The long awaited real estate crash has begun... in some cities

Trying to get good information on different parts of the economy is difficult these days... in our hyper-connected, piles of data everywhere, world.  For real estate data, the Reventure Consulting YouTube channel has become one of my go to sources.  This video is why.  He shows the heat map of U.S. real estate, and tells us which areas have begun to crash back down to more realistic prices.  He also shows a good grasp on the picture across the U.S.. 

Disclaimer

It's hard to remember back this far now, but in May of 2020, I was standing in line at my local grocery store (San Fernando Valley, just north of L.A.), and both the guy in front of me in line, and the cashier himself, were both talking about buying small rental properties, 4-6 unit apartment buildings, in late 2020, when the prices dropped.  Very typical of financially savvy SoCal people, they saw one or more small rental apartments as a key part of their retirement income, years down the road.  

In a "normal" recession, that's what should have happened, stocks crash, then real estate follows a few months later, and that's when smart investors go shopping.  These two years, 2020 and 2021, as we all know now, have been anything but "normal" recession times.  But it looks like Southern California real estate is finally beginning to top out, and will finally begin to drop in prices in the next 3-6 months, depending on the specific city or area.  All of you chomping at the bit to buy that small apartment building, or get a deal on a new home, will hopefully get your chance by mid to late 2022.  But the prices have risen since this whole crazy time started. 

When you look at the U.S. map of real estate inventory in this video, there are three main colors for the various real estate markets.  Here's the quick key:

Yellow- Inventory, the number of houses for sale in that market, are going up, in many of these areas the prices are already starting to drop.  Think of yellow as leading the pack into the real estate crash/downturn.

Gray- Inventory is about the same.  There may be a small percentage less on the market, or a small percentage more, but close to the same level.  These are the areas where the market appears to be topping out, and may head down in coming months. These areas are expected to follow the yellow areas into the eventual downturn 

Red- Inventory of houses on the market is going up.  These markets are hot!  The real estate bubble is still building, these are real strong seller's markets, and most likely prices are going up in these areas for a while longer.  These are the tail end of the market, and will very likely follow the yellow and gray areas into the downturn several months from now.  

That will give you a quick read on the real estate inventory map he shows throughout this video.  Now for a bit more detail.  

For you Californians reading this post, he talks about the Central Valley (Stockton, Modesto, etc) at 7:30.  He talks about San Diego and Los Angeles later, starting at 42:25.  While inventory is still declining in San Diego, and L.A., listing prices are either flat-lining or dropping in these areas.  So SoCal, fromm these metrics, seems to definitely be softening, with prices steady, or beginning to drop in some areas. 

 

Yellow- Crashing areas- My high school hometown of Boise, Idaho has been much talked about because of its soaring home prices in recent months.  That's over, and inventory is way up, and prices are declining.  Several mountain regions, like Southern Idaho, Eastern Oregon, parts of Nevada, and California's Central Valley, are leading the nation into the real estate crash.  Along with Boise, Provo and Ogden, Utah, Reno and Pahrump, Nevada, and Stockton and Modesto, California, are first in the nation into lower prices and become buyer's markets.  These mountain region markets are many of the places people leaving the San Francisco Bay Area went to, after Covid hit.  

There are also several Midwestern cities where this is happening as well, with rising inventory and flat or falling prices.  The Midwest cities, generally, didn't rise near as much in price, percentage-wise, and probably won't drop as much either.  Watch the video for more details.

Gray- Most of these areas, spread across the U.S., have inventory levels that either dropped about 10% or less, have stayed about level, or risen about 10%, or less.  These markets tend to have pretty flat prices, and are expected to head downward in coming months, following the yellow areas.

Red- Hot seller's markets- He starts talking about these markets at about 9:00, in the video.  Southern Florida, and the Georgia, South Carolina, and North Carolina coasts lead the way in hot markets right now.  Parts of New England, particularly Connecticut and Rhode Island,  as well as a few cities in the eastern Rockies, like Denver, are also some of today's hot markets.  Tampa and Fort Myers, Florida are two of the hottest, and Raleigh, North Carolina is another one.  Inventory is still declining in these markets, and prices are still rising in many of them, they're still strong seller's markets.  

For those of you old enough, or smart enough, to say "No" to the FOMO buying spree, and wait for prices to crash (like California prices always do in recessions), your time find bargains seems to be coming in a few months.  

So the insane national real estate market, sparked by The Fed's trillions in "helicopter money," is finally hitting crash mode in a few regions, and slowing down in many others.  It's been a weird ride for 18-19 months, and great for agents and brokers, but not for investors looking for bargains.  Things are finally beginning to slow down in real estate, which should mean one or two good years for investors to buy are coming.   

What creates inflation? The simple freakin' answer

Here's a super simple, 2 minute video, explaining fiat money.  What we call the U.S. dollar (a Federal Reserve Note) is a fiat currency, meaning there is not gold or silver somewhere to back up every dollar.  There's debt, U.S. Treasury bills and bonds, instead.  It's a fancy IOU, basically. 

 Disclaimer

This morning, scanning through articles on what's happening in economics and business, I saw this CNN article "explaining" inflation.  And it pissed me off, I just thought, "This is bullshit!"  There are so many articles like this one, which are written specifically to confuse average people.  The article is not complete BS, there are bits and pieces of truth in it.  But it is confusing, and doesn't actually help you understand inflation.  Everyone is seeing rising prices (inflation) in something we buy, probably many things.  So here's the simple question, and the simple answer.  

Q: Where does inflation come from?

A: The agency who creates the fiat money simply creates far too much money.  

That's it.  That's where inflation comes from.  It really is as simple as that.  Where did I learn this?  From Alan Greenspan's 2007 book, The Age of Turbulence.*  Greenspan was a longtime chairman of the Federal Reserve.  I believe Greenspan referred to it as "government spending," the money creation that leads to inflation.  Before the Great Recession  of 2007-09, the government would spend money it didn't have, then The Fed would create more money, year by year.  Afterwards, The Fed just started creating more and more money, at increasingly high levels, and the government keeps spending, at increasingly high levels.  By "agency," I mean the organization that actually creates the money in a country.  In most major countries today, that's the "central bank."  In some countries, it may be the treasury department, or ministry of finance, or have similar name. 

The "velocity" of money, and other factors play a role in how soon, and how much inflation happens, but inflation comes from a government, or a central bank, creating far too much money.  When they create a huge amount of new money, either minting bills and coins, or creating digital money, usually both, then inflation will come afterwards.  Usually it takes about 12 to 18 months after a huge, new batch of money, for prices to start rising noticeably for consumers.  

This chart is the M2 money supply chart, one way they measure how many U.S. dollars exist.  See that big spike on the right?  That's it, that's the 2020-2021 huge increase in money, created by The Fed.  That's where our inflation is coming from.  

On March 2, 2020 (beginning of Coivd pandemic) there was $15.5219 Trillion in M2 money supply.  On Feb. 1, 2021, there was $19.4119 Trillion.  The Fed created $3,890,000,000,000 that shows up in this measurement, in 11 months. increasing the money supply by 25%.  More money, though not as much, has been created every month since.  

Usually they try to hit 3% per year inflation.  In the 2010's, they couldn't create that much, the economy is really out of whack.  That money was used, and is still being created and used, to bail out the U.S. banking system, to keep it from collapsing, and to bail out major corporations, and keep them from going bankrupt during the Covid-19 shutdowns last year.  

Us Americans got a small chunk of that money.  Our stimulus checks and unemployment money are part of this, but a small part.  No one is sure just how much money was actually created (M2 is one measurement, there are other ways, because money and investments exist in so many forms today.   I've heard estimates that up to $6 Trillion was created in 2020-2021.  In short, that means we are going to have high inflation for a long time to come.  This is why stock prices and real estate prices went up during a depression (another fact, we were in an official depression, not a recession in 2020, subject for another day).

This money creation, in many different major countries, comes from the central banks, primarily.  The U.S. central bank is called the Federal Reserve (The Fed), in the European Union, it's the European Central Bank (aka ECB), in Japan, it's the Bank of Japan (BOJ).  

Since the Great Recession in 2007-2009, all of these banks have been working together to create too much money, trying to get the world economy growing again at their preferred pace, which is about 3% inflation per year.  They couldn't make that happen, except in China.  China's massive growth (due to demographics), has been powering the world economy for 12-13 years.  But now China is slowing down, and screwing up their economy even worse with political pressure.  That's a whole different mess, which will affect us over the next year or two. 

Nomi Prins is a former Wall Street quant (math geek) who worked at Goldman Sachs and Bear Stearns, she's an incredibly intelligent woman, and wrote a book in 2018 called Collusion,* explaining how all the central banks were working together.  In this Talk at Google, she explains what she found in her research.  

Obviously, the whole idea of inflation, our rising prices on things we buy, can get really complicated, when you get into all the details.  But the reason inflation happens is simple, the central banks (or nations) create too much money.  That's it. Now you know.

* Not paid links.

 

Gary Vaynerchuk is all in on NTF's Here's his thoughts on them

Decrypt's Dan Roberts interviews internet marketing expert and entrepreneur, Gary Vaynerchuk, for Yahoo Finance, on the subject of Non Fungible Tokens (NFT's).  If NFT's interest you, watch this 20 minute video with Gary V.  

Gary Vaynerchuk is known for a lot of things.  Being an artist is not one of them.  He's super creative, in business and marketing, no doubt about it, but not known for creating art.  But the original doodles for his new line of NFT's, VeeFriends, just sold for a total of $1.2 million at Christie's.  For real.  Here's the article.  It's a weird, but interesting, world we're living in today.  NOW do you want to find out more about NFT's? I do.

Guess what? Inflation went up again... It's 6.2% now

Inflation went up from 5.4% (annualized) to 6.2%.  Stuff will keep getting more expensive, in general, for all of us.  Here's the link for this chart.

Disclaimer

 Here's the bar graph from the BLS for inflation this year.  The official inflation rate, which every considers a joke, and far lower that "real world" rising prices, went up from 5.4% last month to 6.2% this month.  

For years, The Fed was fighting to get inflation up to 2%, and couldn't.  Their whole plan needs about 3% annual inflation to work at its best.  Because of the pandemic, and the underlying economic crisis, The Fed created somewhere around $4 1/2 to $6 trillion in new money, increasing the money supply by about 35% in about 18 months.  Guess what, as the history of inflation and hyperinflation tells us, a dramatically increased money supply creates inflation, beginning 12-18 months after the increase of the money supply, usually.  Inflation showed up right on time, peaking out of its hole in March. 

The Fed is still adding $105 billion to the economy this month, tapered down from $120 per month, for the past several months.  The plan is to taper this amount down by $15 billion a month, so they're not adding anything, by about June 2022.  They'll probably start adding money again at some point, when stocks crash again, and real estate starts downward.  But we'll see.  

The Fed has been saying "Inflation is transitory" since February or March, I believe.  Yeah... inflation is about as transitory as Mount Rushmore.  It's not going anywhere... but up, right now.  We're going to have inflation, and probably MUCH higher inflation, through 2022, and very likely into 2023-24.  It's not going anywhere.  The monthly rate of inflation will vary up and down in time, but prices will keep rising for many months to come, overall.

Here's the M2 money supply chart.  See that big surge up on the right?  That huge increase in the money supply is where our inflation is coming from.  

Here's the link to find this chart.  St. Louis Fed/FRED database.

The NEXT stock market crash

I've thought that the 2020 stock crash wasn't the "real crash," but a huge correction.  I expected another, bigger stock crash (also tipping the real estate market down) coming in 2021, maybe 2022.  The guy here at Heresy Financial channel feels the same way, but explains the nuts and bolts economic reasons much better than I can.  Here's WHY the next stock market crash will happen, sometime in 2022.  

Disclaimer

The original post I wrote here was actually deleted, in real time, as I was trying to publish it.  Seriously, censorship and free speech suppression against people talking about financial matters is that bad now.  I was able to post just the video clip and caption right after.  

Rather than rewrite the whole blog post I just spent and hour writing (that got mostly deleted), just go to 30:00 in this video and start listening.  This is Dave's Heresy Financial video from October 3, 2019.  Over two years ago...

"Tech stocks in the fucking toilet"

-Chamath Palihapitiya, in the clip below (late October 2021) 

 Chamath Palihapitya interview video

Investor Ray Dalio's warning on where we are economically and socially 

Warren Buffet has been selling more than buying stocks, and is sitting on $149.5 billion in "cash" right now.  Waiting.  (Remember, he and partner Charlie Munger were alive during The Great Depression of the 1930's)

"... the worst bear market in my lifetime."  - Investor Jim Rogers, best known for The Quantum Fund in the 1970's, he's 79 now 

"The biggest crash in world history is coming in October" - Rich Dad, Poor Dad author Robert Kiyosaki   

Michael Burry, of The Big Short fame, was actually forced to stop communicating his stock market views on Twitter, by the FCC, as far as we can tell.  

Why flying cars exist... but won't ever go mainstream like in Sci-Fi movies

This video, by Donut Media, is a really solid, 9 minute look at the history of flying cars.  Yes, they do exist, but the chance of you having one is close to zero, unless you're a pilot with half a million bucks just lying around.  Here's a look at a great sci-fi idea, and why it won't ever go mainstream.

George Jetson had a flying car that automatically folded into a briefcase.  I saw them talked about in my dad's Popular Science and Popular Mechanics magazines in the 1970's.  We all thought we'd have one by the year 2000.  Luke Skywalker had his land speeder.  It didn't fly, but it hovered and hauled ass, which was close enough.  They were in Blade Runner.   Doc's Delorean time machine became one in Back to the Future.  And my personal favorite, Corben Dallas had a flying taxi in The Fifth Element.  Flying cars, they've been in all kinds of sci-fi novels, movies, and a few TV shows for decades.  So where the hell are our flying cars?  

Corben Dallas' flying taxi, and a flying police car, in The Fifth Element (1997).  Just for the record, taxi driving did actually get that crazy, at least when I was doing it.  "Leloo multi-pass."

If you watch the video embedded above, you'll find out that the idea for flying cars goes back to when both airplanes, and cars themselves, were still new, in 1917.  Those first attempts more like personal commuter airplanes. Eventually though, there have actually been a few vehicles that could drive legally on the road, and fly, as well.  Mostly they were prototypes.  But to answer that question above, here are our flying cars.  If you have a pilot's license, and $400,000 or more to spend, you can get one of  the 2 or 3 flying cars that are available, and legal in some places.  The Terafugia Transition seems to be the top contender, over all, in real life.  If you didn't quite put away $400K from your Gamestop stock trading wins, and you need to save up a bit more, here are 15 flying cars, or personal flying vehicles, that are either in the prototype stage or in the works (includes the ones in the previous video).  As cool as these look, and may be to fly, none of them look or fly like George Jetson's car, or the other flying movie cars we've all seen. 

Here's the German version of Popular Mechanics magazine, I believe, showing one of those "future flying car" ideas on the cover, way back in 1957.  Notice how close this is to the quad copter drone type vehicle we're all familiar with today.

But that brings us back to the question, if people have been thinking about, and actually designing, flying car concepts for over 100 years now, why aren't they in operation all over?  And why isn't there some kind of small, vertical takeoff car that's easy to fly?  With all the things that have been invented in 100 years, shouldn't somebody have come up with a legit flying car by now?  How about this one?

This is my personal favorite of all the flying car ideas, the Moller Skycar.  This test hover was in the 1990's, I believe.  One of these even featured in a Clive Cussler novel, helping Dirk and Giordino escape some bad guys, in South America, as I recall.  But, like most flying car ideas, there was a working prototype, but no models ever came to market.  

Back in October of 2019, when many of the ideas in this blog were bouncing around my head, but hadn't been organized, I got this idea to go back and watch the trailers of the top 30 or 40 dystopian future movies, and TV shows, from the 1960's to the 1990's, and see how their imagined future compared with the real world in 2019.  Much to my surprise, the original Blade Runner movie, a sci-fi classic, was set in Los Angeles in November of 2019, right when I started writing out these ideas.  Not only a weird coincidence, but I realized that people my age  (55/Gen X) are living in the future of our high school selves, when Blade Runner (and Mad Max II) came out.  

The big lesson of watching all those futuristic movies was that while sci-fi writers come up with great stories and screenplays, and some really cool ideas for new technologies, they tend to suck at actually predicting the future.  Crazy as it sounds, The Jetsons, created in 1962-63, has more technologies that actually came to be in the 21st century, than nearly all of the sci-fi movies and TV shows.  I wound up writing a 20 chapter online book/blog about my thoughts, which included  The Big Transition idea behind this blog (I recently added the "freakin'" part).  You can see that here.  There's a chapter about flying cars.

The first reason we don't have flying cars is the difference between writing and inventing.  A science fiction writer, a comic book or graphic novel artist/writer, a movie screenplay writer, can imagine anything.  The laws of science and physics don't apply.  There should be a logic in the book or movie, so the fictional world seems believable to the reader or viewer.  But you can break the actual laws of physics in some ways.  Engineers and inventors in the real world can't.  So the simple physical constraints of the real world keep us from having a flying car like Corben Dallas' taxi in The Fifth Element, for example.  Although, Nikola Tesla talked about creating cars that actually hovered a foot above the ground, in the early 1900's, something like Luke Skywalker's land speeder.  No one seems to know what forces he had in mind to do that, but he seemed to think that hovering cars (not hovercraft) were possible, it's in one of the books of his inventions  He never created one, just talked about the possibility.  But the Laws of Physics are a big reason we don't have George Jetson flying cars. 

Another reason is that hybrid vehicles, like part car, part airplane, usually kind of suck at both things.  They may work, but are not as good of a car, or of an airplane, as real cars and real airplanes.  To make a vehicle do two completely different things, like this, or this, for example, usually lowers the abilities of the vehicle in both areas.  But there are times when hybrid vehicles work for some uses, like this one did, back in World War II.

For the $400,000 it takes to buy the least expensive real flying car, you could buy a Cessna 172 airplane ($80K-$150K), a brand new Ford F-150 pick-up ($45K), and a used Lamborghini Gallardo ($110-150K).  With what's left, you could take you pick of a good runabout boat (with a trailer), or a couple of jet skis (with trailer).  So you can easily buy a great truck, a ridiculous sports car, a solid, dependable, used airplane, and a boat or jet skis, for what a real world flying car would cost you.  Still want that flying car?  

The Moller Air Car, which, let's face it, would be cool as fuck to fly around in, never came to market.  The main reason is because designer/inventors are good at inventing, and often not good at other types of thinking.  I'd call it more of a blind spot, than poor thinking.  We all do this.  My dad was a gifted draftsman and engineer, a true mechanical genius, so I witnessed this firsthand, growing up.  Designers, inventors, and engineers think about really cool physical machines.  That's good, that's what they get paid to do, think up, design, engineer, and plan all kinds of machines and mechanical systems, including vehicles.  A good engineer will go to great lengths to design smart, efficient, durable vehicles.  For example, my dad worked at Plymouth Locomotive Works in the late 1970's.  The company went out of business in 1983, but many of their custom locomotives are still in service, 35-40 or more years later, like this one.  That's good designing, engineering, and manufacturing.  

But to design, build, and make something like that Moller Air Car, and make it into a widely used vehicle, takes a whole lot of things besides a functional, working, safe, flying car.  And inventors, engineers, and designers just don't think of all those things.  I think this is why sci-fi writers write amazing novels, comics, and make great movies, but create future worlds that will never happen in real life.  They get hung up on the technology,  but don't find social dynamics near as interesting.  To predict a future society, you have to look at all the weird things that make up a society, mostly weird people.  And most people spend most of their lives doing things that don't make much sense.  Put all those things together, and you get a real (generally pretty dysfunctional) society.  Meanwhile, designers, inventors, engineers, and techie writers and directors think mostly about machines, things that do make sense.  To make flying cars a widespread thing, you have to not just create the car, you have to change society to create a place for that flying car.

 First, someone has to fund the whole design and prototype process, which reportedly cost the Moller Air Car $110 million, or something close to that.  So you need to sell the idea to people with a lot of money, to even get started.  Engineers and inventors, for the most part, are not salespeople.  Once you invent a functioning flying car, then it needs to prove its air worthiness.  More time, more money, and... DUH, DUH, DUH... government regulators.  They don't like new ideas.  

 

Then, after all that work, you need to sell the idea that people actually need these things.  OK, for the Moller Air Car, you could find a lot of people to back something that cool.  But you will also have some kind of activist group trying to keep it from happening.  Every good idea has lots of detractors, especially early on.  Haters gonna hate, no matter how cool your idea is.  

Then you need to fund, and build infrastructure, in society, somewhere, for that new vehicle.   How do you fuel them?  Where do they take off and land?  Guess what, if your loud flying car takes off from your driveway... in your gated golf community filled with $2 million houses, some neighbors WILL NOT be happy.  So you need some kind of airport.  Then you need the FAA to first buy the idea, and then figure out needed regulations, and then add those aircraft to the tens of thousands of aircraft already flying, to keep the skies safe.  Then you need insurance, for when things go wrong.  And things always go wrong, at some point, even on well designed and built ideas.  Ask NASA or Elon Musk.  

Then, if it's really a great idea, politicians somewhere need to have their palms greased, to pass needed laws or ordinances.  Then, after spending 35 years and $600 million (or whatever) getting to that point, you need to make enough money to pay alimony to your three ex-wives that left you because you loved your flying car more than them.  What's that old saying, "If it floats, fucks, or flies... rent it, don't buy it."  

Then you actually have to build a business to sell the flying cars.  That takes more capital, engineers, salespeople, tech people, and all the rest.  Then you have to sell enough of the things to get past the break even point, and actually pay a good return to your investors.  Then you have to worry about competition making something similar, but without all the start-up costs you had to front.  

It's not so much that a VTOL (vertical take off and landing) flying car isn't possible to build.  The Moller Air Car, was there, 20 or more years ago.  But you have to change a big chunk of how society operates to get the functioning flying car to a place where people can actually fly them as a recreational or commuter vehicle.   Engineers, inventors, and techies love the tech, but generally not all the weird people you have to deal with to bring an idea this big into mainstream operation.  

So why I'd love to fly around in a Moller Skycar, and buzz past the gridlocked 405 freeway below, there's little chance that will ever happen.  So that's my take on how something, like flying cars, can seem like such a cool idea for 100 years, but never actually happen in a mainstream way. 

 

Zillow stops flipping houses- stock down over 20% TODAY*

A few days ago, Zillow paused its home flipping business, Zillow Offers.  Today it announced that it's shutting down the business altogether after some serious losses in the last quarter.  Their stock went BASE jumping after the news.  

Zillow may have more data on the nationwide housing market than anyone, but that wasn't enough to launch a large, successful iBuyer real estate business in the crazy, pandemic induced market.  

Reventure Consulting covers this late breaking news well in this video.  Other iBuyer real estate stocks are down a lot as well, and so are some traditional RE agency stocks.  Is this the turning of the tide in the Covid-induced real estate market?  Time will tell.  

Disclaimer

*The 20% one day drop in the Zillow stock price includes the after hours trading, from $95.16 this morning to $75.75 at 8pm (Pacific Time).