Afford Anything - Stocks are Hot. Jobs are Hotter. What’s Next?

Episode Date: February 2, 2024

#486: By every definition of the word, we’re in a bull market. The S&P 500 hit record highs for five consecutive days last week, and remained strong throughout this week. The Dow is above 38,000 for the first time in history. Unemployment has stayed below 4 percent for 24 months, marking the strongest employment in half a century. And consumer sentiment, which reflects more pessimism than the data warrants, is showing signs of improvement. The Fed met this week and decided to hold rates steady, as expected, but there are hints that they’ll start dropping interest rates within a few months. Inflation isn’t yet down to the Fed’s target rate of two percent, but it’s getting closer — with one notable exception. Auto insurance has skyrocketed; across the nation, car insurance is 17 percent higher than last year. Meanwhile, a shake-up in the real estate industry is creating tumult for the National Association of Realtors, which is facing its first serious challenge in 100 years. The outcome could determine how steeply you’ll have to pay when you sell your home. Where do we go from here? What’s next for the economy? We tackle these questions in this First Friday podcast episode. Enjoy! For more information, visit the show notes at https://affordanything.com/episode486 Learn more about your ad choices. Visit podcastchoices.com/adchoices

The stock market is setting record highs. In fact, it's setting multiple record highs. Both the S&P 500 and the Dow Jones have hit record highs. The Dow closed above $38,000 for the first time. Last week, the S&P 500 set five consecutive days of new record highs with each day higher than the last. On Monday, it closed above $4,900. It's dropped a smidge since then. I'm recording this on Wednesday night, January 31st, and as As of Wednesday night, it's down 1.6% off of its all-time high, but it's still above 4,800 and roaring strong. So with the stock market in an absolute roar, combined with record low unemployment, unemployment has been below 4% for 23 consecutive months, plus news from the Fed, the Fed had its first meeting of the year, January 30th and 31st,

As we parse through all of this economic news, what does it mean and how does it affect you? That's what today's episode is all about. Welcome to the Afford Anything Podcast. The show that understands you can afford anything but not everything. Every choice that you make is a trade-off against something else. And that doesn't just apply to your money. That applies to any limited resource you need to manage. Like your time, your focus, your energy, your attention.

Saying yes to something implicitly means that you're turning other things away. So, what matters? most and how do you make decisions accordingly? Answering these two questions is a lifetime practice. And that's what this show is here to facilitate. My name is Paula Pant. I am the host of the Afford Anything podcast. As of right now, we air a new episode every Wednesday as our normal weekly episodes,

but once a month on the first Friday of the month, we air a bonus episode. So welcome to the February 24 first Friday bonus episode. And by the way, for those of you who are wondering why I emphasized the as of right now, it's because we have a big announcement. We've said it on the podcast before, but in case you haven't heard, we are upping the game to two days a week. That's going to begin at the end of April. Episode 500 airs April 24th, 2024. We're doing a big live event, live in-person event in New York City, details about

that to come. After episode 500, we are moving to two days a week. And so first Friday is going to become every Friday. We're going to be airing new episodes on Tuesdays and Fridays, starting with episode 501. But in the meantime, today's episode is episode number 486. It's the first Friday in February, and let's talk about the major economic news of the month. First of all, the S&P 500 is on an absolute tear. Last week, it had a record-breaking six-day streak, five of which were days in which it posted new highs. So five consecutive days of new highs, and it remained strong this week. And meanwhile, the Dow also topped 38,000 for the first time ever. Why does this matter? Well, you've heard the term bull market and bear market, right? But what do those actually mean? A bull market has two

attributes. Number one, a market is considered a bull market when it is 20% above its most recent low. Now, the S&P 500's most recent low was in October of 2022, and it hit the milestone of 20% above that low in June of 2023. So one of the two common definitions of a bull market, which is 20% above its most recent low, the S&PT, P 500 already did that. It did it back in June. But there's a second definition of a bull market, and that is when a market reaches a new record high. And the reason that the Dow and the S&P hitting new record highs is such big news is because this demonstrates that by any definition of the word, or all definitions of the word, we are firmly, unequivocally in a bull market.

So both definitions of a bull market, the definition of 20% above most recent low, and the definition of new record high, we have now achieved them both. That's why there's so much buzz around this. Now, $11.4 trillion in funds are benchmarked to the S&P 500, so this translates to rising stock portfolios for a lot of ordinary Americans. Pension funds, retirement accounts, people are seeing their 401k balance. grow. On top of that, the national unemployment rate is holding steady at 3.7%. That was the rate as of December. Unemployment has been, as I mentioned before, below 4% for 23 consecutive months. These are the best unemployment stats that we have seen in 50 years. If we want to get a little bit more granular, in December, health care added 38,000 jobs, government added 52,000 jobs, construction

added 17,000, leisure and hospitality added 40,000, social assistance added 21,000, retail added 17,000, professional and business services added another 13,000. The one sector that declined is transportation and warehousing that declined by 23,000. So in nearly every sector, all but one, we are seeing employment gains across the board. Meanwhile, inflation appears to be under control. According to data published by the Bureau of Labor Statistics in early January, the Consumer Price Index for Urban Consumers, which is basically a measure of inflation for people who live in U.S. cities, during calendar year 2023, rose 3.4%. Now, there are two ways to measure inflation. You can use an index that includes food and fuel, groceries and gas,

or you can use an index that strips those two factors out. The reason that you would do that is because both food and fuel are very volatile and subject to price shocks that can sometimes reflect circumstances unrelated to inflation. So, for example, a major weather event, a major storm, a war, a disruption or clog in shipping routes, all of these things can have price shocks on fuel. food and fuel. And those price shocks do not necessarily reflect inflation. That's the reason that we have these two separate readings. So including food and fuel, we arrive at the 3.4% number. That's across 2023. If we look at all items minus food and fuel, the numbers do get a little bit worse. We get to 3.9% over the last 12 months. So we are still far from the Fed's target rate, which is 2%, but we have improved significantly since inflation peaked at 7% in 2022. And by the way, the data for

December was much better than the data across the last 12 months. When we look at the data for December, we see core inflation at 2.9%. So again, we're still not at the Fed's target rate, but we are a heck of a lot closer than we have been. Now, this trifecta of factors, this combination is incredibly unusual. We've talked about strong economic growth, as reflected in the performance of the Dow and the S&P 500. We've talked about low unemployment, and we've talked about a dramatic lowering of the inflation rate, right?

We've talked about those three things. To have that combination is incredibly unusual. It is very, very strange, historically speaking, to have a situation in which we are reducing inflation and cooling the economy without increasing unemployment. Generally, the playbook for decreasing inflation, which is to make the cost of capital more expensive, which reduces both consumer spending and business spending, that historically leads to higher levels of unemployment. Full stop, if people are spending less and businesses are investing less, borrowing less

to grow, usually that means jobs are getting cut. But what we see right now is despite the high interest rates, despite the Fed's work at cooling the economy, we still have a very resilient, very robust economy. The economy grew at 3.3% in the last quarter and 4.9% in the quarter before that. Now, I know that the economy doesn't necessarily feel resilient because what we hear about in the headlines so often we hear about layoffs. The LA Times just had layoffs. eBay had layoffs. Some TikToker went viral for live streaming herself getting laid off, which is an absolute paragon of the remote work era.

But in spite of these high-profile headlines, the data shows consistent job growth and persistent low unemployment. But we never hear about these because something like Bob's Garage is hiring six more mechanics is not something that's going to make headlines, and yet this is how jobs continue to grow every day. Now, what we know is that there is a disconnect between economic data and consumer sentiment. People generally are more pessimistic than the facts warrant.

We know this from the number of people who are searching glassdoor.com using search terms that indicate a fear of getting laid off. But there is a spot of good news, and it comes from the University of Michigan, So Michigan tracks what's called the Consumer Sentiment Index. It is, as the name implies, an index that measures how people feel about the economy. How confident is the ordinary American when it comes to their finances? And what they have found this month is that consumer sentiment currently is at its highest level since July of 2021. largely people are becoming more confident that inflation is under control.

And overall, people are feeling better about their finances. Over the last two months, consumer sentiment has climbed a cumulative 29%. That's the largest two-month increase since 1991. But there's bad news, which is that historically consumer sentiment is lower than average. Sentiment is still 7% lower than the historical average, as measured from 1978. through today. Back to the good news, sentiment is rising at a pretty consistent rate across all age income education and geographic distributions, which is another way of saying everyone's feeling more optimistic than they were before, at least more optimistic than they have been for the last

two years since July of 2021. But even though the trend is improving, people are still not as optimistic as they were back in 2017. If you look at the trend line from 2014, 2015 through 2020, consumer sentiment was quite high. And then, of course, in 2020, there was a steep decline for obvious reasons. And it improved a bit after that, but then it absolutely tumbled as inflation so now we're climbing out of that. So far we've talked about the unusual tricycle of strong growth, low unemployment, and low inflation, this very unusual trifecta that we've got going on right now. And we've contrasted that with consumer sentiment, which could be described as more pessimistic than it needs to be or more pessimistic than the data warrants,

but getting better. With all of that established, let's turn our attention to the Fed, which just wrapped their first meeting of this year on January 30th and 31st. To zoom out a little bit and establish some context, the Fed meets eight times a year. Their first meeting of the year happened this week. The next time they meet is going to be in March, March 19 and 20. After that, they're going to meet April 30, May 1st, right at the border of April and May. And then they're going to meet again in June, in July, in September, in November, and in December. Every time the Fed meets, they do one of three things.

They either raise interest rates or lower interest rates or hold interest rates steady. I mentioned earlier that inflation peaked at 7% in 2022. In early 2022, the Fed's interest rate was near zero. Starting in March of 2022, the Fed raised interest rates 11 times, which is how we went from a rate of near zero to a rate, a benchmark overnight interest rate of between 5.25 to 5.5%. And by the way, when we talk about the Fed raising or lowering interest rates, we're talking about the federal funds rate.

Now, this is the target interest rate at which commercial banks will borrow money from one another or lend money to one another overnight. So if one bank wants to lend their extra reserves to another bank overnight, that's the rate that we're talking about when we talk about these Fed meetings. And so the reason, if you're hearing me say 5.25 to 5.5% and you're thinking, hey, when I go to the bank to take out a mortgage, I'd love to see 5.25%. Why am I seeing 7? It's because the rate that you or I would pay as ordinary individuals is going to be a couple of percentage points greater than that overnight federal funds rate that's set by the Fed. Right now, that benchmark overnight

rate is between 5.25 to 5.5.5.5. And what the Fed is tasked with is not keeping it too high for too long because if they did so, then they would be cooling the economy more than necessary. But they also don't want to lower that rate too early because to do so would be to declare premature victory over inflation and risk a situation in which inflation runs away. As widely expected at this meeting, they left the federal funds rate unchanged. That's no surprise to anyone. In fact, the president of the Federal Reserve of Cleveland said in an interview on Bloomberg, television that March is probably too early for a rate cut. That's a direct quote, quote, March is probably too early. So it's no shock to anyone that this week they elected

to leave rates unchanged. It's still up for debate what they are going to do in March. If they'll continue to leave it unchanged in March or if they will begin cutting in March, we'll know the answer to that when March comes around. But as widely expected, at this week's meeting, they decided to leave rates unchanged. Irony of a strong economy is that having a strong economy actually gives the Fed reason to keep interest rates higher longer. The Fed's dual mandate is to keep inflation under control while also keeping employment high slash unemployment low.

They are tasked with doing both. The fact that our economy is so strong and that unemployment is so low gives them leeway to be a bit more aggressive about keeping interest rates high in order to keep inflation low. Now, we've talked about a lot of optimistic news, so we do need to balance this with some red flags, some warning signs that we should keep our eyes on. The average American credit card debt balance has ticked up, as well as buy now, pay later, loan balances. So buy now, pay later technically is not considered a credit card balance. It is a loan balance. But both credit cards and buy now pay later balances, both of those have increased.

So what that shows is that consumers are willing to spend, but much of that spending is being fueled by debt, which of course leaves consumers in a more vulnerable position if the tides were to change. On top of that, we've talked about stock market growth. A lot of that growth has come from what's called the Magnificent Seven. These are mega-cap companies, Amazon, Apple, Alphabet, meta, Microsoft, Nvidia, and Tesla.

These seven companies have been an outsized driver of the growth of the stock market, which means a few things. It means that all of us are a little over exposed to these companies, arguably over exposed to these companies. It also means that any major shock to one of these companies could spell trouble for the overall market. And it means that underperformance of certain companies is a big, being buried under the overall growth. So, for example, for a while now, Amazon has been planning on acquiring IROB, which is the maker of the Rumba. And this was supposed to be a $1.4 billion acquisition, but it came under heavy scrutiny by the Federal Trade Commission, the FTC, which reportedly told Amazon that they planned on blocking the deal due to antitrust concerns.

There were several reports that came out stating that FTC staff told Amazon that they planned to sue in order to block the merger. Amazon then chose to abandon the deal. And once Amazon walked away from the deal, stock in IRobot plummeted. So I share that story as a bit of an example of the contrast between the broad macroeconomic realities that come from tracking a major index versus the micro realities that can heavily impact the investors, the employees that comprise any given company inside of it. IRobot announced that it was going to lay off 31% of its staff following the collapse of the intended acquisition, and IRobot's CEO stepped down. So it was clearly an episode of succession happening in there.

We're going to take a quick break. When we come back, let's turn our attention to housing, because particularly as interest rates drop, this is going to be a fascinating and tumultuous year for housing. In fact, they're beyond just interest rates, rates dropping. There is drama inside of the National Association of Realtors. There is, of course, the most recent court ruling related to those huge fees that you pay every time you sell your home. We're going to talk about all of that after this break. We're also going to talk about why your car

insurance has suddenly become incredibly expensive. Believe it or not, auto insurance is a lagging indicator of inflation. So if your car insurance rates just got jacked up, we're going to explain why. We're also going to address a great question that I got on YouTube. Someone asked, hey, if we're dollar cost averaging into an index fund, why do we care if the stock market is hitting new highs? It's a fantastic question, and we're going to address that as well. All of that's coming up after the break. The holidays are right around the corner, and if you're hosting, you're going to need to get prepared, maybe you need bedding, sheets, linens, maybe you need servware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays,

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Welcome back. Let's dive right in with the housing market. Here's what we know. Existing homes, meaning homes that are not new construction, homes that have been lived in by at least one previous occupant, these existing homes typically account for 90% of home sales. And last year, there's new data. out. Last year, the sale of all homes generally fell to its lowest level since 1996. In other words, the sale of all homes generally fell to its lowest level in 27 years. The sale of

existing homes fell to its lowest level in 30 years. That's another way of saying that of the homes that were sold, new construction was more desirable than existing homes. Now, that is good news for builders. And builders, frankly, need some incentive to be able to build because the cost of new construction has gone up dramatically. This is an issue that really began during the pandemic when the cost of underlying materials such as lumber and copper skyrocketed. Labor costs, of course, have gone up and that has only been exacerbated by inflation. And so with the cost of new construction rising so dramatically, compounded by now with high interest rates, the cost of capital that the builders need to borrow in order to build, also rising dramatically.

All of that comes together to create incredibly high both operating costs and financing costs when it comes to building home. In other words, the materials are expensive, the labor is expensive, and the cost of borrowing in order to float those two is expensive. And what that means for us is that new construction homes continue to get more expensive. Because builders need a higher price in order to cover all of their costs and justify the risk that they're taking. When we look at data on new privately owned housing units started, and this data comes from the St. Louis Fed, we see some mixed news. New construction plummeted in 2020, rose throughout 2021 and 2022, and right now is down from its 2022 peak, but is still higher than where it was in 2019, 2018, 2017. So if we zoom out and we look at the trend line from 2010 through today, that line is sloping up into the right, which is exactly

where it needs to go because we need new residential construction in order to staunch the bleeding to help take care of this massive housing supply shortage that we have. By the way, I've said this on the podcast many, many times, and I will repeat this for as long as it takes to convey the message. As a rental property investor, the best thing that you can do in order to improve housing affordability in order to be part of the solution is to increase supply and increase density. And so what that means is if you have a single family home and you can retrofit the basement or a freestanding garage or an attic into a separate autonomous unit, and therefore you take one unit and turn it into two, that increases housing supply, which helps solve

the supply crisis that we're in. And it's also fantastic for your bottom line. And if you can't do that, if that's too much of a project or if the zoning or permitting in your locality won't allow you to do so, or if the footprint, just doesn't allow it, the footprint of the home. The other thing that you can do, if possible, is build a partition wall and turn a two-bedroom into a three-bedroom through a relatively inexpensive retrofit. And in doing so, while the number of new units hasn't increased, the density within that

unit has increased because now a two-bed is a three-bed. And so again, it improves your bottom line. It makes you more money as an investor. right, you're earning a return and you're contributing to the solution. It's one of the most amazing ways to do well by doing good and to contribute to solving the housing supply shortage. Also, by the way, the other thing that you can do is just don't let your units sit vacant. There are a lot of big Wall Street investors, big hedge fund investors that gobble up a bunch of properties,

and then they just let the units sit vacant for a long time. If you can turn those units, and obviously don't rent to people who don't meet your qualifications, don't put yourself at risk. But if you can be better than the Wall Street hedge funds that are just letting properties languish, because they're fundamentally not in the property management space, and so they simply don't have the personnel

to be able to rent the properties, right? There are all of these properties that are just sitting vacant. If you can, at a minimum, just don't let your properties languish vacant. That does a lot to solve the supply crisis as well. So that's an aside. Back to the data. What we know is that home sales last year cratered, particularly the sale of existing homes. And we also know that median home prices hit a record high last year. So what's going to happen in 2024, particularly as mortgage interest rates drop. Now, we don't know how far they're going to drop, but there's almost universal consensus that over the span of the year, rates will likely drop unless there's some major Black Swan events,

some big economic shock that we can't anticipate. Based on what we currently know, analysts are widely expecting the Fed to go through a series of rate reductions in 2020. and that means mortgage rates are going to drop, bank rate forecasts that mortgage rates will drop below 6% this year. Now, 80% of existing mortgaged homeowners have a sub-6% mortgage. So four out of every five current homeowners who have a mortgage on their property will still be subject to what's called the lock-in effect, which describes the position of being disincentive, to sell your home because your current mortgage is substantially cheaper than the prevailing rates. So even with sub-6% mortgage rates, 80% of homeowners with mortgages will still be locked

in, be incentivized not to sell. But it does free up those 20% of homeowners who have current mortgage interest rates that are higher than 6% who are not subject to the lock-in effect. It also, of course, lowers the monthly cost of borrowing for would-be home buyers who are currently sitting on the sidelines waiting for rates to decline. The flip side of that, however, is that if you're sitting around waiting for interest rates to decline, you're doing so alongside a lot of other people. And when you're ready to start making offers because rates have hit 6%, guess what, a lot of other people have that exact same idea, which means it's likely that demand is going to increase and competition is going to be fierce. And that coupled with, again, the supply crunch

could push home prices up this year. The economists at Zillow are forecasting a 3.7% home price increase in 2024. They actually just raised their home price forecast. a few days ago. Oh, by the way, I should add, bank rate forecasting that mortgage rates will drop below 6%. That's the most aggressive of the predictions. The National Association of Realtors, which we will talk more about in a second, they are predicting that the 30-year fixed rate is going to drop to 6.3%. And meanwhile, Realtor.com, they're projecting 6.5%. So the range of estimates that we're getting is between 6% to 6.5%. So we're hearing 6.3, 6.5 in terms of mortgage interest rates.

And then the range that we're seeing in terms of predictions around how much home prices will rise ranges anywhere from the chief economist at Moody's saying that home prices will remain flat to Zillow saying that they'll rise 3.7%. So somewhere between stable to a 3.5%, 3.7% increase is generally what's being forecasted for the rise in home prices this year. Now, as I say this, remember, and I say this often on podcast too, because I really want to drive this point home, every market is different. When we talk about real estate in broad numbers, we are discussing the national market. but truly real estate at its heart is local. So what's happening in Toledo, Ohio is going to be very different than what's happening

in Santa Fe, New Mexico. And that's going to differ wildly from the market in Fort Lauderdale or in Madison, Wisconsin, right? So we can look at national trends, but when you are making decisions about your own home purchasing, take a much closer look at what's happening in your specific area. And when I say your area, I don't necessarily mean the area where you live. I mean the area where you want to buy. Because if you're an investor, particularly if you live in a high cost of living area, you likely want to buy out of state. So follow those trends. Pick two or three cities and follow those trends

very closely. Read the business pages of those cities because all real estate is local. All right, let's turn to some drama with the National Association of Realtors and some good news for you if you're thinking about selling a home. First, a little background. The National Association of Realtors is an extremely powerful organization. It dates back 100 years. It owns the trademark to the word Realtor and it has one and a half million members. But here's the thing. not all real estate agents are realtors, meaning not all real estate agents belong to the National

Association of Realtors. For example, I am a former licensed real estate agent. I have an expired license from the state of Georgia. I didn't get the license to represent anybody else. I got the license because I wanted to represent myself and myself only, and I wanted direct access to the MLS. I had no reason to join the National Association of Realtors. I wasn't trying to make a career out of it. I wasn't trying to drum up any business. I wasn't trying to call myself a realtor. That's an example of you can be a licensed real estate agent, but not necessarily a realtor. The only thing that you have to do, if you are a licensed real estate agent, the thing that you have to do in order to be a quote unquote realtor is to pay a fee to the National Association of

realtors. Most people, however, the average person on the street does not know that there's a distinction between a real estate agent and a realtor. So the average person on the street uses those terms interchangeably. But in reality, they are actually not interchangeable terms because they mean something different. A real estate agent means somebody who holds a license to fill out a certain set of pre-printed legal documents. I mean, fundamentally a license, to be a real estate agent is a license to fill in the blank on some pre-printed legal forms that are associated with the purchase and sale of a home in a given state. And that person simply needs to meet the licensure requirements of that state.

That's what it means to be a real estate agent. To be a realtor, that's a person who has that license who pays annual dues to this particular organization. But that organization is now in a very precarious state, and that's largely due to a massive lawsuit in which a group of home sellers in Missouri sued the National Association of Realtors regarding a rule that they've imposed that states that the seller of a home

must pay commissions to the buyer's agent. So when you go to sell your home, you are required to pay a commission not only to your agent, who's helping you saw the home, but also, to the agent that represents the buyer. So that 6% haircut that you take when you sell a home,

half of that goes to your agent, half of that goes to the agent that represents the buyer. Home sellers in this lawsuit in Missouri, they sued and said, you know what, a 6% haircut every time we sell a home, that is excessive. We're paying $30,000 in commissions for every $500,000 worth of home value.

All right? So if you've got a home that sells for a million, you're paying 60 grand. So these home sellers sued the National Association of Realtors plus several brokerages, and the jury sided with the home sellers and awarded $1.8 billion billion in damages. The verdict also allows the court to issue something that's called treble damages, which means that that $1.8 billion verdict could actually get bigger. In fact, it could increase to more than $5 billion. So this was an earth-shattering case in the world of real estate

because this has the potential to completely rewrite the commission structure for buying and selling homes. And of course, now that this particular lawsuit is settled, about a dozen other ones, similar ones, have popped up across the country. So as big as the judgment may be, it also might only be the tip of the iceberg. And as you can imagine, this puts the National Association of Realtors in a very precarious position. The group has another rule. You remember when I said that the reason I became a real estate agent is because I wanted to get access to the MLS, the multiple listing service?

Well, I was able to get MLS access through my brokerage because once I became a real estate agent, I was under the purview of a particular broker, and that was how I had, through that broker, had access to the MLS. But NAR has a rule in which they restrict access to most of the MLS to NAR members only. And that rule is also under legal scrutiny. And frankly, if I may editorialize, it's about time because the real estate agent industry has long been, in my view, monopolistic and anti-competitive, and it is finally getting a shake-up. And one evidence of that shake-up is that the first competitor, the first serious competitor to NAR to have emerged within the last hundred years has just been formed. It's a group,

it's called the American Real Estate Association. Are they going to be any better or any worse? I don't know. But what's notable is that they are the first group to try to compete. heat and actually have a snowball's chance in H.E. double hockey sticks of doing it. So I'm not here to tout the new group, but simply to emphasize that what's notable is that we are starting to see competition in an area where we have not seen competition in the past. And this new group, which goes by the acronym area, will allow agents to set their own commission rates and will not require the agent representing the seller to have to pay a commission to the buyer. So in other words, they will let agents set their own commissions. Everything will be negotiable and sellers won't

necessarily be expected to pay 30 grand per every 500,000 of home, as they previously were. So if I were selling a home right now, I would be looking personally, I'd be looking for an agent who was associated with area rather than NAR. In other words, I would be looking for an agent who is not a quote unquote realtor, the trademarked sense of that term. Now, the drawback is that the new organization has a new platform. It's called the National Listing Service. So it's a competitor sort of to the MLS. It's the NLS. But the NLS is new, so it's not as big, so it doesn't have as many listings. So the private listing service is still nascent. That would be the one drawback, at least momentarily, but any good buyer's agent could, I think, easily overcome that. That's just my view.

So there's a big shakeup happening right now in the world of real estate transactions, and it is refreshing to see some competition finally enter a space that has been ruled by one godfather for a very, very long time for a hundred years. That's the latest on the housing front. Now, we know that for the average American, their three biggest expenses, housing transportation, food. We've just talked about housing. We mentioned food at the beginning of the show

when we talked about core inflation versus overall inflation. Remember, food and fuel. Let's turn our attention to transportation, because according to the U.S. Bureau of Labor Statistics, in 2023, the average cost of car insurance rose by more than 17%. And in some states, like Florida,

the average cost of car insurance rose 88%. 88%. Now that's according to the BLS Consumer Price Index report. Why? Why is car insurance rising so much? And why in particular has it outpaced inflation, which, as we talked about at the top of the show, went down substantially in 2023.

Well, the reason is, car insurance is a lagging indicator of inflation. As the cost of vehicle maintenance and repair increases, and in 2023, the cost of vehicle maintenance and repair jumped by 12.7 percent, as those costs increase, insurance has to adjust to keep up with that. But of course, insurance rates adjust periodically, often annually, which means that there is a lag time between the increase in the cost of what insurance covers and the increase in the cost of insurance itself. So to state it in a more basic way, cars are more expensive, right? The cost of buying a car has gone up. The cost of medical care has gone up. The cost of labor at the

auto repair service has gone up, right? All of these costs have gone up. And so if the initial purchase price of the car rises and the cost of maintenance and repair rises and the cost of medical bills that might be incurred as a result of a car accident rises, then the downstream trending effect is that car insurance rises, but it does so in a delayed manner. And that's why even though inflation seems to be under control, we are now delayed seeing the downstream spike in insurance that is a reaction to everything, all of those upstream costs that have risen. On top of that, and this is the one part that was a little unexpected, vehicle thefts have gone up significantly. According to the Council on Criminal Justice, motor vehicle thefts increased

by 34% during the first half of 2023 as compared to the same period in the previous year. So if you find yourself shocked by the bill for your car insurance, well, if you're really shocked, you probably live in Florida. And if you're only mildly shocked, you probably live elsewhere. But unfortunately, the new normal is to budget for substantially higher car insurance rates from this point forward. Finally, one thing that I've recently started doing is every Friday on YouTube, I do a live stream with economic updates from the previous week. That is a regular Friday YouTube exclusive feature. After I did my last live stream, last week's live stream, I got a comment that posed such a great question that I wanted to bring it to everybody's attention and address it.

So the question, the comment with the question, asks, since we know that in the long term, the U.S. markets always go up. Why should we be excited that the market is at an all-time high? This has been happening regularly for the last 120 years. That is an excellent, excellent question. Let's go through a couple of answers, a couple of different frameworks for how we can look at this. Number one, I do think there's an argument that we don't need to be excited that the market's at an all-time high. In fact, if we wanted to entirely ignore the market and drown out all market news, we could.

and as long as we continued dollar cost averaging into the market with every paycheck, and did that consistently making contributions into tax advantaged accounts with great asset allocation, with an annual rebalancing, you do that for 40 years, you don't need to pay any attention to the market. But there is a difference between theory and practice. And what we know are two things. So we know what the general population does. We know that statistically.

And then we know anecdotally what people in the fire community do. We know from the data that people tend to buy into a rising market. Individual investors tend to be more excited when the market goes up. And so the average person is likely to make additional contributions above and beyond what they have previously been contributing at times when they feel more optimistic about the market. which are times when the markets go up. And at the end of the day, your level of contributions are the single biggest determinant of your success as an investor. If something gets you feeling

excited and optimistic and you want to put more money into it, and so you take money that you otherwise would have spent on beer and you move that into the market, that optimism, that enthusiasm that guides you to make more contributions, that's going to be the source of your success as an investor. If rising markets makes you excited to invest, and we know from the data that that is what happens in the general population, then high markets are a great thing because it fuels enthusiasm for more contributions. Now, what we also know, by contrast, is anecdotally, I don't have any stats on this. But anecdotally, when the markets are dropping, I hear from a lot of people in the fire,

the financial independence retire early community, I hear a lot of people in this community say, hey, stocks are on sale. Should I buy more? And so one way or another, there's an interruption of dollar cost averaging, right? dollar cost averaging is by definition contributing exactly the same amount of money periodically. So you contribute precisely 500 or 1,000 or 1,000 or 1,000 or 1,000 every X interval. That interval might be every paycheck. So once every two weeks, it might be monthly.

Heck, it could even be bi-monthly or quarterly. The important part is that it happens at fixed, routine, periodic intervals and that it's automated. And because it's precisely the same amount of money, the same raw dollar amount, that same $2,000 will, when the market is high, naturally buy fewer shares. And when the market is low or on sale, that same $2,000 will naturally buy more shares. And so dollar cost averaging is, at its core, a contrarian move. You end up buying more when the market is low because you are contributing the same raw dollar amount. And that's a great foundation.

That's a great basis. But whenever we can get to a point at which a person becomes enthusiastic about investing, and they want to make an additional contribution above and beyond their routine 401k contribution, above and beyond that automatic amount that gets deducted for their HSA, the more that we can facilitate that, the better, because more contribution is better than less contribution. And some people get motivated by a high market, while other people get motivated by a low market.

So one way or the other, whichever way the market is moving, there's going to be some segment of society that is then moved to ramp up additional investments. All right. So that's one framework. Switching gears, an alternate framework is that when the markets are high, we are generally more confident about starting side hustles or starting businesses. Because what we feel is that when the markets are strong, when employment is high,

when our portfolios are fat, we feel secure, we see that consumer spending is flourishing, and from that base, we often have the confidence to go out there and start offering goods or services. And because consumers are spending and businesses are spending, there's often more of a market for those goods and services. Remember, there is a distinction between the supply of money and the velocity of money, right? Supply of money is how much money is floating out there. Velocity of money is how often money is trading hands. So you can, in theory, have a fixed supply of money. And when that fixed supply of money is trading hands very slowly, it's moving at a slow speed.

There are fewer transactions. Well, the economy is slow. And when with that same supply of money, if you have high velocity of money, well, the economy is hot. And so when we find ourselves in a position like we're in today, in which the Fed is trying to reduce the money supply, but yet we are still observing a robust economy, we can infer that the velocity of money is likely quite high, meaning money is money is. is being transacted between parties a lot, which is an incredibly nerdy way of saying that people are buying goods and services. And when we know that people are buying,

we then become more comfortable about selling. We are more ready to go out there and say, hey, I sell candles, I sell calendars, I sell textbooks, I sell graphic design services, I sell guitar lessons. We're ready to go out there and offer them, that because we know that there's a decent likelihood that other people are willing to spend on that. Now, again, that's very psychological. There are amazing companies that have been started during

recessions. In fact, and this is a different discussion for a different day, but I would argue that recessions are probably the best time to start a company. But it's also psychologically a lot harder to have the courage to start a company in the middle of a recession. So another reason why there's cause for enthusiasm when the markets rise is because that shores up our confidence as not just as investors, but also as entrepreneurs. And, I mean, truly also, and as consumers. So those would be my two answers to the question, since we know that in the long term, the U.S. markets always go up.

Why should be excited that the market is at an all-time high? My two answers are, A, well, you could argue that we shouldn't. We could argue that it doesn't make a difference so long as your dollar cost averaging. I think that's a perfectly valid answer. And B, you could argue that it makes us more willing to embrace a healthy amount of risk. With that said, thank you for tuning in. This is the February 1st Friday episode of the Afford Anything podcast. Please, if you made it this far into the episode, there's one thing I'd like you to do.

I'd like you to go to afford anything.com slash show notes and subscribe to our show notes because that's where we send all of our best stuff. That's where we send out a synopsis of every single episode. And that's where we send out announcements when we decide that we are going to launch a Kickstarter for a business course that we want to validate and test, when we announce in-person retreats, for all of the things that we are working on, those announcements are going to go to our show notes subscribers, afford anything.com slash show notes to subscribe to our show notes, and be the first to learn about what is in the pipeline for offerings, for events, for all the things we'll be doing

throughout the year. Thank you so much for tuning in. This is the Afford Anything podcast. My name is Paula Pat. I'm so happy that you are part of this community. And I will catch you in the next episode.