The first 100 days, market updates and housing insights
Hello, welcome back. Here are this week’s key points:
As I write this, the Biden administration has just hit the 100-day mark and several impressive milestones have been achieved.
As quarterly results are announced for several major tech companies and they demonstrate the tremendous impact of the pandemic on day-to-day behaviors.
As residential real estate gets more expensive, buyers are considering the benefits of buying new versus renovating versus tearing down old for new. I’ll share my insights on those scenarios.
Governmental action
As President Biden’s inauguration approached, I often referred to the incoming administration as “comfort food” for the markets: known, predictable, strong-and-steady, reliable, maybe even a little boring but in a good way, as comfort food can be.
Now, 100 days in, we see evidence of the truth in that but, even more so, I think he’s been bolder than anticipated, too:
He’s led tremendous progress on the vaccination front.
Individuals, families, and businesses that were hard hit are gaining some measure of financial stability and, we hope, future security.
Bipartisan discussions are taking place over a proposed infrastructure deal that will have significant positive short- and long-term impacts.
The U.S. is regaining ground as a global leader economically and otherwise.
And the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, is rumored to be on the brink of announcing a major refinancing program targeted to lower-income homeowners who may have missed out on the refinance boom due to pandemic-related challenges that bumped them from meeting underwriting criteria. As reported on April 28 in the Wall Street Journal, “FHFA estimates that borrowers who take advantage of the new refinance program could save an average of between $100 and $250 a month.”
I know that these packages and proposals are extremely costly. I know that there will be bills due and challenges ahead. But hardship isn’t an issue for Republicans or for Democrats: it affects everyone. And doing the right thing isn’t a zero-sum game: when day-to-day life is easier for those who are most vulnerable or who face great challenges, things get better for all.
All this leaves me feeling optimistic about our country’s ability to get through the pandemic stronger and more united—and most Americans agree.
Equities
I’ll start this section by saying, as I’ve said for months, that the economy would boom due to policy decisions like those I mentioned earlier. That said, there’s a point that I think is so important that, barring any other major developments, I’ll go into it in detail next week: When considering the markets and the overall economy, it’s essential to consider the context of just-before-Covid, not simply as a year-to-year comparison, as many analysts and news outlets are doing now.
That said, quarterly earnings reports are coming in now from the major tech companies and as was anticipated by me and many others, the situational and behavioral changes brought on by the pandemic were kind to tech:
The Wall Street Journal is reporting, “Apple Inc. is expected to report record revenue Wednesday for the January-to-March quarter because of surging sales of premium iPhones and pandemic-induced buying of its other products.”
Google blew away expectations, as noted in this Wall Street Journal article, “Google’s parent company shattered sales records for the first quarter, fueled by a surge in digital ad spending that has strengthened the tech heavyweight even as regulators try to curtail its power.” The article continues, “Alphabet reported first-quarter sales of $55.31 billion, an increase of 34% from a year earlier when advertising sales plunged as the coronavirus crippled the global economy. Profit more than doubled, with per-share earnings far exceeding analysts’ expectations.”
Facebook’s report is due shortly, too, and it’s anticipated that it will see an ad-revenue-driven surge along the lines of Alphabet.
And no talk of tech stocks in my blog would be complete without a nod to my favorite genius storyteller, Elon Musk. He announced an impressive quarter for Tesla, while also letting us know that many people will die on the road to populating Mars.
As I’ve said many times, the story—and the storyteller—have become central to our perceptions of corporate potential. Is it because he’s so out-front about real and potential failures that we’re better at accepting his company’s when they occur?
I’m a fan of failure—I think it makes us more creative, more resilient and, ultimately, much more successful—and I admire his openness. And his successes have shown that he’s more than just a genius pitchman: he truly thinks about the world differently that most of us do. In his case, being visionary and having technical know-how and piles of funding are a powerful combination of tools.
Factors that could slow the volatility of the markets down range from inflation concerns to Covid to a general redirection of money from investing to real-life living again as vaccinated people go back to restaurants and travel more and buy work clothes that don’t double as workout clothes. For now, optimism rules.
Residential real estate
Just in case anyone reading this is new to this blog and isn’t otherwise aware of this yet, residential real estate remains extremely tight and very, very pricey overall. Eventually it will shift, particularly when there’s a confluence of increased housing inventory, rising mortgage rates and better returns on safer investments so that people have somewhere to put some money besides stocks and real estate.
Still, all this demand, coupled with the need for homes that do more than house us, has led many homeowners and buyers to question whether it’s best to renovate an existing home, buy new or even to tear down and start from scratch.
There really isn’t a blanket response that works in most cases and I’d say that it’s gotten more difficult now, when there are complicating factors such as the rise in the cost of materials, delays in getting them and labor shortages in construction and manufacturing.
As a starting point, consider the intrinsic value of a home. We looked at this at length in this post, but here’s a quick recap. While almost everything about a built home will depreciate, or lose value, over time, the land on which it’s built should increase in value or, at the very least, rise along with standard inflation. That’s why the real estate credo has long been, “Location, location, location” and not “New carpet, updated electric, inground pool.”
SOURCE: From The Mortgage Reports
This isn’t just whether something is beachfront or 10 miles inland—although those factors make a huge difference. It can be as granular as where a home is situated on a block. Is it on a busy corner or a cul de sac? Does one side of the street back up to another block while homes on the opposite side back up to a park? These considerations make a difference.
In an apples-to-apples comparison of intrinsically similar properties, a new build will always cost more to buy, simply because it’s new and everything about it has a fresh life expectancy, whether that’s 10 years on an appliance or 30 years on a roof.
In older homes, there’s a domino impact of room-by-room renovations, in which one room’s renovation makes the rest of the home look dated. Systems replacements, like updating old wiring or plumbing, can significantly increase the cost of an older home. And in this heated market, it’s said that many homebuyers, even first-timers, are skipping inspections to get a leg up in the bidding war, so they end up with more renovations than they bargained for.
So, why bother to buy older homes that need work or to stay in older homes and renovate? Because most times, that’s all that’s needed to make a house your home:
If you own a home already and like where you’re living, then making your home better means that you’ll get that much more enjoyment from your largest investment.
If you’re in the market to buy, purchasing an older home is often less costly at the outset, so you may be able to put some of your funds into the work that needs to be done right away, then take your time getting to the nice-to-do changes.
Some people find the prospect of renovating their homes not only cost-effective but empowering.
Home renovation will just about always be faster than building or buying new, particularly now, when labor and supplies are in short supply.
And holder homes often have extrinsic character details that you can’t replicate in newer builds.
So, while buying new is attractive to many, there are just as many reasons to renovate the home you have or buy one that you can fix up over time. As long as you know what you’re getting into from the start, there’s a lot to gain.
A plug for Plunk and an interview with DotCom magazine:
Plunk has launched (currently, in the greater Seattle area, with other markets added soon). And I’m thrilled to say that Plunk’s also been selected by Second Century Ventures, the strategic investment arm of the National Association of Realtors®, for the 2021 REACH Technology Scale-Up program. As NAR says, “The 2021 REACH cohort will focus on scaling high-growth potential technology companies in and beyond the residential real estate sector.” It’s a tremendous opportunity and we’re one of only eight companies selected for this cohort. You can read more about it in the NAR media release.
Also, I was interviewed by Andy Jacob, CEO of DotCom Magazine, this week. Here’s the link if you’d like to have a listen.
Thanks for checking in, please join me again next week.
