Dear Reader,
Today I just have to circle back to some of the insanity going on in a very important sector – perhaps the most important for Americans.
Check out today’s video brief and see what’s happening here.
I read an article on Bloomberg last week describing the trillion-dollar problem hiding in the housing market.
You know I’ve been talking about a number of problems in housing over the past month or so, one of five major cracks we discuss in Midnight in America…
But the article I saw is about the fact that insurance costs have skyrocketed so much for homeowners that it’s getting impossible to insure a lot of houses.
I’m sure you don’t need me to tell you this – just look what it costs to insure your house, especially if you live in a coastal area or an area with windstorms, etc.
The prices have gone through the roof!
I opened my new insurance bill and felt like I literally got slapped in the face. It’s just shocking to me.
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And I read another Bloomberg article that the average starter home in more than 200 cities now costs more than a million dollars.
I just don’t know how people making $73,000 a year – millennials – are ever going to be able to:
- afford a home in the first place and
- insure said home if and when they buy it.
So, what does it mean when people start dropping their insurance?
Let’s play the tape on what this looks like…
Ultimately what this means is that homes are going to be under-insured.
Meaning:
People are going to buy less insurance, so insurance companies are going to take a hit…
And, the next time we have a catastrophe…
Fellow citizens are going to ultimately be responsible for insuring these homes.
Because if you have a whole neighborhood that gets wiped out in a flood or a hurricane or a fire, basically that neighborhood is not going to be able to repair their houses.
So they’ll push the U.S. government to declare a disaster area and fund the cleanup.
Another knock-on effect that will fuel government spending.
Remember, it’s easy to call out one party out or another for spending $11 Trillion in the last 4 years, but both parties are responsible for this.
As much as I’d like to blame one side, I can’t look at you and honestly say one side’s responsible.
They sent all these checks to people during Covid.
They spent all this money on infrastructure.
And basically, this inflation happens about a year after the spending.
People start buying cars and all these things as the money flows in… prices of cars go up and then the next year insurance companies adjust to new prices.
The price of a car goes from $30,000 to $35,000 and car insurance rates adjust and rise.
The price of a house doubles so now the cost to insure it doubles.
So the American consumer is getting squeezed on all ends.
Which makes it no surprise Home Depot came out with really bad earnings.
They said basically with second quarter earnings, they’re seeing homeowners are now deferring projects. They sense greater uncertainty in the economy.
And I expect a lot more companies like that to report bad earnings, too.
I expect to see discounters like Walmart do pretty well.
But we saw the American consumer get squeezed in Q2 and that’s why we saw Starbucks report bad earnings for the quarter – people are skipping small luxuries, too.
The PPI, Producer Price Index came out yesterday showing inflation rose less than expected in July.
Today we have the Consumer Price Index coming out and we will see if that confirms a weaker consumer.
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