40 Trillion Dollars.
That’s the amont of debt on our Federal credit card.
That sounds like a lot. We really can’t imagine how much that is.
Is that a problem for real estate?
Not yet a crisis, but certainly moving toward becoming a major problem.
In my Econ 101 class, the professor spoke about how the Federal Government is the only one authorized to deal with deficit spending. (They have their own printing press.) All other government entities have to balance their budgets. Some have gotten very inventive, kicking the balanced budget can down the road with accounting measures and borrowing. We do the same thing when we live beyond our means, putting purchases on our credit cards. But as far as govrnments go, only the Federal Government can decide to spend more than they take in.
That ability helps the government deal with recessions and even depressions. And covid-created economic shutdowns. The Federal government helps control the economy.
If our government officials attended the same Econ classes I did, they would understand they have this power to boost the economy in times of downturns. They would also have heard the professor’s advice that when things are good, they should pay down the debt, and then reduce taxes. The last president’s term that did that was Clinton. And Speaker Gingrich.
The rest must have missed class that day.
Governor Jerry Brown funded a “rainy day fund” that California built up in good times, to be used in bad times. That was a very good idea. States and cities need that. Families need that. But the Federal Government operates under different rules.
Of course we have been through some very bad economic times in this century. We had the housing-related Great Recession of 2010. We had Covid shutdonws from 2020-2022. We have survived losses of 40% of home equity, and helicoptered money to everyone to keep the economy going during Covid.
Since I am originally from Chicago, I think about a quote attributed to then-Senator Everett Dirkson: “A billion here, a billion there, and pretty soon you’re talking about real money.”
Trillion is the new Billion.
As realtors, we tend to think about borrowing money as being similar to taking out a mortgage. You have to first provide a down payment and then have collateral. The more collateral you have, the better risk you are. Check out the following short article from THE HILL:
Don’t panic about the national debt — the US has the wealth to handle it
Economists also measure a country’s national debt as a percentage of its Gross Domestic Product (GDP). How does the U. S. compare with other countries using that metric?
Our current government debt is at 116% of GPD. But our household debt is only at 68% of GPD, and Corporate Debt is low enough to not even be listed on this comparison list.
So is our country on the verge of financial ruin? Not really, but it may be headed in that direction, with a steadily increasing curve.
That’s how we are doing currently. What of the future?
This quote is from the Congressional Budget Office Outlook 2026 – 2036:
In CBO’s baseline budget projections, the federal deficit equals $1.9 trillion this year and averages $2.4 trillion per year from 2027 to 2036.2 The cumulative deficit over that period totals $24.4 trillion (see Table 1-1). Deficits also generally increase in relation to the size of the economy, equaling or exceeding 5.6 percent of gross domestic product (GDP) in each year and reaching 6.7 percent of GDP in 2036. Over the 2027–2036 period, deficits average 6.1 percent. By comparison, deficits have averaged 3.8 percent of GDP over the past 50 years.
It seems our plan is to go further into debt at a faster pace. Between this year and next year, the plan is to add $4 Trillion to the national debt by 2028. But plans can change. Hopefully for the better.
If the US were a bank customer applying for a loan, they would no longer be considered a prime customer. They would get a loan, but the interest rate on that loan would be higher than if they were more credit-worthy. The US has always been considered THE safe haven for investments. We are decreasing our credit-worthiness as we increase our national debt, and that means we will need to pay higher interest to attract investment, to have investors buy our bonds.
That is exactly what is happening. The US Government does not go to a bank, but it does go to world markets to borrow money. Even though it owns printing presses, we don’t in reality print more dollars. We borrow funds from the investment community. When the investment community sees the kind of future in the CBO’s forecast, interest rates go up. We become more of a risk. This is what I mean when I have said that the FED is not completely in charge of interest rates. We compete for funds in the world, and our stability as a country, our credit rating, is measured by the interest rates we have to pay.
What does this mean for housing? Don’t expect interest rates to come down anytime soon. While the FED bases their decisions on balancing inflation against full employment, the FED does not control how the world financial markets look at our credit-worthiness. Just like real estate, it’s a market. Prices can go up, prices can go down.
So much for a review the US financial situation.
I am not forecasting that mortgage rates will be going down anytime soon.
How are our local real estate markets doing?
Stable. For the past four years, we have been stable in both activity and prices.
Let’s begin with our summary tables.
Compared to last year for the same period, listings are up slightly, Median prices are down 3% while Average prices are the same as last year. The number of sales was down slightly by 1%. Listings are staying on the MLS for 5 weeks, same as last year. Over 1/3 of listings are priced in excess of $1.5 million. The inventory represents 3 months worth of sales. The number of home sales priced between $750,000 and $1 million rose significantly by 11% over last year, Sales of homes priced over $1 million were down 5%.
Simi Valley and Moorpark inventory was up 4%, with prices down 2%. The number of sales were 7% lower than last year. The biggest decrease in the number of sales were for homes in the $1 million to $1.5 million range.
Lets next look at the inventory graph comparisons. Conejo inventory is very close to last year.. Current inventory is 60% higher than 2024, and over double what was available in 2023. Look at the inset box to see how the different traunches grew. Sales are not limited by inventory.
Simi Valley/Moorpark inventory a little higher than last year at this time. Current inventory is 80% higher than 2024 and over three times the inventory of 2023. Inventory is no longer limiting sales.
The sales charts for Conejo Valley shows the past four years compare very closely. Sales are 40% lower than the pre-Covid years.
For Simi/Moorpark, sales decreased to only 50% of the pre-Covid year average. High mortgage rates are restricting sales.
The Conejo cummulative sales picture shows the same close comparison for the past four years.
Simi/Moorpark is following suit.
Conejo prices have been stable, even though the normal spring increase and fall decrease has been taking place. When I say stable, I mean stable for four years, with no increase in price.
The same for Simi/Moorpark, although it is not as apparent. I drew a line across the chart level with the current Median price, and you can see there are gyrations, but mostly settling around the same price level.
It is difficult to see news that would change what we see today. There are still two wars going on, causing strains on the world economy. Oil shipping remains a problem, we have high tariffs and inflation. But as the Annie song states, The Sun WIll Come Out Tomorrow.
There is an election coming, and that may or may not have a major effect. No matter which side you support, make sure you get out there and vote. Or mail in your ballot, if that remains an option. But vote. If you don’t vote, don’t complain for the next two years.
Our association’s Local Candidate Recommendation Committee just interviewed our local candidates running for city countil, and I can tell you our local government will remain in good hands no matter who wins the election. Thankfully we have excellent candidates who are volunteering their time and skills to help guide our local governments.
We just passed the 25-year anniversary of 9-11. Remember how badly we felt at that time? Things look better today. We will make it through this.
The main thing to do is get up every day and boost your self up. Manage your attitude. Look for the good things. There are plenty available. Keep up to date on the market, and keep your clients up to date. Sales continue to take place, and owning a home has proven to be the best path to individual wealth creation for most of us.
Stay safe.
Chuck
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