Inflation in the US

Inflation in the US, putting politics aside, do you remember when gas prices were $2 per gallon? Doesn’t seem that long ago, right? In 2021, it felt like we had the highest gas prices of our lifetime, and of course even more in 2022. But in 2014, gas prices hit $3.776 which is higher than all of 2021 when it was $3.491 per gallon. In fact we didn’t break new all-time highs until March 2022, but we typically don’t recall 2014 very well. This is called attention bias theory, or ‘what have you done for me lately?’ or ‘what's the hottest topic of recent’.

January 2022 the average mortgage rates 3% now 6%, still historically low. Current news says that 61% of Boise, Idaho sellers have slashed or dropped their asking price, yet no one ever discusses by how much? Could be $1 or $10,000, and by what percentage is the average seller up from a year ago, would you believe it if I said Boise is up 60% since March 2020 vs Nationwide of 40% according to CNBC? But this is not what sellers think about when we hear ‘news’, we hear “sell, sell, sell”, ignoring facts and putting emotional base over everything else.

2021 Year End Rush to Buy a Home

Historically, 1 in 4 foreign cash buyers in the USA purchase homes in Florida, out of that 25% of buyers, over half purchased in South Florida. While the rush to homes increased, so did the number of cash buyers, local and international. When the international restrictions were lifted in 2021, a rush from the wealthy South American countries such as Colombia, Brazil and Mexico came into South Florida like it was the old game show Supermarket Sweep, and anything that was left on the shelves was taken up and overbidded for as the competition for homes that were in specific locations became game.

Corporations Business Model to Buy

Have you tried to find a ‘less expensive’ home recently? It seems impossible, as the competition is fierce, and has just now started to slow a bit. Investors made up about 18% of all mortgages in early 2022, vs historically 11%, thus one of the reasons why second homes and investment properties increased in lending costs in the 1st quarter of 2022 per “FHFA Announces Targeted Increases to Enterprise Pricing Framework”, went into effect April 1, 2022. This does not include the cash buyers of large corporations that purchased homes.

Now that the competition is starting to slow, while would be home buyers stopped trying and got tired due to their offers constantly being turned down, now may be the right moment to get into the market, even with higher rates and prices, as buying a home is a goal for some, and you just have to get into the game to participate and can’t always stay on the sidelines or you might just miss it even more.

Number of Listings Rising

Inventory supply numbers have risen by 28% since last year, where this has helped end the bidding wars. South Florida’s inventory in 2019 was around 28,000 units, during 2022 it was around 8,000 units. Meaning, even if there was a 3 fold increase in units for sale, it would still be considered low inventory.

Demand Vs Supply

Twenty seven percent of homeowners would like to sell their home and thirty six percent want to purchase a home in the next 12 months (third highest on record) according to CNBC. Two-thirds think it will be fairly easy to find an affordable home, per CNBC.

Supply vs demand, currently there is 2.6 months of supply, 6 months should be the average.

We still are in a sellers market, even though conditions have weakened and now instead of 20 offers on a property, you may now get 1-5. Google search new home sales were up 14% prior to the previous 8 Junes. The highest ever 42% of survey respondents feel that owning a home is a great investment, highest in history. However newly built homes are at a 7 months supply, so over the average of 4-6 months.

Inflation Matters

Before I started MortgageQuote.com and JumboLoan.com, I went to Cass Business School, now known as Bayes Business School, a global top business school based in the City of London. One of my classmates was from India, he told me his grandparents grew up poor and started to heavily buy gold many years ago, now they are billionaires. Viewing prices in gold 1964 ($35.10) till gold today ($1,706.50), I suppose they did alright. Keep in mind, all commodities are traded in USD. He tells me that if they did just like everyone else, they might not have ended up as fortunate.

Why is this example so important, well your home is a commodity, the wood, concrete, metal, copper, even the appliances and furniture is a commodity. The average home in 1964 cost was $18,500, in 2007 was $257,400 and as of today the median is $428,700 according to FRED. To put into perspective, the IPhone started to sell in January 2007.

In the end, if you just listen carefully to what the news are saying, they are just providing snippets that get you more interested in clicks to see their article. People will listen to the news and repeat the headlines without actually reading, so stop listening to the headlines and just think like Warren Buffet. Inflation in the US, you may not know when the market goes up or down, but one thing is for sure that if you are not in the market, you will surely miss it.