“It’s Simple Supply and Demand,” They Say

Everyone is talking about supply and demand, and it’s true that this is one factor affecting real estate pricing. For example, with housing, the reason we haven’t seen prices come down is that supply is so low. The ongoing demand keeps prices up, which is what we’ve been seeing in the last few years.

Debt Clock: Supply of Bonds

There is another issue brewing: I want to talk about the “debt clock” and the US spending. The crazy thing is that this year’s budget deficit is listed at $1.8 trillion. We are piling up a lot of debt.

This is where we come back to supply and demand. Remember that mortgages are bonds. In the mortgage market, we go out and fund loans, and Fannie Mae and Freddy Mac issue bonds to create the liquidity to essentially pay for the loans that have been funded.

It’s also important to note another type of bond: the US government sells treasuries to cover all its debt. This bond creates competition, which creates more supply. This raises the question of where the demand is going to come from on an ongoing basis.

It’s Shocking: Interest is More Than Military Spending

Another very important detail: one number said that just the interest on the current US debt has now gone over the military spending (which is the 5th largest line item in the entire US budget).

Yes, we have inflation to worry about, as well as employment/unemployment. At the same time, we need to think about these bonds that are being issued. Supply and demand will be a strong influence there.

What it comes down to: if the US doesn’t figure out how to control this debt and spending, then we are going to have other issues beyond inflation and unemployment. That will become a real problem.

What Does it Mean for the Future?

Of course, the US is still the strongest economy in the world. We are still the benchmark currency. And the reason we are able to continue selling so much debt is because it’s still the safest debt to buy in the whole world. But you can’t ride that wave forever if we keep spending without thinking twice.

What it comes down to is that supply and demand are always in control, but it’s not only about how many houses are on the market. We also need to consider what is happening with bonds. It’s something to think about!

While we don’t have more control over the big-picture situation on our own, there are still things that you can do to manage your personal finances. Reach out if you need information about buying or refinancing your home. I’m always here to help you find an optimal solution for your unique needs.