Investing Thread

[The Hippie Satan of Hyperbole]

Inflation is definitely a reason why house prices have increased rapidly. But a shortage of homes, particularly at the entry level, has been a problem that has worked to increase the cost of real estate even before the pandemic.

Also, less homes are on the market these days because of the rise in interest rates. So buyers have to be much more aggressive when a house they like gets on the market.

[Dr. Blackheart]

Inflation is definitely a reason why house prices have increased rapidly. But a shortage of homes, particularly at the entry level, has been a problem that has worked to increase the cost of real estate even before the pandemic.

Also, less homes are on the market these days because of the rise in interest rates. So buyers have to be much more aggressive when a house they like gets on the market.

Exactly, COVID caused/accelerated lifestyle changes right when Boomers and Millennials were transitioning life stages.

[reinko]

Inflation is definitely a reason why house prices have increased rapidly. But a shortage of homes, particularly at the entry level, has been a problem that has worked to increase the cost of real estate even before the pandemic.

Also, less homes are on the market these days because of the rise in interest rates. So buyers have to be much more aggressive when a house they like gets on the market.

Along with the Blackrock’s of the world buying millions of starter homes around the country and turning them into rentals.

[TSmith34, Inc.]

TSmith

The Fed raised rates 11 times because they had an overheated economy, mainly because of a very inflated stock market and real estate market. I am open to any comments on why those two assets had historic growth in value other than Fed printing money and QE. I might 100% wrong and would welcome reasons why 2020-2021 happened in those two markets.

As for Trump, my question was the previous three years, not prior to that. That said, I thought Trump was off his rocker wanting lower rates and how he treated Powell and I don't like Powell.

You asked whether the Fed had propped up the market over the last few years, yet above you are saying the Fed raised rates, one effect of which was creating a bear market. These seem diametrically opposed ideas to me.

[MU Fan in Connecticut]

Inflation is definitely a reason why house prices have increased rapidly. But a shortage of homes, particularly at the entry level, has been a problem that has worked to increase the cost of real estate even before the pandemic.

Also, less homes are on the market these days because of the rise in interest rates. So buyers have to be much more aggressive when a house they like gets on the market.

I read this last month that one of the main reasons for the housing shortage is cumulation from the Great Recession.  It probably won't recover until 2030 because it takes time to build buildings.  Here's the full article.

https://www.theatlantic.com/ideas/archive/2023/11/buying-house-market-shortage/676088/

It Will Never Be a Good Time to Buy a House
Maybe in 2030?
By Annie Lowrey

Earlier this year, I moved from San Francisco to New York with my dogs, kids, and husband. My family rented an apartment. And once we figured out that we liked it here and wanted to stay, we looked to buy a place.

For roughly 11 minutes, before realizing that literally any other activity would be a better use of our time. Brooklyn has 1.1 million housing units. Just a dozen of them seemed to fit our requirements and were sitting on the market. All of the options were too expensive. And that was before factoring in the obscene cost of a mortgage.

New York, in housing as in many things, is an extreme example. But the brutal mathematics is much the same across the country. At this time 15 years ago, real-estate agents had 2.2 million vacant housing units available to show prospective buyers. That number has dwindled and dwindled and now sits at just 732,000, despite the country having added 30 million people to its population. The Case-Shiller index of home prices sits near its highest-ever inflation-adjusted level; houses are unaffordable for middle-class families across the country. Rural areas are expensive. Suburbs are expensive. Cities are absurdly expensive. Nowhere is cheap. That’s in part thanks to mortgage rates. The monthly payment on a new home has increased by more than 50 percent in the past three years, as 30-year mortgage rates have climbed from less than 3 percent to nearly 8 percent.

It’s a terrible time to buy a house. But that news, bad as it is, seems to convey some promise: Someday, things will change and it will once again be a good moment to buy. You just have to wait. I’m sorry to tell you that the bad news is even worse than it sounds. It’s not going to be a good time to buy a house for a really long time. How long? I put that question to a few housing economists and real-estate experts. Their response? Who knows. A decade. “Maybe in 2030, we would start to see some relief,” Daryl Fairweather, the chief economist of Redfin, told me, before noting that 2030 was so far in the future that she could not make any kind of informed prediction.

The problem is twofold. We have a long-standing housing shortage. And we have a frozen housing market. The latter is making the former worse, and it will take years for things to even out and ease up.

The fundamental issue is that the country does not have enough homes where people want them, a consequence of a decade-plus of underbuilding after the Great Recession. Freddie Mac has estimated that the country is short 3.8 million starter homes; Realtor.com puts the deficit at 2.3 to 6.5 million total housing units; the National Association of Realtors and Rosen Consulting say it’s 5.5 million. Whatever the number, it is big. The shortage has driven up costs for buyers and renters alike—most spectacularly in megacities such as Los Angeles and New York, but pretty much everywhere at this point.

Enter the pandemic. When COVID hit, the Federal Reserve pushed interest rates down to scratch. This led to a huge surge of home sales, with the volume of deals hitting its highest level since the collapse of the real-estate bubble. Buyers scrambled to take advantage of low mortgage rates. Sellers scrambled to take advantage of soaring prices. (Many sellers, of course, are buyers too. People trade up or downsize, and are more likely to do so when borrowing costs are low.) Folks relocated to take advantage of their employers’ new work-from-home policies.

Enter inflation. Prices for everything went up because of ample demand (families were spending their “stimmies”) and stifled supply (COVID-related supply-chain problems were causing shortages of everything from couches to semiconductors). The Federal Reserve jacked up interest rates to cool down the rate of price growth. This led to a huge run-up in mortgage rates and a crash in home sales. Would-be buyers decided to rent instead of buy. Would-be sellers decided to stay put instead of moving, because why give up a 3 percent mortgage rate for a 7 percent mortgage rate? Very few units hit the market, so prices stayed high.

This is the uncomfortable equilibrium the market finds itself in today. Nobody’s selling, because nobody’s buying. Nobody’s buying, because nobody’s selling. Nobody can afford to sell. Nobody can afford to buy. Prices are high; mortgage costs are high. Rents are high, too, and there’s not a huge amount of rental inventory. Everyone’s stuck and paying more than they want to.

Things should calm down when the Fed eases up on borrowing costs, right? Wrong. Things will not calm down. “Once mortgage rates drop, that will reactivate the housing market, leading to more demand. With a limited supply, that would only lead to higher prices,” Fairweather told me. In other words, millions of would-be homebuyers will flood into the market, bidding one another up and pushing poorer purchasers out. More homeowners will feel motivated to sell, giving up their 3 percent mortgage rates for offers above their imagined asking prices. But nobody expects the return of a buyer’s market or anything like it.

The underlying problem remains the underlying problem. The housing shortage persists. High borrowing costs have intensified it, because so many developers and home builders take out loans to complete their projects. Until housing production ramps up for an extended period of time, until there’s considerably more supply relative to demand, things are not going to feel good. They can’t.

Many states and municipalities have passed laws to promote housing development in the past three years—easing zoning restrictions, allowing high-rises near transit hubs, and preventing owners from stopping development to protect their own home’s value. “They probably are going to move the needle on housing supply,” Fairweather told me. But building those new units will take time, time in which demand for new homes will keep growing too.

What is a family looking to buy a place to do? Buy in cash, if you happen to be rich enough to do that. (A bananas statistic: This spring, two out of every three buyers in Manhattan paid cash.) Buy and refinance when you can, if you happen to have the risk tolerance and financial room to do that. Buy with as large a down payment as you can muster to cut your mortgage costs. Or just rent. For the next decade. Forever.

Annie Lowrey is a staff writer at The Atlantic.

[The Hippie Satan of Hyperbole]

Thank you yes. The shortage is a huge problem.

And also, it's a lot harder to qualify for a mortgage than it was prior to the Great Recession. And that's also why I am not that considered about firms buying (or building) houses simply to rent. People need to live somewhere.

[rocky_warrior]

Owner-occupied housing looks to be holding steady and above any rate from 1965-1995.

https://fred.stlouisfed.org/series/RHORUSQ156N#0


The rest of the narrative is opinion.

[The Hippie Satan of Hyperbole]

And I would suggest that the sharp rise after 1995 was fueled by bad mortgages, which is why the foreclosure rate increased even before the Great Recession.

https://www.statista.com/statistics/798766/foreclosure-rate-usa/

[rocky_warrior]

And I would suggest that the sharp rise after 1995 was fueled by bad mortgages

Oh 100%.   On a percentage basis, pretty much more people own homes than ever before - excluding when mortgages were given out to people who had no reason getting them.

Funny side note: With my first house purchase in 2005, I was one of those no-doc mortgage losers, that probably had no reason buying.  I worked for a startup at the time, had great credit, but intermittent income.  But from application until closing Chase only ever pulled my credit report.  Of course, I'm cautious and even payed off my loan in 10 years, but in theory they probably never would have given me a loan if they had ever asked  for pay stubs!

Back to investing.  Who do people like for AI investments?  Alphabet and Microsoft seem obvious, any other small players?

[MU82]

Back to investing.  Who do people like for AI investments?  Alphabet and Microsoft seem obvious, any other small players?

I don't follow small caps, but two other megacaps would be NVDA and AMZN. And you just know Apple will figure out some big ways to be AI-relevant.

One somewhat smaller (but definitely not small) name I have a stake in is Lam Research, LRCX. It is a "pick-and-shovel" company that makes equipment for semiconductor manufacturers. Lots of the huge chip companies use Lam components, and all of those are feverishly working on semis for AI applications. I will say that LRCX is looking pricey here ... but then again they all are. Even beaten-down names like Intel have been on fire lately.

Semis are getting beaten up a little today for reasons I don't know. Still not cheap, but ...

[rocky_warrior]

For sure - if you're talking Semiconductors, NVIDIA, intel, Arm, AMD/Xilinx, Amazon, Google, and Apple are all involved and investment accessible to us peons. 

LRCX is an interesting play, and by that matter probably KLAC too.  But as you noted, not cheap now - though that doesn't mean they won't get more expensive.

[SoCalEagle]

Oh 100%.   On a percentage basis, pretty much more people own homes than ever before - excluding when mortgages were given out to people who had no reason getting them.

Funny side note: With my first house purchase in 2005, I was one of those no-doc mortgage losers, that probably had no reason buying.  I worked for a startup at the time, had great credit, but intermittent income.  But from application until closing Chase only ever pulled my credit report.  Of course, I'm cautious and even payed off my loan in 10 years, but in theory they probably never would have given me a loan if they had ever asked  for pay stubs!

Back to investing.  Who do people like for AI investments?  Alphabet and Microsoft seem obvious, any other small players?

Interesting story, Rocky.  My wife and I had the opposite experience when shopping for a home in 2010 / 2011.  Housing prices were way down, but scrutiny of a buyer's ability to pay was extremely high.  When we told our agent that we both had good paying jobs, at least 20% or more to put down, and good credit scores I could literally see the positive reaction on her face.  Then on our first outing she began to show us homes that I thought were untouchable for us.  Of course what I didn't fully understand at the time was that we had a great buyer's profile in the midst of a huge buyer's market.  Sure, we had to put up with a lot of documentation requests and sometimes double checking of our submittals, but the end result was good. 

[SoCalEagle]

Oh 100%.   On a percentage basis, pretty much more people own homes than ever before - excluding when mortgages were given out to people who had no reason getting them.

Funny side note: With my first house purchase in 2005, I was one of those no-doc mortgage losers, that probably had no reason buying.  I worked for a startup at the time, had great credit, but intermittent income.  But from application until closing Chase only ever pulled my credit report.  Of course, I'm cautious and even payed off my loan in 10 years, but in theory they probably never would have given me a loan if they had ever asked  for pay stubs!

Back to investing.  Who do people like for AI investments?  Alphabet and Microsoft seem obvious, any other small players?

This is quite a difficult question as real monetization of AI is still out there quite a bit.  However, I'm thinking that, for now, continued success by the mega caps is one way to play AI.  After that, NKN (Nobody Knows Nuthin)

[rocky_warrior]

Sure, we had to put up with a lot of documentation requests and sometimes double checking of our submittals, but the end result was good.

Oh yeah, the process is mind numbing these days (Been a buyer 4 times since then, and twice since 2020).  In fact in '22 I had a "problem" in that I work part time and told the bank my part-time (but salaried) income, and had the pay stubs to prove it.  By my work does all income verification through the work-number and it only reported my full-time income.  The bank was fine with my income, but had no way to reconcile the lower number I told them.  Hah!

This is quite a difficult question as real monetization of AI is still out there quite a bit.  However, I'm thinking that, for now, continued success by the mega caps is one way to play AI.  After that, NKN (Nobody Knows Nuthin)

That is sorta' my feeling / expectation as well.  But not sure if I'm missing something.  The services companies may offer a play.  I picked up a couple dollars worth of C3.ai, but to be honest, I don't really trust that company!  lol.

[MU82]

I mean, so many could be called "AI plays."

TSLA for sure. IBM. HON. Even the likes of DE and CAT (which are also infrastructure plays).

It depends on how far into the weeds one wants to wander to find AI plays.

You named KLAC; that's a good one that several investors I respect own. I don't own it myself - can't own everything!

[MU82]

From this morning's NYT DealBook newsletter:

Investors are shrugging off news that Elon Musk’s carmaker has lost its crown as the world’s biggest seller of electric vehicles, ceding that position to BYD, a Chinese rival backed by Warren Buffett. But industry watchers say the changing of the guard is a potentially key moment.

Tesla shares were down a tick in premarket trading this morning after its latest sales update yesterday. The company sold a record 1.8 million vehicles last year, bolstered by discounts. That included the sale of nearly 485,000 cars last quarter — about 41,000 fewer than BYD in the same period.

BYD is the dominant E.V. maker in the world’s biggest car market. The company initially focused on making batteries before pivoting to manufacturing its own cars. It sells cheaper vehicles than Tesla, but its profit margins have held up, partly because it owns its battery supply chain and sources less expensive raw materials.

BYD is now looking overseas, putting further pressure on Tesla. The Chinese market comprises about 90 percent of BYD’s sales. But BYD’s international business — it’s focusing on Europe, Japan and Brazil, and has largely avoided the U.S. amid trade tensions between Beijing and Washington — took off in the second half of last year.

Whether BYD can translate its domestic success “onto a global stage is one of the big questions of 2024,” Matthias Schmidt, an industry analyst and director of Schmidt Automotive Research, told DealBook. BYD announced plans last month to build an electric-vehicle factory in Hungary even as the European Union, the world’s second-biggest E.V. market, investigates Chinese firms for illegal subsidies.

[Hards Alumni]

Hards

I do think the government’s non stop printing of money has consequences. It has been a great thing for the stock market and a nice segment of people benefited from that. IMO, that has come with a very big cost to the overall economy.

There were/are a lot of things broken in our economic system and that is troublesome from my perspective. First, I believe making money is hard and easy made money is not a long term positive. For argument sake, if someone had a $500k in their retirement plan and was 100% in the S&P this year, they made roughly $125k. That $125k makes people feel smarter than they are and reckless spending is east do if you think you are smarter than you really are.

That is great for them, but many took years or decades to hit $500k and that $125k windfall changes perspective on one’s wealth. Spending habits change, thinking you can help grown children comes into play and it changed the overall economy.

I have said on here many times that a very smart man once told me that if you do not think $100k is a lot of money, see how hard it is to save $100k. The divide in society continues to get larger and the cost of living is in a dangerous position, imo.

I am going to admit, my thinking of how an economy should function is probably outdated and it took me a long time to admit that. That said, I believe the “new” economy is dangerous and will create a bigger divide between the classes.

Fortunately, I am 60y and still have time to accept the changes and adjust my thinking and plans. I’m hopeful that my grown kids can create their own wealth, whatever that means to them, and live the life they want to live. That said, I think this is the toughest time in my lifetime to know is the best path forward for younger people.

My kids, three own homes/condos, have made good decisions and that is great. Now, all are looking to upgrade and the cost is out of their price range. IMO, some of that is due to the person that made a $125k in their retirement plan and think they can bankroll a home purchase for their kids. Hence, home prices for younger people who cannot afford it and the $125k for older people was put at risk.

To sum it, I think the American Dream is the greatest idea/concept in the history of the world on the economic front, but I think it is so messed up because of the government bailouts that my kids will never fully understand why it is the greatest economic idea ever.

For the record, I have never, never wished for an economic catastrophe and always want as many people as possible to prosper. That said, I have no idea how this economy works today without government intervention. That troubles me.

Okay, but I asked why printing money was a problem.

[Jockey]

I have said on here many times that a very smart man once told me that if you do not think $100k is a lot of money, see how hard it is to save $100k. The divide in society continues to get larger and the cost of living is in a dangerous position, imo.

I am going to admit, my thinking of how an economy should function is probably outdated and it took me a long time to admit that. That said, I believe the “new” economy is dangerous and will create a bigger divide between the classes.

Fortunately, I am 60y and still have time to accept the changes and adjust my thinking and plans. I’m hopeful that my grown kids can create their own wealth, whatever that means to them, and live the life they want to live. That said, I think this is the toughest time in my lifetime to know is the best path forward for younger people.


To sum it, I think the American Dream is the greatest idea/concept in the history of the world on the economic front, but I think it is so messed up because of the government bailouts that my kids will never fully understand why it is the greatest economic idea ever.

I completely agree with the 1st 3 paragraphs.

However, I couldn't agree less with the last paragraph. I think the bailouts to the richest among us are the problem. And of course, the utter greed of this 'rich upper crust'. The poorest among us are not the problem - even with their meager gov't assistance. Luckily, that is changing. A closer to living wage for all is a great improvement. So is the new rise of union strength.

[Plaque Lives Matter!]

The concept of the American dream being equally achievable to all is a great way to get people to keep driving the economy forward for the lucky few

[Hards Alumni]

The concept of the American dream being equally achievable to all is a great way to get people to keep driving the economy forward for the lucky few

They call it the American dream because you'd have to be asleep to believe it.

[Goose]

Well, this sucker still believes in the American Dream, just harder to navigate. I am going to continue to chase that dream until my last breath. Now, I have learned that it is far harder than decades ago and am going to do whatever possible to make it happen. I might end up woefully short and that is life.

[Hards Alumni]

Well, this sucker still believes in the American Dream, just harder to navigate. I am going to continue to chase that dream until my last breath. Now, I have learned that it is far harder than decades ago and am going to do whatever possible to make it happen. I might end up woefully short and that is life.

Sorry, a man much smarter than myself said the quote. 

[JWags85]

I think the premise of the American dream varies wildly depending on who you ask, but as someone who has given very real thought to moving/re-establishing their business abroad in the last 3-4 years, the US is still more or less the gold standard for entrepreneurship.  And no I’m not talking becoming a billionaire or some pie in the sky exceptionalism, but coming from relatively nothing and still making plenty of money/changing your station 

I totally get the sentiment and desires to raise the tide to lift all boats, to create a high floor as opposed to the ceiling, it’s all valid.  I also realize that entrepreneurship/owning a business isn’t for everyone.  If you’re looking for just a comfortable life of working and taking care of your family and not seeking that level of upside, then I’m more than willing to admit there are probably better places than the US.

I know business owners from various places in Europe and some parts of Asia that if their business was in the US and they had the success they did, they would be at worst very comfortable and some would be quite wealthy. But none of them are more than what would be middle to upper middle class here.  One actually had to shut his business down because of the energy crisis (and they were not a company that directly dealt in that industry at all).  Another is moving to Dubai because it was actually cheaper to move all of his current staff (around 6 people) there and expand than what it would cost to add 3-4 more headcount as needed in Brussels.

Again, it’s a lot of stuff that may actually lead to better quality of life for general population (depending on what situation they are in or what they value) but brutal on small to mid size businesses.  Which is why the US will remain an attractive destination for business people, even from “developed” nations that many Americans think are so much better than the US   

[The Hippie Satan of Hyperbole]

The idea of the American Dream is a "pull yourself up by your own bootstraps" type of thinking. That it doesn't matter what your social standing is at birth - you are the one largely responsible for making yourself successful.  Now I think the United States still provides those opportunities, but has been bypassed by a number of others on the social mobility scale.

The "high floor" as Wags puts it, socializes education and health care in a way that takes out two of the largest factors that IMO are detriments to social mobility here.

[jesmu84]

Good stuff, wags and sultan.