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Supply Chain Fragility and “The Cost of Waiting”

Mark’s Market Update – 10/7/2021

Anyone who has tried to buy a car is seeing amazing craziness with that. I just saw a posting this morning on Facebook from someone who was selling a 2021 Corvette with 520 miles on it (literally, a USED Corvette) with a sticker price of $83,000….and was asking $115,000. This afternoon? The post indicated, “sold”. Used cars (and not museum-quality “classics”) are selling for more than their “new” counterparts at the dealerships.  

Supply Chain. Here’s how it works:  

Products and materials are shipped in from other places on big cargo ships – which are currently floating out in the ocean because they can’t get an appointment at the docks to unload their cargo.  

Storage facilities are full because there aren’t enough truckers and trucks to offload the containers (assuming there was a place to store them)…so, we’re seeing storage, trucking, rail costs increasing (supply and demand) to ship what can be shipped to where it needs to go.  

Warehouses are full (waiting for trucks and rail). Ships are waiting to get to the port. Companies are waiting to receive their materials and goods.  Simply – what is available, grows more expensive, and the ripple effect of all of these shortages are acting almost like a product “echo chamber” – where the one product or supply shortage gets amplified as it starts to disrupt more and more as it goes further and further out, and some of it acts like it’s own cannibalistic vicious cycle.  

We need more truckers, right? Once we have trained truckers, then they need trucks to drive. More trucks need to be built, and the trucks need materials and parts delivered (by trucks and truckers) to their manufacturing facilities…trucks and truckers that we don’t have enough of, making the existing trucks that can be built more expensive…meaning fewer owner-operators or companies want to spend the premium to buy those trucks…so, they’ll wait.  

…and the problem doesn’t get fixed as quickly as it could BECAUSE of the inflationary price surges we are seeing. People and companies are willing to “wait and see” before they spend the excess money needed to buy what they need to buy today…because they’re hoping the price surges will slowly go away.  

The Fed is watching this – and expect to see several pieces of this coalesce over the next several months:

1) Inflation WILL make itself known – it has to because the available goods (and in some cases, services that NEED the goods to operate) are going to be sold for a premium.  

2)  The Fed will focus on this – and the market will start to adjust in anticipation of possible rate hikes. Remember – while mortgage rates are influenced by what the Fed does/doesn’t do, or says/doesn’t say – there is still the event that long-term rates are generally higher than short-term rates and if short-term rates increase, long-term rates will also increase.

3) The Fed will also begin to start tapering their purchase of mortgage-backed securities. When that happens, regular market dynamics will kick in, and the average private or institutional investor in MBS’s will want a better rate of return than 2.5 to 3.0%…so, that will also drive mortgage rates up.  

So – the cost of owning a home will continue to increase. I’ve heard more than once from clients I’ve talked to and Realtors that a lot of prospective home buyers are thinking, “I’ll wait for the market to cool down” (translation: Decrease) and not buy now.  

What does this mean?

Buy now – the home you buy today will be the cheapest you will ever see it. I can help anyone navigate this Scylla and Charybdis of price and rates…

Hope is not a strategy. Planning is.