Responding to Failure, Meek Jobs Report, Strong Appreciation

A story of how two brilliant investors responded to an economic crisis that left them nearly wiped out. Why was John Keynes able to recover? John was able to change his mind and see failure as a learning opportunity.

Rates – increased very marginally this week as the price of Mortgage Backed Securities degraded slightly. Rates are down roughly 3/4% from this time last year.

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Jobs – ‘Jobs Friday’ no longer appears to be the market mover it once was. The Bureau of Labor & Statistics reported almost 50,000 new job creations. While the headline unemployment figure moved down this week that number should be taken with a grain of salt (and maybe a glass of tequila). Over 400K people left the labor force, which led to the drop, and if you count the people that are not able to work due to pandemic reasons the total unemployment figure is really 10%. Weekly earnings are up 7.5% year over year which is rather significant and supports qualification for higher home prices.

Appreciation – Core Logic reported an incredible 9.2% year over year gain and between November and December of 2020 home prices appreciated a full 1%!! A $400,000 home purchased in December of 2020 would have increased in value to $436,800 in 12 months. In 2021 Core Logic predicts a 3% gain which is interesting considering the monthly pace indicates a 12% gain. Home supply is down 24% nationwide.

Bid Over Ask – why would someone bid $70K over asking price? Because in many cases that is what takes to win the home (we’ve seen multiple rejectionswith offers just like this recently). People understand the miracle of home appreciation and that even paying what feels like a premium now will pay off in the long run. Over the past 61 years that Case Shiller has collected data, the Portland market (in Multnomah County) has appreciated an average of 5.3% year over year so it is not unreasonable to assume a 5% year over year gain.

Stimulus – a third $1.9T stimulus plan was passed that, among other items, will include a stimulus check of up to $1,400 per person.

Mortgage Application – volume increased 8.2% from the previous week. Purchases are up 16% year over year (with 23% less inventory) and refinances are up 60% year over year.

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