grayson County - Texoma Region (267 listings)
- Edwards County - Edwards Plateau West Region (266 listings)
- Hunt County - Dallas Prairie Region (234 listings)
- Henderson County - Piney Woods North Region (229 listings)
- Gillespie County - Highland Lakes Region (224 listings)

For the last 7 days there were…

579 properties listed or changed
8 properties marked as under contract
4 properties identified as Sold
Five counties with the most listing activity in the last 7 days:
- Cass County - Northeast Region (25 listings)
- Hudspeth County - Trans Pecos Region (23 listings)
- Bowie County - Northeast Region (17 listings)
- Edwards County - Edwards Plateau West Region (17 listings)
- Upshur County - Northeast Region (13 listings)
This image links to an interactive map.

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. I hope that you will also follow me on Twitter:

Dustin@theDirt @TheDirrt

Stocks are way down for the year. I heard it from the lady seated behind me at a middle school football game. No, seriously. That happened. Market talk by wildly gesticulating grandmothers in the bleachers. Surely that is a bad sign.

LandWatch.com and LandsofTexas.com

MarketWatch App (market quotes and data)

NAHB’s Eye on Housing blog

FRED: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis

Texas A&M Real Estate Center

Texas Association of Realtors

Austin Board of Realtors

North Texas Real Estate Information System

Houston Association of Realtors

San Antonio Board of Realtors

1

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.

theDirt

theDirt Weekly: November 12, 2022