theDirt Weekly: Speaking jive
January 28, 2023
Oh, Stewardess. I speak jive.
-Jive Lady, Airplane! (1980)
Well, folks, I don’t speak jive. I do, however, try really really hard to speak market. Given that the market speaks in tongues, this ain’t easy. In fact, interpreting market is not really even speaking a language at all - it’s more interpreting the grunts and clicks of a babbling lunatic. Ok, story time.
In the way way back - only a few years now but seemingly a lifetime ago in my head - back when I was a street cop, I had the opportunity to converse with some severely schizophrenic people in the midst of psychotic breaks. Dear reader, the words they spoke were English and so nominally intelligible. But the thoughts that those words conveyed were… incomplete… disconnected… disjointed. I fondly recall one man telling me a delightful story about him being a centipede swimming in the ocean. Which can make figuring out who they are and what they might need a bit of a challenge.
And so it goes with the market. Again… the market is a bit looney. Sometimes it is a mundane kind of looney; muttering on the street corner asking for change. Sometimes it is a more hostile looney, yelling at imaginary demons in store windows. And occasionally it is out of control looney and dancing naked in the middle of the interstate.
Much like the Dirty old men interpreting the sultry dance of the Oracle at Delphi (from the movie 300), those raving lunatics called experts (especially on Twitter) each have their own interpretations of market jive. From that they extrapolate what is coming down the pike. Today the most popular versions continue to be along the lines of: there is an enormous bubble and real estate is going to pop and oh my God we are all going to die in a thermonuclear detonation of Doom!™ - or something like that.
Now it is confession time. I am a natural doomer and was possessed by the idea of apocalypse. But even I am coming around to the idea that things might not going to be as quite as bad as I thought they were going to be. At least not in the way that I envisioned. With the meteoric rise of mortgage rates, I expected a much more dramatic downshift in the real estate markets. Especially residential (I thought the effect on rural land would be fairly muted). And to be sure, real estate has come to a screeching slow. Transaction volume is thin. And there have been some gnarly price drops. Ground level conversation with prospective sellers usually concludes with a, “I’ll just wait a while and see what happens”. There’s consternation. Disappointment. Annoyance. But certainly no panic. Frankly, I was expecting worse.
And worse might happen yet. There is plenty of runway left before the jumbo jet comes to a complete stop. Hell, I’ve written that it could take a lot longer than we think to play out. But I’ve also written that it might all go sideways for a really long time. Which still looks like an attractive take. But now, as in right this second, I take a grunt’s eye view of the battlefield and don’t see apocalypse on the horizon.
And the future? Well I have no idea what the Oracle’s wet shimmies portend. Because that chick is nuts, probably very high, and doesn’t know where the hell she is much less what she is saying. But I like to entertain theories. Lots of theories. All kinds of theories. I try them on like shirts and strut around like a model on a runway (you may have noticed). But ultimately I try very hard to be flexible and not too stuck on any one specific idea. Because if the Wise Investor knows anything, he/she knows that Mr. Market is mad as a hatter, baby. So you’d better stay nimble. And quick. Because holding on too tight to the slippery words of a madman is a dangerous game.
: Has Housing Bottomed?And now returning to my street cop days: if a person is diligent and listens closely, even the severely disturbed can offer very ephemeral, very esoteric clues as to who they are and what is going on. And what I think the real estate market probably might be saying (maybe) is: ‘We The People don’t care what Uncle Jerome and the Fed want, we want to buy a house.’ Which makes sense because a vast majority of people care nothing of the stock market and economic theory and monetary policy. Average Joe and Average Jane have lives to live and just want the government to get out of their way. Dear reader, guess what? The Fed certainly has a big say in our markets. But so do Average Joe and Jane when it comes to everyday decisions. Well… taken individually, Joe and Jane don’t mean much. But taken en masse, they are everything. They ARE the economy. And they can NOT be ignored. Controlling them may not be as easy as it says in the instruction manuals.
What it all means for real estate…
Sometimes that nut-job that is the market is fairly stable and intelligible. This is not that time. The information swirling around is… incomplete. Disconnected. Disjointed. It’s hard to interpret what it’s mumbling.
One can certainly see a lot of bad out there. Every street corner comes with a cardboard sign carrying whacko proclaiming the world’s end. And I think it extremely possible, maybe even leaning toward probable, that 2023 remains a very hard year for owners and wannabe owners of real estate as they watch prices continue to depress while interest rates hold somewhere around the ‘a lot higher than they were for the past 15 years’ mark. It could get gory. There are more than enough talking heads leading to that conclusion. On the buy side I advise clients to only make offers with a very big Margin of Safety programmed into the price. I am not immune to the fear of the bottom continuing to fall out. That said, for those willing to exert a little effort and sift through the noise, there are deals to be had. And probably many more coming down the pipe.
On the sell side I advise people to recognize the reality of the market today. If you own commodity real estate (another house in another neighborhood; another 100 acres of featureless, juniper-infested pasture in the midst of a bunch more acres of the same), you are going to have to be aggressive in price to sell (that is if you actually want to sell and are not just adding an over-priced listing to a bunch of other over-priced listings). And you are probably going to have to make concessions: rate buy downs, cover closing costs, etc. Conversely, if you own that very special diamond-in-the-rough property, one akin to a rare Mattise painting, then you will probably have no problem selling to any of the hundreds of cash-paying Californians who are still inbound every week (I’ve heard). Even today. Even in this market. Of course everyone thinks they own a Mattise when what they really own is this…
At the risk of sounding like a broken record, and acknowledging that I am a very small person with a very limited view in a very big universe, what I observe is Average Joe and Average Jane growing more accustomed (and resigned) to the new normal of 6% mortgage rates as each day passes. But desire is a hard thing to tame, and We, Humans certainly are amazing in our ability to adapt. And then to rationalize the purchase of our heart’s desire; interest rates be damned!
And the more insistent insisting about coming Doom!™ I encounter from talking heads who haven’t ever spoken to an actual real live human about transacting in real estate, the more I wonder if it is all overdone. Maybe the outside, surprising thing that will bite us all is that the Expected[Doom!™] doesn’t actually happen. Maybe the real estate market just limps along sideways. Hell, maybe it goes right back to the insanity of 2021. Now wouldn’t that be something unexpected?
Mortgage News Daily: New Home Sales Look Like They Want to Bounce
Coda: Blind spots -or- what to (not) expect when you’re expecting
One of the biggest problems with predicting the future (especially in writing) is that particular (nasty) habit’s habit of blinding you to the wide range of possible. That’s because of that other ingrained (and nasty) habit common to all humans: confirmation bias. Which is the idea that we only look for evidence that confirms our beliefs and then we don’t try very hard to disprove our own theories. Yes I am very guilty of this. So are you.
But what really pokes a guy in the eye and blinds is ego. When we really really really believe something to be true, we really really really want it to be correct. So much so that the more tightly you hold on to a thesis, the more your ego gets woven into it. I see a lot of people holding very tightly onto notions that real estate is absolutely going to do one thing or another. I’ve waved that flag myself. But the future is as slippery as a greased pig. Just when you think you’ve got it cornered, you end up with your face in the mud and covered in crap.
The trickiest part of interpreting market jive is being open to being flat-out, dead-ass wrong. It’s tricky because being wrong hurts. It sucks. It is embarrassing. Especially for “experts”. A far better solution is to be open to the very wide range of possible, narrow it down to the probable, and prepare accordingly. And then confess to yourself privately in the mirror and maybe even publicly to the world (maybe even in writing on
) that, at least when it comes to the future, you are as clueless as the rest of us. Socrates knew that the best armor and wisdom is to know that you know nothing. There is freedom there. And flexibility. And truth. The rest is all guesses and conjecture and put it all on black then spin the wheel.Whatever happens, I am positive we will look back from some distant future and proclaim that it was all so obvious. So predictable. The signs were all there. We will collectively smack our foreheads and proclaim, “Ugh! Why were we so stupid!” And we will completely forget how damned hard (nay, impossible) it is, when you are right there in that deciding moment, to pick the correct future from the pile of possible. Our species is a bit crazy that way. Mumbling and muttering and babbling to ourselves. Arguing over tea leaves and entrails. Looking for clear signs and signals where there are none. Then making arrogant and far-too-specific assumptions. All the while stumbling blindly into that foggy mist that is the future. Looking at it that way, a person has to be really nuts to think they know for sure what’s coming.
Other Dirt from the week -or- the things you should probably know and read but about which I did not write
- gives an excellent synopsis of residential real estate in his weekly update
- writes. This week she dished about Big Tech Layoffs in her weekly Substack. Kyla and I vibrate on the same wavelength. Sometimes I think she is reading my mind. Sometimes I get angry that she wrote it first and probably better than I could. Sometimes I get jealous because I said it first but (almost) no one knows because her audience is tens of thousands and mine is… a lot less than that. This week I am happy to refer you to her excellent content so that I can concentrate on theDirt that I want to write about.
Morning Ag Clips: Inflation is beginning to loosen its grip (a quarterly look at commodity markets from CoBank)
QTR’s Fringe Finance posted goldbug Lawrence Lepard’s review of 2022. It’s a very Dirty and nerdy read. But also good with lots of Austrian economics and gold-buggy advice if you are into that kind of thing (which I am). From the essay:
We do not believe most investors or market participants fully appreciate the significance of this chart. We now live in an inflationary environment, the implications of this are significant for all investment asset classes and what worked for the last 40 years is not going to work as well in the next 10 years.
I am a fan of Eric Basmajian’s monthly emails and Twitter feed. I even like his YouTube once I get past the teeth-grinding click-bait headlines. But a dude’s gotta hustle and that’s what the algorithm demands so I don’t hold it against him. I highly recommend reading the entire thread he posted on this month’s GDP print.
As always, great article. I don’t know if I’m as confident it won’t be pretty crappy come 3rd and 4th quarter this year. I think even if the fed slows down on rate hikes, the effects of 6% internet rates have yet to be felt in our economy.
I agree that it certainly can get worse. But I am not seeing that on the ground right now. And if the Fed does pause, I think the economy is structured such that assets might rip again. The material I’ve been reading is so full of Very Terrible Things (my confirmation bias) that I wonder if that is our (my) blindspot. I fear that we are just too primed for 2008 part 2 that we are blind to other possibilities.