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- The Borrow Smart Chronicles - Locked In The House
"There is something bad in everything good,
and something good in everything bad."
AI-generated young home buyer realizing he needs to start saving for a new home now!
Weekly Spotlight: Mention housing these days and it leads to quite the conversation. If you are already in one you feel good, but so many of the conversations I’m having surround being a prisoner of a low rate. Low rates were great, but people feel they are also bad as they now feel trapped in their own house. In one conversation a young couple told me they were adding onto their home along with all their neighbors because they said they’d never move again with a 2.75% interest rate, and they were having another child but didn’t feel they could afford to move up to a larger home. Another conversation was with a middle-aged man negotiating remote work for a new job because he wanted to work for the company but could not justify the increase in his income being offset completely by a new house with a mortgage at 7.5%. I’m sure you’ve heard the stories. Low rates feel good, but we weren’t prepared for some of the repercussions psychologically. As with all investing, most answers are ‘it depends, and how people handle lower rates and future decisions will depend on their life situation and the coaching they receive.
Chat GPT offers a clarification of this situation:
Low rates bound them tight,
Dreams of moving lost from sight,
Rate's grip, now a comic plight.It’s really clear in this chart, how the home purchase application and move index is completely correlated with lower rates. Will lower rates happen this year and release homeowners from their plight?
lower rates lead to higher applications - duh!
a BORROW SMART CONCEPT
Housing Appreciation
Ask any consumer how real estate creates wealth and most can’t clearly define it. It’s really simple, your house creates wealth when it appreciates, and that appreciation offsets the cost of your living indoors over time. If you rent you pay a mortgage, it just happens to be your landlord’s mortgage. They receive the appreciation that makes it a good investment for them over time.
There are many emotional reasons to live in a house you own, but the biggest financial reason is appreciation. Sometimes it pays to stretch a little financially when you buy a house. Recently, we’ve continued to see a phenomenon where lower-priced houses are depreciating and higher-priced houses are rapidly appreciating. This is yet another sign or gap in financial haves and have-nots. Usually, housing appreciation is evenly distributed across all levels of wealth, but this shift of wealth means those with more wealth can pay up for what they want and that means higher appreciation on the higher ends of desirable real estate.
LIABILITIES
What’s Happening?
while the variable interest rate expenses keep going up, the fixed interest rate is only going up for those who are doing new borrowing now
over time those with wealth have more of it that they can use for real estate and buying a bigger house means bigger payment and bigger appreciation
the time in a house was trending down, but many expect it to start trending up again - the key that annual reviews are part of your customer experience journey
another great look at the housing gap and why so many are shut out now
this is seen reflected here in how much $1,000 a month buys you today
lower rates bid up the prices of housing across the board
only credit card debt seems to be facing delinquency concerns at this stage
REAL ESTATE
What’s Happening?
sentiment in residential real estate improved last week - see prior posts about how sentiments lag future real estate improvements
The Canadian Pension Fund has sold 360 Park Avenue for $1
— MacroEdge (@MacroEdgeRes)
5:28 PM • Feb 27, 2024
a great visual of what you need for a down payment by state
inventory is still down by millions of units needed
and that lack of inventory helps keep a floor under prices
a slight up trend in builder-provided new housing inventory
One of my favorite finance tools: (see image above) https://www.sectorspdrs.com/sectortracker
ASSETS
What’s Happening?
housing makes you feel wealth at two levels - the upper line is price happy, and the lower line is buying power happy
inflation outside housing means everything we use daily is up about 20% in cost, which means we are all about 20% less wealthy
big asset gains are actually behind former bull market runs
the key here is will inflation rise again as it did in the past and if so will rates end up going higher instead of lower - be prepared for either
overall if you own stocks and a house, you should feel wealthier
“Death doesn't discriminate
Between the sinners and the saints
It takes and it takes and it takes
And we keep living anyway
We rise and we fall and we break
And we make our mistakes
And if there's a reason I'm still alive
When everyone who loves me has died
I'm willing to wait for it
I’m willing to wait for it”
ON BEING HUMAN
What’s Worth Sharing?
One of my favorite videos of all times based on the writing of Baz Luhrmann -https://en.wikipedia.org/wiki/Wear_Sunscreen
DOPAMEMES
And Other Inspirations…
Just a song that makes me happy when I hear it, and the title fits right into our current society…
AIdeas
Future Hacks…
Geeking hard on this, always wanted to make a short film or movie but the implications are amazing with new AI: https://ltx.studio/
What would you do with yourself if you become 130% more productive… woudl you work less and have more free time, or work harder now to presumably work less in the future?
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