Afford Anything - How The Supreme Court's Chevron Ruling Could Impact Retirement

Episode Date: July 5, 2024

#520: Happy 248th birthday, USA! In this 5th of July First Friday economic update, we cover five topics: the economic impact of elections in the UK; the S&P 500 topping 5500; the effect of the Supreme Court’s Chevron ruling on Social Security and retirement planning; the latest jobs report; and California’s new law allowing accessory dwelling units to get sold separately as condos. For more information, visit the show notes at https://affordanything.com/episode520 Resources Mentioned: UK’s Office for National Statistics: May 2024 report SupremeCourt.gov: Loper Bright Enterprises v. Raimondo Federal Register: SSA Social Security Administration: Will Social Security Be There for Me? Bureau of Labor Statistics: June 2024 jobs report Learn more about your ad choices. Visit podcastchoices.com/adchoices

Happy 5th of July and happy 248th birthday to the United States. We're going to kick off our 5th of July 1st Friday episode by talking about the British, because as of today, they have a new prime minister. We'll discuss what that may mean for the economy. We're also going to talk about the jobs report, which came out this morning and was better than expected. And we're going to discuss the fact that the S&P 500 is now the S&P 50500. we are in absolutely new terrain with the S&P 500 hitting never-before-seen highs. We'll discuss what the Chevron decision might mean for Social Security benefits

and other matters of retirement and your wallet. And we'll talk about California's new accessory dwelling unit law and the implications that this may have for the housing market. Welcome to the first Friday episode of the Afford Anything podcast. This is a show that understands you can afford anything but not everything. Every choice carries a trade-off. And that applies not just to your money, but your time, your focus, your energy, your attention, to any limited resource that you need to manage.

This is a show that's all about helping you be a better resource allocator. And we touch on five pillars with the acronym of Fire with Two Eyes. Financial Psychology, Increasing Your Income, Investing, Real Estate and Entrepreneurship. Every first Friday of the month, we do a monthly economic update, and today's update will touch on most, if not all, of those five pillars. My name is Paula Pant. I'm the host of the show. Welcome. We'll start with the latest news. The UK held its general election yesterday on the 4th of July. Their left-wing Labor Party won by a landslide with Labor leader Kier Starmer becoming the new prime minister. This puts an end of 14 years of conservative rule in the last year.

the UK, and stands in sharp contrast to right-wing parties winning or poised to win many elections across mainland Europe. The current Prime Minister Rishi Sunak has resigned, and also, and this was cute, apologized for not living up to people's expectations of him, which is something I would never imagine any American politician doing. It is heartening to see such a display of civility. I raise this, of course, not just for some Fourth of July 5. but also because the UK is the sixth largest economy in the world. And for months now, we have been closely watching the Bank of England and the way that the UK handles its inflation rate

as a data point, a signal that may give some clues to how inflation and correspondingly interest rates might play out in the U.S., with the Bank of England a month ago stating that they expect the UK to reach its target 2% inflation within two years. It seems as though the U.S. is likely to beat them, as Fed Chair Jerome Powell made public remarks earlier this week, noting that the headline inflation rate is 2.9%. Again, I'm going to emphasize that 2.9% over the trailing 12 months. Now, that's headline inflation, which is the raw inflation figure reported through the Consumer Price Index, the CPI. headline inflation is different from core inflation because core inflation excludes food and fuel,

because those elements can be volatile for reasons that are not inflation related. The cost of food and fuel can sometimes be volatile due to climate events or geopolitical events, wars, blockades. Many things can impact the price of food and fuel, and so those are stripped out of core inflation, but they are included in headline inflation. And all of this is to say headline inflation over the past 12 months has come down to 2.9% in the U.S., which is still above that 2% target, but it is a heck of an improvement from 7.1%, which was where we peaked. Now, Fed Chair Jerome Powell in his remarks earlier this week, said this is a very positive sign of the fact that headline inflation is down to 2.9% but we're not declaring victory yet. We're going to wait and see if this is durable, does this last, or is it merely a blip?

But the fact that our in the U.S., our headline inflation is already down to 2.9%. Now, let's compare that to what's happening in the UK. Their inflation peaked at 9.6% in October 2022. It has since come down significantly. And in the trailing 12 months prior to May 2024, their CPI was at 2.8%. Now, that data comes from the UK's Office of National Statistics, and we will link to it in the show notes. Now, that is distinct from their core CPI, including housing, CPIH inflation rate, which was 4.2% in May of 2024 versus our core, which is at 3.41. I know I'm throwing a lot of numbers at you right now.

But zooming out, here's what makes this interesting. The UK's inflation rate at its peak was worse than hours by about two and a half percentage points. Today, their core inflation is still worse than ours, but their headline inflation is about on par with what's going on over here. Now, the economists and the policymakers at the Bank of England, which is their central bank, comparable to our Federal Reserve, think that they'll hit the 2% target in about two years. Given the fact that our headline inflation rates are comparable, it poses the question, will it take us two years as well? But given the fact that they're trying to rectify a worse

situation, maybe we'll beat them to it. That's why observing what happens with inflation and interest rates over in the UK is an interesting signal. It's not, of course, you need multiple data points. It's not a silver bullet answer. But it is a relevant data point as we try to figure out what inflation here is going to look like in the coming year. And as an extension of that, as we try to figure out how soon interest rates are going to drop, because regardless of whether you are a homeowner with a locked in fixed rate mortgage and potentially golden handcuff situation, or whether you're a renter who's now staring down a barrel of really high interest rates, anyone who lives in a home is interested in the

question of when are rates going to decline. That's why watching the UK as a signal is so interesting, and that's why this major political change that happened today, Prime Minister Rishi Sunak resigned on the 5th of July. That's why this is so fascinating. What will this new change in government mean for the economy of the UK? That is the question on everybody's mind as we unpack this new leadership change over the span of the country. coming months. Changing gears, the S&P 500 is now the S&P 5500, as I like to call it. It's actually topped 5555. That's fun. This is new terrain. I remember, and this was not that long ago, I remember making an Instagram video saying,

hey, the S&P 500 just topped 5,000 for the first time ever in history. I made that video. I don't remember exactly when, but it was not very long ago. And now we've topped 5500. Why is this significant? It's a milestone. It's a round number milestone. It's like turning 20 or turning 30 or turning 40. There is no significant difference between being 29 versus 30 or being 39 versus 40 or 49 versus 50, right, in terms of your age. But that birthday is a milestone because it's a symbolic round number. That's what the S&P 500 has just experienced. The symbolic milestone of crossing 5500 for the the first time. So I guess the best analogy is it's like it just turned 25. You know, it's a birthday that feels like a big deal because all of a sudden you're like at that age where it rounds up to 30. Nearly 60% of the gain in the S&P 500 year to date was driven by just five companies,

NVIDIA, Microsoft, Amazon, META, and Apple. In fact, just one company, NVIDIA alone accounted for 31% of the S&P 500's first half advance. So there is a thin blade separating a bull market from a sluggish, you know, flat line or even bear market. Is this a cause for concern? I posed that question to Michael Kitsis, the famed financial advisor who gave a keynote speech at the Morningstar Investing Conference, which I just attended in Chicago a couple weeks ago. You're going to hear that interview on the Afford Anything podcast in two weeks. So make sure you're following us in Apple Podcasts, Spotify, in your favorite podcast playing app. Back to the question, should we be worried about the fact that so much of the gains have been driven by so few companies? After all, the rise

of the S&P 500 is one of the strongest performances for the opening six months of a year since the dot-com bubble of the late 1990s. Is this the AI bubble? Of the 2020s, financial advisor Michael Kitsis' take is that the performance we're seeing is historically normal. It may feel scary. This goes to that first F financial psychology. It is psychologically disconcerting to see so much of the gains accrue to Nvidia, Microsoft Apple, and to a lesser extent, Amazon and meta. That is certainly psychologically disconcerting, but it is historically normal, according to Kitsis, who pointed out that railroads, stocks dominated the U.S. stock market in the early 1900s, with the overwhelming majority of

stock market gains accruing specifically to a very small handful of railroad stocks. After that, came an era called the Second Industrial Revolution. That was 1910 to 1930. It was brought about by electricity and the internal combustion engine. And that's when we saw new products like automobiles and soft drinks just start to dominate the market with General Motors and Ford dominating the automobile market, Coca-Cola and Pepsi dominating the soft drink market, obviously, and industrial companies,

including Andrew Carnegie's U.S. Steel, emerging as the absolute runaway winner. In fact, U.S. steel was more than three times larger than the country's second largest company, which was AT&T. It was so big that the U.S. government tried to break it up in 1911,

but failed to do so. And so U.S. steel was the absolute runaway overwhelming winner. And at that time, in that era, 40% of the largest companies in the U.S. ranked by asset size were in the oil, steel, or mining industries with the company Standard Oil by John D. Rockefeller, also emerging as a major player. So back then, if you look at some of the overwhelming winners of the stock market, U.S. Steel, Bethlehem Steel, Standard Oil, the American Telephone and Telegraph Company, DuPont, and then, well, when it came to heavy farming equipment,

International Harvester, a U.S. rubber, you saw in the early 1900s and then continuing through to the mid-1900s, steel, oil and gas, and telecom, as well as chemicals and heavy equipment, and conglomerates like GE become the overwhelming winners and drive the bulk of the market growth. Kitsis' take is that what we are seeing right now

where AI is driving, the bulk of the growth in the market. That is, to borrow the cliche, history doesn't repeat, but it does rhyme. We like to think that there will be a normal distribution, but in fact, there is a fat-tail distribution. And for those of you who are familiar with productivity, you've likely heard of the 80-20 rule, you know, 20% of customers account for 80% of revenue. That is a manifestation of a fat-tail distribution.

We see the same thing in market returns. And that is why index fund investing is so essential because we never know which companies they're going to be. And so if we try to hand-select who the winners are, we run the risk of guessing wrong and missing out on the majority of the gains. By the way, the majority of gains occur not just among a small handful of companies, but also on a very small handful of days. So if you look at the biggest returns that a stock market has over the span of a given year, a given 12-month period, there are a tiny handful of days in which the market produces outsized returns that drive the bulk of that annual growth. And if you miss those days, you also miss out on the majority of the returns. So you can miss returns either by trying to time the market or by trying to hand-select the winners. Conversely, you have a high shot of enjoying the upside if you buy into a broad market and do not try to time your entry and exit. So there we go, a discussion on financial psychology and on investing all wrapped into our reflections on the S&P 500 crossing the 5500 threshold and continuing to go up from there. Let's dive in with the topic that could have some big social security implications,

which is the Supreme Court's decision on Chevron deference. Before I get into this, let me make a disclaimer that I am not a legal scholar, nor do I play one on the radio. For the purposes of today's episode, I contacted a friend of mine who graduated from Georgetown Law. I said, can you meet with me? Can you explain Chevron to me? We met, we spoke for an hour. By the end of it, I understand. understood certainly much more than I had going into the conversation. But I am highly aware of the Dunning Kruger effect. I understand that an hour of conducting an interview does not in any way qualify me as an authority on this matter, but I will give you to the best of my understanding,

a high-level overview of what has happened. To anyone who is listening who is an attorney or a legal scholar, please chime in in the comments. You can leave a comment directly in the Spotify app. You can comment on this episode. You can also go to our community at afford anything.com slash community. We would love to hear from those of you who have actual scholarship in this area. The notion of Chevron deference came out of a 1984 court ruling in a case between Chevron, the Energy Company, and the National Resources Defense Council, which is an environmental group. Chevron deference, which was established by that court case, refers to the latitude that federal judges are able to give agencies over how to interpret the statutes they administer.

Now, that latitude comes from a two-part test. So part one, a federal judge will examine the wording in the context of a statute. that is passed by Congress to see whether or not Congress's intent is clear. If it is, if the intent is clear, then there's no question. Matter is settled. The agency simply abides by the letter of the law. If, however, the language is ambiguous, meaning there are multiple reasonable interpretations, then the court must defer to the agency in deciding how to carry out that statute. The idea, essentially, is that if there is statutory ambiguity, then the agency has the leeway to decide how to interpret that language, provided, of course, that their interpretation

is reasonable. So, recently, the Supreme Court ruled on a case that overturned Chevron deference. Now, this was a case between the owners of a New England fishing company against the National Marine Fisheries Service. The Fisheries Service is an agency that is tasked with carrying out the Magnuson-Stevens Act, and that is an act that sets catch limits in order to prevent overfishing,

and it requires fishing boats have a government-appointed inspector on board who monitors compliance. But the companies have to pay for the cost of that monitor, and so the plaintiff in this case was paying about $700 per person. per day for that onboard monitor. So the plaintiffs argued that the National Marine Fisheries Service didn't have the authority

to force it to pay that cost. And that case wound its way through the courts and ended up at the Supreme Court. And in the syllabus, which I'm reading directly from the syllabus, we're going to link to it in the show notes. You can find it at supremecourt.gov. We will link to it in the show notes. Page seven. They say, quote, at best, Chevron has been a distraction from the question that matters.

Does the statute authorize the challenged agency action? And at worst, it has required courts to violate the APA, which is the Administrative Procedure Act, quote, by yielding to an agency the express responsibility vested in the reviewing court to decide all relevant questions of law and interpret statutory provisions. And then further down, it says, quote, Chevron has proved to be fundamentally misguided. And then a couple sentences later, it says, quote, experience has also shown that Chevron is unworkable. So, Chevron's out. Agencies are no longer in charge of deciding how to interpret what Congress wanted them to do.

And there's a different act, the Administrative Procedure Act, which requires, requires courts to exercise their independent judgment in deciding whether or not an agency acted within its authority. So the power basically transfers from agencies back to courts. Now, why are we talking about this on a show that's all about personal finance? Well, can you name one of the biggest federal agencies? That's right. It's the Social Security Administration. It is the daddy of federal agencies with 84,000 employees and 1,300 field offices.

Keep that in your back pocket for trivia night. Now, you and I are accustomed to thinking of Social Security as a retirement program. In fact, they say the three legs of retirement planning. A lot of financial advisors use the analogy of a three-legged stool when it comes to your retirement planning, and they say that one leg is your investment portfolio, one leg is your pension, if you have it, and one leg is Social Security. So in the world of retirement planning,

social security is one of the three legs of the three-legged stool. Which, by the way, I think the reason that that analogy exists is because you can have a two-legged stool or theoretically even like a mono stool, you know, a one-legged stool, but the fewer legs a stool have, the easier it is to tip over. And the more sturdy, the thicker and sturdier,

those fewer remaining legs ought to be. Like if you're going to have a one or two-legged stool, those better be some load-bearing legs. At any rate, the Social Security Administration is one of the biggest federal agencies, and it actually does more than just retirement. It is responsible for survivors' benefits and disability insurance programs.

So it administers the Supplemental Security Income Program for, quote, the aged, blind, and disabled. That is a quote that I'm reading off of Federal Register.gov, by the way, so don't come out me for that. It also assigns social security numbers to U.S. citizens, and, of course, it maintains records of everything that we have earned. Those records are maintained under our social security numbers, and they determine our social security payouts when we reach for retirement age. So what does Chevron mean for social security? Well, what we know is that the Social Security administration is no longer going to receive automatic judicial deference

in its interpretation of any ambiguous provisions of the Social Security Act. That is what we know. What we don't know is what? portions, if any, of the Social Security Act may be considered ambiguous. And what we probably are going to see is increased litigation as people begin challenging decisions that are made by the Social Security Administration. So this opens the door to a person saying, hey, I think that this agency's interpretation of the law is incorrect. And so I'm going to be the plaintiff and I'm going to challenge the

Social Security Administration and it's going to go to the courts. And now the courts will have much more leeway to play a more decisive role in interpreting the Social Security Act. My guess, if I had to put money on it and this is just a guess, I suspect that some of the first challenges that we are going to see will relate to the disability benefits portion of Social Security. I am guessing that disability benefits will probably get challenged before the retirement benefits portion will. But I think there's going to be challenged. I mean, I think it's probabilistically likely that there's going to be challenges in all. By the way, If you ever want to play afford anything bingo, three phrases that should be on that bingo square.

One is historically normal. The second is what we know. And the third is probabilistically likely. All three phrases should be on the bingo card because I've said all three in this episode. And I have noticed myself saying them often enough that they have, well, they would be catch phrases if they were catchier. But I guess they're just phrases. Back to Social Security. We're going to make some guesses on how this is going to go.

Litigation related to the disability portion of what they do. I think that's going to come first. But no discussion of Social Security is complete without reflecting on the most recent trustees report, which was released last year in 2023, and which projects that the Social Security trust fund reserves will be depleted in 2034. Now, this does not mean that benefits are going to stop in 2034. So when people say, oh, you know, Social Security is going to run out. You hear that phrase a lot.

The reserves will run out in 2034. That doesn't mean that benefits will cease. What does this mean? Okay, here's the backstory. So every year, the actuaries who work at the Social Security Administration put out a report that's called the Trustees Report. the Social Security Trustees report. Within this report, the actuaries project the cost of future benefits. They also take a look at both current and projected payroll tax contributions,

including FICA taxes, because FICA taxes contribute to the Social Security trust funds and all monthly payments to people who receive Social Security, whether it's survivors' benefits, disability benefits or retirement benefits, all of those payments come from the trust funds. So FICA tax is the trust fund income, but retirement, survivor, and disability benefits are all paid out of that trust fund balance. Now, as of the most recent trustees report, the trust fund reserves are on schedule to be depleted in 2034. That means that if Congress doesn't take action to keep the trust funds solvent, then the Social Security program will have enough FICA taxes coming in

to pay about 80% of scheduled benefits. So Congress needs to do something between now and 2034 in order to ensure the solvency of these funds. If they don't, benefits will still be paid, but there is at least a non-zero chance that those benefits might be paid at a... reduced rate. Non-zero chance should also be on the bingo card. By the way, all of this information comes directly from ssa.gov, and we're going to link to it in the show notes. Also, fun trivia,

Social Security currently pays benefits to 66 million people, which is about one-fifth of the U.S. population. So, with one out of every five people getting Social Security benefits and a program that's about to be insolvent in a decade, the conditions are ripe for a serious lawsuit. About what? We'll find out. Stay tuned to the next episode of humanity to see how this will play out.

And the reason, by the way, that I'm being a little facetious right now is because what we are discussing fundamentally are known unknowns. We know that there is a reasonable likelihood of impending litigation that could reshape social security. We know that we do not know what that litigation will be, and we know that we do not know how it will reshape social security. So we are standing at the precipice of known unknowns.

And at this stage, there's nothing that we can do other than strengthen the leg of the retirement planning stool that is within our direct control. And that leg is the portfolio leg. Our personal savings, our portfolio of investments. It's the one and only thing we can do. I know the conclusions keep coming back to the same thing. Like, what are the actionable takeaways from this episode? Strengthen your portfolio balance. Put more money in your investment portfolios. And put that money into broad market index funds. and don't time the market. These are all the classic principles of personal finance that we already know.

And when we go through the latest economic news and the latest legal news, whether it's the Chevron decision or the runaway performance of Nvidia, the lessons that we derive from watching what's happening around us keep returning to these tried and true classic personal finance principles. Don't time the market, stick with index funds, and remember that your contributions are the single biggest determinant of your portfolio success. So shovel money in there. All right, we're going to take one break for this word from our sponsors and when we return. We're going to discuss the jobs report as well as the latest in the housing market.

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Interestingly, and we saw this in May as well, So this is a recurring pattern in both May and June. Both employment and unemployment rose. Not by much. So the unemployment rate is currently 4.1%. At this time a year ago, it was 3.6%. So we're seeing an uptick in the unemployment rate. We are also seeing new jobs added.

What this means is that labor participation is higher than it previously has been. Now, again, I want to emphasize there have not been major shift. between May and June. So the unemployment rate between May to June didn't really change that much. The labor force participation rate, which is 62.6%, that didn't really change much between May and June. There was also very little change in the number of people who are employed part-time for economic reasons. That's 4.2 million people. And even when you look at the job growth, right, total employment rose by 206,000 new jobs in June. That's actually quite similar to the average monthly gain of 220,000 over the last 12 months.

So June's numbers were incredibly consistent. Now, it gets interesting when you dig into industries because government employment rose by 70,000 new jobs in June. That's a lot higher than the average monthly gain of 49,000. and the bulk of that came from state and local government. In the private sector, health care added a lot of new jobs in June. And in general, over the last 12 months, health care has added quite a bit. And even construction, and I thought this was really interesting,

construction added 27,000 new jobs in June, despite the fact that home building has slowed, and we're going to talk more about that later in the show, retail employment took a nose dive and so-called white-collar jobs employment in professional and business services declined by 17,000 jobs, although scientific and technical services rose by 24,000. This all comes from the Bureau of Labor Statistics, and we will link to all of it in the show notes. If you look at the episode description in either Apple Podcasts or Spotify or whatever podcast player you're using, you will find it there as well, along with timestamps. So what should we take away from the jobs report? Well, I know I say this every month, but number one, the U.S. economy is incredibly resilient.

Interest rates are currently at a 23-year high. So the fact that we are consistently seeing job growth, when interest rates are at the highest they've been in, a generation. That shows enormous resilience. That said, there are a couple of red flags. One is the fact that job growth is so heavily driven by government jobs rather than private sector jobs. Another red flag is the fact that the professional and business services sector specifically lost so many jobs. And inside of that sector, the biggest hit came from temporary help services. Now, temp help is something that a lot of of companies get when they're growing, they often, you know, a company will often hire a temp

before they hire a full-time person to fill a role. And so when you see an uptick in the number of temps who are hired, either it's a seasonal uptick like around the holidays, particularly within certain industries like retail. It's fairly obvious why retail would need temp work around the holidays, or in cases when it's not a seasonal uptick, an increase in temp jobs often is a harbinger of more robust job growth coming down the pipeline, as companies decide that these temp positions that they're filling should become full-time roles. By contrast, when you see a huge decline in temp jobs, which is what we're seeing right now, that could be, and maybe not a red flag, but it's an orange flag.

So those are a couple of mild areas of concern, but it should be noted that this is the 42nd consecutive month of job growth. And for 30 out of these 42 months, the unemployment rate was below 4%. So yes, there are some minor weak signals, but they exist inside of the context of something that is historically quite strong. And speaking of strength, let's move to the final topic today, which is the housing market, and something really interesting just happened in California. California just passed a new law that makes it possible for homeowners to sell accessory dwelling units,

also known as ADUs, as separate homes. So an ADU, now depending on what part of the country you live in, there are a lot of different regional variations of the word for ADU. So some people in some parts of the country will refer to an ADU as a guesthouse, a casita, an in-law suite. But the concept is essentially that it is an autonomous unit with its own separate ingress and egress, which is a housing jargon for how you enter and exit. It's that autonomous unit that exists on your property. So if you have a single family home, you might have a detached ADU slash Casita slash guesthouse in your backyard. And that's where your guests might stay or you might rent it out or it might be where your in-laws stay, which is why it's sometimes referred to as an in-law suite.

So this new law in California allows ADUs to be sold separately. And these can be sold now as condos. What this does is it functionally creates more density, which is precisely what we need because the housing affordability crisis is a crisis of a supply shortage. We do not have enough housing units to meet demand. To solve affordability, we need supply. And in order to have supply, we need municipal legislation that allows for greater density, because in a lot of areas, there are zoning restrictions that limit density.

And the idea behind those restrictions is that they're meant to preserve property values. And, well, I mean, technically they do. Because when you have fewer homes and when you have more space between each home, then those homes become more expensive. When you've got less of something and a lot of people want that thing, the price rises. So by virtue of allowing homeowners to sell ADUs as separate homes, as condos, California is allowing for greater supply and greater density. Now, San Jose is the first city within California to implement the law. It will in San Jose go into effect on July 18.

Berkeley City Council has voted to adopt it in 2025. and it's likely that a lot of other cities in California will follow, as well as potentially other states. Here's what's cool about this. Let's say that you are a homeowner in California and you have a golden handcuffs scenario. You have locked in a fixed rate mortgage at a really low interest rate,

and now you've got the golden handcuffs, the lock-in scenario, right? You could build an ADU on your property, sell that ADU, and cash in on some of the money, of the value of your property without having to sell the house that has the beautiful low interest rate mortgage and without having to refinance out of that awesome mortgage that you have, right? You can maintain the golden handcuffs but still collect some money off of a portion of the value of your property. So existing homeowners have some really good economic options available to them, and likewise, renters who want to own a home now have more supply that they

can buy with the cost of an ADU functioning as a more affordable starter home. Actually, when we put an asterisk there, I actually low-key despise the phrase quote-unquote starter home because it just perpetuates this mainstream idea of endless lifestyle inflation. But I'm using it in this context just to make the point that if you're a renter and every house seems totally out of reach, this is a lower cost condo that you can buy that makes your participation in the home ownership arena feel a lot more approachable. I'll get off my soapbox, but I just can't hear myself saying the phrase starter home without giving that little disclaimer. Shifting away from California, let's take a look at the housing market more generally.

Home building is slowing. So if you look at the data, you look at permits, new housing starts, sales volume, all of those are below expectations. And the inventory of single-family homes available on the market is right around pre-COVID levels. That said, the headlines that are out there are really dramatic. I'm seeing headlines with words like crash and screwed. No, the market is softening. Fewer people are buying homes. Therefore, fewer builders are building homes.

That's to be expected when interest rates rise. In fact, that's the whole point of interest rates rising. The whole reason that the Federal Reserve raises interest rates is because they are trying to cool down the market. If the market cools down, then they've done their job. So there isn't a crash. You're not screwed. the actual not clickbait reality is that renters are renting longer,

which means demand for rentals has increased, because longevity within a rental unit has increased, people are remaining renters for longer durations of time. And that's the reason why rents keep going up, or part of the reason why rents keep going up. Rents also rise because there are increased property taxes, increased insurance rates, Oh, don't get me started on insurance rates.

All of the other operating costs associated with holding a property have risen. So there's an inflationary aspect as well. But in addition to that, rental demand has also increased because that's what happens when home buying demand decreases. People have to live somewhere. So if buying decreases, then renting increases. Home prices remain at record levels. The median price of existing homes is up five. point eight percent year over year. And the Case Schiller Home Price Index, which measures not just

existing homes, but also new inventory, is up 6.3 percent as compared to a year ago. So on a monthly basis, yeah, there's a little bit of volatility in the housing market, just like there might be some volatility in the bond market. I won't even say stock market because it doesn't gyrate like equities do. But the broad macro trend is that the price of properties keeps rising and will continue to keep rising as long as housing supply remains short. We have low inventory. We have strict lending standards. We have high interest rates, which therefore require buyers to have either higher incomes or lower debt or both, in order to have a qualifying debt-to-income ratio. So the factors all point to a housing market that will only continue to rise.

Probabilistically speaking, is that on the bingo card? But in the meantime, bad news generates more clicks than good, and so you will continue to see fear-mongering headlines about the housing market. Take it with a massive grain of salt. Heck, let's pull a page from the top-performing stocks of the early 1900s. Take it with an entire salt mine. You know, mining companies. Well, that's our show for today.

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