Inventory in almost all major areas is extremely high now. Bubble hotspots like Austin, Boise, Phoenix, Asheville, Jacksonville, Las Vegas etc etc haven’t seen much price reduction even though inventory has returned to pre pandemic levels. Inventory is sitting for months.
Why?
Because there is no active suffering. There is no current pain for most people who own homes. Anyone who is holding stocks is doing pretty damn good right now. 401k’s are nice and fat for most people of homeowner age. The people in pain right now are those who don’t own assets, aka most consumers. Future home buyers.
The only thing holding the entire stock market together is AI. AI is in massive hype mode right now. It’s in the “this time it’s different” phase. While it really does produce a massive productivity increase, it’s not the magic people seem to think it is. It’s more like Excel or a calculator. Or the original computers. A productivity and efficiency booster in short. Investors seem to think it can replace everything. It won’t. At least not anywhere in the near term.
When the reality of this sets in, and it will, the entire market will start coming down to reality again.
Why?
Every single company is reporting that consumers are in a very weak spot right now. Demand for almost everything is coming up less than anyone predicted. Companies are downgrading expectations for the year. People are fed up with inflation and the massive cost of living increases. Salaries are not rising to keep up with the cost of living. Even companies that are historically bulletproof such as McDonalds are surprised by a very weak consumer. Credit card debt is higher than ever right now. Student loans are sky high and aren’t being forgiven. People are graduating from STEM degrees and Master’s degrees yet they can’t find jobs in their field to pay back their loans. People are extremely risk adverse due to layoffs right now. Job openings for anything other than low paying jobs are worse than during the beginnings of COVID.
Direct consumers make up 66% of the entire US GDP. The consumers are at their weakest in a very long time yet many companies and the broader market are near all time highs
Why?
Markets are being propped up by AI hype within a few certain companies.
When this hype dies, the domino effect of pain and suffering will ensue. The panic selling of housing will ensue. No one will want to buy because no one can time a bottom (but they will try). People will be worth a whole lot less with no way to buy and will seek to off load their houses as quickly as possible to make up for their net worth loss. When retirement accounts and markets are down, this causes severe financial duress on people – mentally and literally. If we had current inventory levels during the crash in 2022, real estate would have crashed as well. Instead, it was propped up by low interest rates and an extremely strong job market. Picture the current weak consumer, with his 401k now cut down severely.
When will this happen? I don’t know. How much more can hype propel the market? I don’t know. How low will the bottom be? I don’t know. It’s almost impossible to accurately time the market. But this will be the catalyst.
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