Unreal Estate

The shifting tectonic plates that inspire earthquakes in the markets are interest rates. And for the entirety of Gen Z’s lifetime, they’ve laid still at record lows. In the 1980s, consumers garnered 10% interest on a CD. That’s a “certificate of deposit” for anyone under 30. For anybody 40 to 60 it’s still a “compact disc.” But I digress.

It’s the boring things that make money — software, insurance — and/or kill you. Lawnmowers kill 90 Americans each year, vs. 10 people killed by sharks globally. Interest rates got their close up in Die Hard (1988), in which Hans Gruber plans to fake his own death and murder dozens of people so he can steal Nakatomi Corporation’s interest-bearing bonds. “By the time they work out what went wrong,” says the villain, played by Alan Rickman, “we’ll be sitting on a beach, earning 20%.”

Scant chance of that line getting written today. Bond yields are at all-time lows, a quarter what they were in the 1980s, and “savings” accounts offer comically low “interest rates” that begin with “point oh” and get worse from there. Low interest rates make fixed income investments less appealing and drive up asset values via cheap leverage. The S&P 500’s Shiller P/E ratio, a respected gauge of the relative price of U.S. equities, is flirting with an all-time high.

The American dream of homeownership has become a hallucination — the apparent perception of something not present. Housing, already on a 12-year tear, has now gained the chaser of a pandemic that made everyone’s home feel unbearably small and shabby. Eight out of 10 urban areas in America registered average home price increases of more than 10% in 2021. Fifty years ago, the average home cost two years of the average American household’s income. Today it costs four.

 
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Πηγή: profgalloway.com