The Shifting Landscape of U.S. Residential Real Estate

A Decline in First-Time Homeownership and a Surge in Rentals
The American housing market is experiencing a notable transformation, characterized by a significant downturn in first-time home purchases and an unprecedented expansion of the rental sector. This shift is largely attributed to a challenging environment marked by elevated borrowing costs and escalating property values, which are increasingly keeping prospective homeowners in rental accommodations.

Recent industry figures indicate a substantial reduction in the number of individuals buying their first homes. Last year, the count of new homebuyers stood at 1.1 million, a decrease of 380,000 from the previous year and nearly half of what has historically been observed. Projections for the current year suggest an even steeper decline, with sales data through May pointing to a total of approximately 40.3 million home sales across the nation. This would represent a further drop from last year’s figures and the lowest sales volume recorded in the U.S. since 1995. This sales slowdown is particularly evident in the market segment for properties priced below $500,000, which traditionally attracts first-time purchasers.

The trend of diminishing new buyers is also reflected in residential construction activity. In May, new home sales saw a 6% decrease compared to the same month in the prior year. Developers often rely on demand for starter homes from first-time buyers, who historically constitute about 40% of new home sales. Consequently, a reduction in new construction suggests a corresponding decrease in the pool of new buyers seeking such properties.

As a direct outcome of these dynamics, the number of households opting for rentals has surged, reaching an all-time high of 46 million across the U.S. The financial barrier to homeownership has become considerably more formidable. Analysis from academic institutions highlights that an individual seeking to purchase a median-priced home today would require an annual income of $127,000 to manage the associated mortgage payments, a sharp increase from $79,000 just a few years prior in 2021. Alarmingly, only a fraction of the current renter population, approximately 6 million out of 46 million, meets this income threshold. This disparity is particularly pronounced among younger generations, with Gen Z and Millennials exhibiting lower homeownership rates at their current life stages compared to Baby Boomers at similar points in their lives.

Unless there are significant adjustments in mortgage interest rates or a substantial depreciation in property values—scenarios that might typically accompany an economic downturn—the aspiration of homeownership is likely to remain out of reach for a considerable segment of the American population for the foreseeable future.

Stock Pullbacks Are Helpful, Not Hurtful

Do me a favor: print the chart in this email and pin it to your wall. I want you to have a constant reminder that stock prices see pullbacks several times during the year.

It’s a normal, healthy part of the investing cycle. Is it unsettling? Very! But when prices turn volatile, I want you to slip into your “Been there, done that” t-shirt.

The second half of February was difficult for investors–and the first part of March was not much better either. There were waves of unsettling news about tariffs, inflation, economic growth, and geopolitical events. 

But was the selling unexpected? Not really. Since 1950, history shows that in post-election years, February has been the worst month for stock prices.

(Spoiler alert: Post-1950, June, August, and September also show poorly in post-election years. So mark your calendar.)

It’s important to remember that past performance does not guarantee future results. Stock prices will fluctuate as market conditions change. So, while we can look to history for trends, it’s uncertain how the rest of 2025 will unfold. 

But if you are getting anxious watching the daily price moves on Wall Street, please call me. I can tell you how I manage the ups and downs.

Carson Investment Research, February 5, 2024

Inflation Drops; Fed Changes Outlook

“It ain’t over ‘til it’s over.” Words of wisdom from baseball legend Yogi Berra. And words that Fed Chair Jerome Powell has taken to heart.

“Inflation has eased over the past year but remains elevated,” Powell said following the Fed’s June meeting. In other words, “it ain’t over ‘til it’s over.” The Fed wants to see more progress toward the Committee’s 2 percent inflation objective before considering any changes to monetary policy.

Recall that just a few months ago, the Fed seemed prepared to cut rates three times in 2024. However, an uptick in inflation in Q1 forced them to revise their outlook. At the June meeting, Fed officials anticipate cutting short-term interest rates just once this year.1,2

The Fed’s about-face serves as a good lesson for everyone.

Changes in your goals, time horizon, and risk tolerance should drive portfolio adjustments rather than forecasts and best guesses. The economy changes. Markets shift. And the Federal Reserve will adjust its strategy in response to what’s happening.

When I say “staying the course” and don’t overreact, it’s because I’ve experienced several economic cycles that take longer than expected to resolve. I’ve also seen others take shorter than expected to conclude. So today, I ask myself, “Is the Fed going to stick to its one-cut strategy or update its approach at the next meeting?” Recent history would suggest it’s about a 50/50 chance!

Our strategy isn’t dependent on anything the Fed does–or doesn’t do. Let’s stay the course and remember, “It ain’t over ‘til it’s over.”

The Cost of Procrastination

Some of us share a common experience. You’re driving along when a police cruiser pulls up behind you with its lights flashing. You pull over, the officer gets out, and your heart drops.

“Are you aware the registration on your car has expired?”

You’ve experienced one of the costs of procrastination.

“Procrastination can cause missed deadlines, missed opportunities, and just plain missing out.”

 

Procrastination is avoiding a task that needs to be done—postponing until tomorrow what could be done today. Procrastinators can sabotage themselves. They often put obstacles in their own path. They may choose paths that hurt their performance.

Though Mark Twain famously quipped, “Never put off until tomorrow what you can do the day after tomorrow,” we know that procrastination can be detrimental, both in our personal and professional lives. Problems with procrastination in the business world have led to a sizable industry in books, articles, workshops, videos, and other products created to deal with the issue. There are a number of theories about why people procrastinate, but whatever the psychology behind it, procrastination may cost money—particularly when investments and financial decisions are put off.

As the illustration below shows, putting off investing may put off potential returns.

If you have been meaning to get around to addressing some part of your financial future, maybe it’s time to develop a strategy. Don’t let procrastination keep you from pursuing your financial goals. This also applies to college funds for kids and grandchildren too. The sooner you start, the more time for compound growth of investment accounts.

Early Bird

Let’s look at the case of Cindy and Charlie, who each invest $100,000.

Charlie immediately begins depositing $10,000 a year in an account that earns a 6% rate of return. Then, after 10 years, he stops making deposits.

Cindy waits 10 years before getting started. She then starts to invest $10,000 a year for 10 years into an account that also earns a 6% rate of return.

Cindy and Charlie have both invested the same $100,000. However, Charlie’s balance is higher at the end of 20 years because his account has more time for the investment returns to compound.

This is a hypothetical example of mathematical compounding. It’s used for comparison purposes only and is not intended to represent the past or future performance of any investment. Taxes and investment costs were not considered in this example. The results are not a guarantee of performance or specific investment advice. The rate of return on investments will vary over time, particularly for long-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The type of strategies illustrated may not be suitable for everyone.

Special Market Update

We closed out the QQQ (NASDAQ 100 ETF) long/short positions yesterday.  This morning we just sold RSP, ROBO and UBOT due to weakness in their respective sectors.  We are still holding the S&P-500 long/short combo to neutralize our models and to not incur capital gains on recent profits.  If you have any prospects, friends, relatives, etc., that are 100% long in a “pie chart” investing style, you really need to get their attention now. 

Yesterday, I spoke with a client who gave me part of her money as a test on August 18, 2022.  She is +2.90% through yesterday.  She left $815,000 with her father’s advisor. It is now worth $650,000.  People are listening to the talking heads on investment shows and the Jim Cramer crowd.  It is so sad.  Yesterday, a talking head on CNBC Power Lunch spent time ranting and raving about how the 60/40 investment model blend is alive and well.  In all my time listening to CNBC and reading over 4 hours a day, I have never heard or read one word about the AGG (The benchmark for bonds) being -15% last year.  Nowhere, no one, is talking or writing about it.  Then again, probably over 90% of licensed advisors don’t know what the AGG is.  

BTW, most of you may have already heard or read about this, but it’s important enough to mention again. As a barometer of how bad the financial climate was in 2022, there are only two times in the last 100 years of stock market history when both the S&P-500 AND the AGG were both double digit negative at the same time: 1932 (Great Depression) and 2022! There was no safety in either equities or bond/fixed income portfolios.  Noodle on that!

Read more on pie charts  

Call me, having fun, this is what we do best!!

Jack
240 401 2355

EVs―The Next Big Thing

EVs―The Next Big Thing

An Interesting Email

We recently received an interesting email from a reader of our RFS website. Katie Griffin is a Senior Communications Specialist at EcoWatch.org, a group devoted to disseminating information on the environment to help reduce carbon emissions and their deleterious effects on the atmosphere. Turns out that Ms. Griffin read our article about Lithium,[i] which we sent to clients and friends in August of 2021.

In her email, Ms. Griffin wrote:

I wanted to reach out because I saw that you have some great information about electric cars on your page. It’s projected that there will be 18 million electric vehicles on U.S. roads by 2030. As EV’s grow in popularity, it’s important that people are aware of the different types, their impact on the environment and the pros and cons of purchasing one. 

EcoWatch.org, which has a Twitter following of 238,000, recognized the growing popularity of electrical vehicles and as a result created a guide called “Electric Vehicles 101: Everything You Need to Know.” It’s a must-read for anyone wanting to buy, or just interested in, an EV. You may find the guide here

Yes, Everything

The EcoWatch guide kid you not: It does indeed have everything you need to know about EVs.

  • History: Did you know that in 1900 one-third of all vehicles on the road were electrical vehicles?
  • Types of Electrical Vehicles: HEVs, PHEVs, BEVs, … the alphabet’s heyday.
  • Are EVs Better for the Environment: yes, says the Guide. Some interesting facts here.
  • How Long Does It Take to Charge an EV’s Battery: In the Guide, you’ll find not only “how long” but “where”; you’ll discover ‘Plugshare, a free website and phone app that bills itself as ‘the most accurate and complete public charging map worldwide, with stations from every major network in North America and Europe.’”
  • Cost of Charging an EV: About half the cost of a combustion-engine car, says the Guide (assuming gas at $3.00 per gallon―so these days less than half).
  • Uncle Sam Wants You (to buy an EV): The Guide covers the federal tax credits you can enjoy when you buy an EV …but …

Inflation Reduction Act (IRA) Changed All That

The recently enacted Inflation Reduction Act made significant changes to the federal tax credits available to EV buyers. According to CBS News:

President Biden’s signing of the Inflation Reduction Act is changing the landscape for Americans interested in buying an electric vehicle. The law replaces a previous tax break for EVs with a new set of credits, although that depends on where a car is assembled.

The manufacturing requirements are effective as of August 16, 2022, the day the bill became law. Other restrictions, including strict limits on where batteries can be mined and assembled, kick in starting in 2023 and ramp up in future years.[ii]

The IRA requires assembly of EVs in North America before federal tax credits are available. It also restricts battery mining and assembly to certain locations. To make certain your prospective EV qualifies, you can check it against this list provided by the Department of Energy.

CBS News provides the following list of eligible cars:[iii]

2022 models that likely qualify for a tax credit under the Inflation Reduction Act

  • BMW 330e and X5
  • Chrysler Pacifica PHEV
  • Ford F Series
  • Ford Escape PHEV and Mustang MACH E 
  • Ford Transit Van
  • Jeep Grand Cherokee PHEV and Jeep Wrangler PHEV
  • Lincoln Aviator PHEV and Corsair Plug-in
  • Lucid Air
  • Nissan Leaf
  • Rivian EDV, R1S and R1T
  • Volvo S60

2023 models that likely qualify:

  • BMW 330e 
  • Mercedes EQS SUV
  • Nissan Leaf

You might notice that the list omits the most popular EVs sold in America; Chevrolet Bolt EV and EUV; GMC Hummer Pickup and SUV; and Tesla Model 3, Model S, Model X and Model Y vehicles. Even though these cars are assembled in America, their manufacturers have exceeded a sales cap under a previous law. This cap will be lifted in 2023, so if you’re shopping for an EV, you should include the popular models on your shopping list.

We’re On It

Only in the past four years have investors had the opportunity to invest in ETFs “specifically dedicated to driverless cars, electrical vehicles. and other innovations in the automobile industry.”[iv] For our Aggressive Growth Model, we selected DRIV.[v] The managers of this ETF―Global X―describe their overall philosophy in creating more than 60 ETFs:

A lineup that spans disruptive tech, equity income, hard-to-access emerging markets, and more. Or simply put, we strive to offer investors something beyond ordinary.[vi]

About the DRIV ETF, the managers have this to say:

EVs produce zero direct emissions, meaning broader adoption could result in reduced greenhouse gas emissions and improved urban air quality. Further advances in autonomous driving could also enhance roadway safety.

No One Knows

Who knows how far and how fast EVs will advance in the marketplace. With groups like EcoWatch (and, no doubt, hundreds more) supporting the transformational change to electrical vehicles and with the federal government eager to pay American citizens to buy them, it seems rational to conclude that investments like DRIV will do well in this decade.

But who knows where the overall stock market is heading. We’ve positioned our Aggressive Growth Model in a decidedly short position with the large 3x short position in SQQQ we bought on August 17, 2022. Counterbalancing this position are TQQQ and UPRO 3x long positions. When the market reveals its hand, we’ll sell either the short position (if the market is heading up) or the long position (if the market is heading down) and just ride in the direction our analysis takes us.

Call Us

As always, please call us at 301-294-7500. We are happy to answer any questions you have.

And please forward this email to family, friends, and colleagues―they, too, might be in the market for an electrical vehicle and would appreciate having access to EcoWatch’s EV Guide.

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