Carter Kilmann's avatar

$10.1M follower assets

Corporate banking drone turned financial copywriter.

Editor of Due Diligence: http://stockduediligence.com
Carter Kilmann's avatar
$10.1m follower assets
One Pretty Absurd Graph of Scary-High Home Prices
Two years ago, we were all forced indoors for an indeterminate amount of time.

One year ago, people realized they needed more space and started buying homes at a feverish pace.

This year, average home sales prices eclipsed $500,000 for the first time ever. Couple that with rising interest rates, and you have what appears to be an untenable position for the housing market.

For fun, let’s look at what it would take for the typical American to buy a house right now. Assuming averages across the board, here are our assumptions:

  • House price: $507,800 — the average according to the Fed at the end of Q1

  • Down payment: $66,014 — based on the median down payment of 13%

  • Mortgage: $441,786 — which we will assume is a 30-year fixed

  • Interest rate: 5.81% — the weekly average according to Freddie Mac

And the financial toll excluding taxes, fees, insurance, maintenance, and so on:

  • Monthly payment: $2,595

  • Monthly gross income: $4,120

That’s 63% of the typical individual’s GROSS income. Yikes

This was initially published via the DD newsletter. Continue reading here.
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I refinanced an investment property in Texas in December and got a rate of 3.37%. I just bought a single family home (closing at the end of this month) and the interest rate now was 5.0%. In just six months the increase in rates has been tremendous. To the homebuyer that can mean hundreds of thousands of dollars less in purchasing power. Definitely feels like home prices will have to come down.
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DD Digest: Bear Market Knowledge & Extremely (Good?) Fear
Good morning investors, here's the latest issue of DD Digest:

One Stat About Bear Markets to Keep in Mind
On Monday, we officially entered a bear market, as the S&P dropped below the arbitrary 20% threshold. It’s certainly not the first bear market of the century — it’s not even the first of the decade (although the pandemic downturn was the shortest on record, it was still a bear).

In light of this new bear, here’s a stat to keep in mind as we anxiously wait for the bulls to come home:

The typical bear market takes 3.1 years to completely recover, dating back to 1929.

But, in terms of length, every bear market is different.

The COVID-19 bear took 6 months to recover.

The housing market crash took 5.5 years to recover.

The dot-com bubble burst took 7.2 years to recover.

As the adage goes, past performance is no guarantee of future results — but the key takeaway is that we may be in rough waters for a considerable amount of time.

Or maybe we won’t be?
Two Words of Encouraging Market Sentiment: Extreme Fear
A bear market typically doesn’t inspire much confidence. According to CNN's Fear & Greed Index...

Continue reading the full post here.
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Thanks for this weekly report Carter. It's helpful to know that there may be a silver lining - "When fewer than 5% of the index’s stocks are above their 50-day moving averages, the index goes on to gain 23% for the following year on average dating back to 1990, according to Truist. And however large the gains are, the index rises every time."
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Based on my research, the average bear market loses about 36%.

As of today, we're down 22% from the S&P's high.

How far do you think we'll drop this time around?
Bear Market Length
If one thing is certain, it’s that bear markets are pretty common. Since 1929, the S&P 500 has experienced 26 bear markets (not including today, assuming it closes 20% off the market's high). That equates to a bear market every 3.5 years or so.

But, in terms of length, every bear market is different. Depending on how far you look back, the average bear market takes about 10 to 14 months to hit its bottom. And it takes a little over 3 years for the typical bear market to recover to previous highs.

So, the question is, do you think this bear market will fall within historical averages -- or is it an outlier?
How long will it take for the bear market to hit its bottom?
21%Less than 6 months
21%Between 6-12 months
28%Between 12-18 months
28%18+ months
14 VotesPoll ended on: 06/20/22
Have to admit, with the market falling like it has lately (and especially today) my emotions looked at this poll and asked "What is the longest option?— choose that"

^This isn't rational it's emotional. Things feel worse when you're in the middle of them. Good to take note.
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