Down and Dirty this week
Uncle Jerome whips us all with increased rates (with more to come) · Inflation report from the front lines · Yield Curve is still inverted · Facebook says no to Austin · Job losses mount but overall employment is still strong · We only see the tip of the iceberg · What it all means for real estate · Texas Land Report
Uncle Jerome takes off his belt and threatens a serious spanking
It all started with a rate hike. And it was a rate hike we all expected. Seventy-five little old basis points. Just and due penance for our past crimes. And like the naughty kid waiting for daddy to come home and learn of our vile deeds, we all trembled and waited for the inevitable. And like a good father-figure (but I call him Uncle which is weird but whatever), Uncle Jerome issued a statement which acknowledged our sins and the need for reprimand while also assuring us that he would love us forever. This was going to hurt him, he said, more than it would hurt us. But then someone let the press into the room, and they ruined everything! The next thing you know, Uncle J rips his belt from his waist and threatens us all with a very red face. “The beatings,” he raged, “will continue until inflation goes down!” Dear reader, the room was awkward and quiet. And then through the sobs you could hear the economy tremble and rates rise. The message was clear. We are really in for it now.
Well, that is my take on Wednesday’s Fed rate increase announcement and subsequent press conference. Uncle Jerome was explicitly clear that they would not stop hiking until inflation returned to 2%. The boring, undramatized, but very important version:
Inflation Report from the front lines
So inflation is still at thing. I sent my oldest to the store yesterday. I told him to buy four gallons of milk (we drink a lot of milk) and a bag of dog food. After a very quick and rather thoughtless mental calculation I gave him $20. He came back and told me that a bag of dog food and two(!) gallons of milk cost $37. I am now looking to sell a dog and buy a milk cow.
The yield curve is still inverted. No Biggie. Whatevs
The yield curve is still inverted. After Uncle Jerome’s harsh presser on Wednesday, it is becoming even more inverted(er). This is not a good thing for all the reasons I’ve already harped on.
Facebook says no to Austin
A few weeks ago I wrote of Facebook’s (Meta, pffft) backing out of an office lease in New York. Facebook announced this week that they are doing the same in Austin. In the macro-grand-scheme-of-things is this a really big deal? Maybe not. But I believe that all real estate is connected to each other just like I am connected to Kevin Bacon in some six-degrees-of-separation tangential way. It’s all a big, giant, rippling slinky. And I also take the accumulation of these news blips as signals of a possible ripple. Speaking of which…
Job losses are beginning to accrue (but employment numbers remain high)
I hate low unemployment. It is just killing the economy. Which is weird but such is the kinky new reality that we occupy. We absolutely must have more people unemployed in order to beat down inflation (ya know, vice investing in productive capacity that could fix the supply shortfall but whatever let’s beat down the little guy instead). Of course, because X does not equal Y and our Culture of Exchange is far more than just a mathematical function, the smart people in DC are finding this number hard to tamp down.
CNBC: US Payrolls surged 261,000 in October
But there are brake lights on the horizon. Hiring is slowing and unemployment inched up a smidge. The tech sector continues to announce hiring freezes and even outright layoffs (no not just Twitter). More worrisome is the Amazon juggernaut peering into their crystal ball and hitting the brakes. Say what you will about Jeff Bezos, the man can run a company. And they (Amazon) have skin in the game. Lots and lots of skin. And the beast Amazon sees trouble on the horizon which is not encouraging.
Dear reader, keep in mind that BLS employment numbers are a lagging indicator. And a layoff avalanche, if one materializes, won’t stop on a dime. It’s like an old man slipping on ice: once it begins it is hard to stop, and it is probably going to end sprawled on the ground with a broken hip. Companies are typically loathe to fire en masse as it is expensive in the long run. But if Caesar crosses the Rubicon, layoff those companies will. The problem with allowing Caesars to cross Rubicons is that Caesars are not given to uncrossing Rubicons once Rubicons have been crossed. So too financial crises and recessions. They must work themselves out and by the time the BLS unemployment number catches up the damage is already long done.
We only see the tippity-tip of the iceberg
Dear reader, the biggest take away of the week is: we are likely on the front side of what could be a nasty, prolonged, and drawn-out down cycle. As yet, we can only see the tip of the iceberg. One must plumb the depths to see how far it goes. My hope is that the market manipulators at the Federal level will leave well enough alone for a hot minute and allow markets to adjust. I do not believe that this will happen. My fear is that the Fed will over-correct us into a snowball of bad. Time will tell. But winter is definitely coming.
This is a real estate rag, and, unfortunately, real estate (especially housing) is the leading indicator of economic malaise. That means that we are the tippity-tip of the iceberg. We are the canaries in the coal mine. We are the watchers on the wall, and our watch has just begun.
What does this all mean for real estate?
Uncertainty is the word of the day. We are uncertain as to how high the Fed will hike rates. We are uncertain as to what the pending election will mean for governance through this difficult time (alliteration of the week: polarizing politicians plopping problems in our pastures). We are uncertain of how the US Treasury strategy to improve liquidity in the US Bond markets will play out against the Fed’s agenda. We are uncertain just how badly real estate will fare against rising rates. We are unsure if buying real estate is a good move right now. Or selling for that matter. Some of us are completely unsure as to our employment prospects into the future (and the rest of us should be). Real estate markets are quickly becoming dark and precarious. And it is very difficult for most of us to make good and informed decisions when we are uncertain as to our future.
Real estate markets are slow and thin. Notably slow. Even for that group of eternal optimists and lipstick-on-pig putters called Realtors (a group to which I merrily belong). Slow is the consensus of most of the real estate professionals I spoke with directly over the past week. It is also the comment issued by many a real estate Twitter-atti. The best assessment (and the one with which I agree) is that buyers and sellers are too far apart and market fundamentals (rates) are changing too quickly for most deals to make sense to both parties.
That is the bad news. The good news is that markets are still moving. Offers are still being made. Transactions are still closing (just not near the velocity and volume as earlier this year). As long as real estate changes hands, there is hope. So take heart, dear reader. It’s not all bad…
What? What did I miss?
The pen is willing, but the mind is narrow. Folks, I sincerely hope that you will drop a comment with your thoughts. And please throw out any real estate important news that I missed. Don’t want to leave a comment? No worries. Shoot an email to thedirt@dustinhammit.com. Look forward to hearing from you.
Texas Land This Week.
The following information comes from LandWatch.com. (Read Data Disclaimer1)
As of November 4, 2022 there were…
14,075 acreage properties listed as Available
Very slight decrease from last week.
1% increase from 4 weeks ago.
998 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 (232 listings)
Henderson County - Piney Woods North Region (225 listings)
Gillespie County - Highland Lakes Region (225 listings)
For the last 7 days there were…
531 properties listed or changed
5 properties marked as under contract
0 properties identified as Sold
Five counties with the most listing activity in the last 7 days:
Kerr County - Hill Country South Region (14 listings)
Edwards County - Edwards Plateau West Region (14 listings)
Henderson County - Piney Woods North Region (13 listings)
Guadalupe County - San Antonio Region (13 listings)
Collin County - Dallas Prairie Region (11 listings)
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).
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 hope that you will also follow me on Twitter:
LandWatch.com and LandsofTexas.com
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
The above 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.