I read an article about declining home sales, caused in part by higher mortgage rates. It mentioned that sales of existing homes have declined more in May than they have since 2009. The slowdown is causing people to lower the price of the homes on the market.
The article positions this as a warning sign for the economy, but I’d rather see falling prices than rising prices. No one complains when the price of eggs drops or they pay less at the gas station. Stock prices just hit record highs, rebounding smartly after the dived following Trump’s big tariff announcement. So why are we upset at slowing home sales? Isn’t this a normal market reaction to high mortgage rates?
Housing values fluctuate, and mortgage rates are just one reason. Supply and demand play a big factor, as does location. Probably the most important thing is timing. When the value of my house dropped in the 2008 recession, I didn’t worry because I hadn’t been planning to move. By the time I sold in 2020, prices were up, way up, although we didn’t sell it for twice the purchase price.
Hitting Home
I know a couple who recently listed their home for just $700,000, more than twice what they paid for it in 2019. It hasn’t sold, so they reduced the price twice. The lack of offers is hitting them hard because they can’t buy a new house in another state until the old one sells.
My wife and I looked at the house online and didn’t think it was worth $700K. My advice would be to drop it to about $550,000. The house would sell sooner and they would still pocket more than $200,000. Maybe they would even get a couple of offers and have a bidding situation that could drive the price back up.
Of course, I don’t know what improvements they made in the house. Maybe it’s much nicer today than it was when they purchased it. I also don’t know how much they need to spend on their new home. Maybe they need $700,000 to pay for it as the cost of living is higher there.
Of course, one thing that would help lower housing costs is lower interest rates, and the Federal Reserve is partly to blame for our high rates. Part of the blame also goes to Biden, whose use of sanctions caused a portion of the global market to stop buying treasuring bond and bills, requiring the U.S. to raise rates to attract borrowers. And finally, Congress keeps raising the debt ceiling, so they share some blame. Part of the reason our rates are so high is the federal debt keep increasing.
Deflation
In 2021 and 2022, we all complained about inflation. When Trump announced the new tariffs, the news was filled with economists making dire forecasts about inflation. The predicted inflation has not yet occurred. Now we’re seeing some deflation—the opposite of inflation—and economists are complaining. But I don’t think people who are paying less for gas and eggs are upset.
Maybe you’ve heard some talking head say, “Prices aren’t going to come back down.” Well, they have in housing. They may in used cars and even new cars. Unless you need to sell your home, you should celebrate the fact the prices are dropping. The last time I bought a sheet of plywood, it was down more than $20, about 30 percent. Dimensional or framing lumber, like 2x4s and 2x6s, had dropped even more from post-pandemic highs.
I’m all in favor of lower prices. Unless you are trying to sell your car or your home, you should be, too.
A Turbulent World
As I said back in February, disruption is coming. High tariffs, low tariffs, no tariffs. High inflation today, deflation tomorrow. Stock market pull backs and stock market records. Recession, expansion, depression. Precious metals that set records and then decline. Wars that come and go. Foreign threats and domestic protests. Crypto currency records and new legislation. Elections. Economic attacks and cyber hacks. Sleeper cells, illegal immigrants, and court cases. Artificial intelligence and electrical shortages. It’s all happening so fast it can be difficult to figure out what’s going on or what to do.
The way to tackle this rapidly changing world is to refuse to let the news of the day pull you in one direction today and another tomorrow. Don’t bounce around and don’t make emotional decisions. Be the calm at the center of the storm and refuse to overreact. This is easier to do when you have preps and when you spend less money than you make. The more self-sufficient you are, the less impact the markets will have on you. Stay off social media, rise above the fray, and find your own way.
Vacation
Due to the long Independence Day weekend, I will be taking some vacation this week. Don’t expect another post unless the SHTF.
