On Friday, December 26th, when most of the world was shut down, we were awash in purchase contracts – receiving more in one day than we’ve received on any other day all year.
What made it more interesting is that most of the contracts were isolated to one area. The reason is very telling – particularly for purposes of this blog.
On December 24th, Elon Musk posted this: Double-digit growth is coming within 12 to 18 months.
If he’s right, interest rates will be as high as 10% – and real estate agents everywhere will be dancing with glee!
Elon is referring to economic or gross domestic product growth.
It’s been averaging 2% to 3% over the last few years – and much of that was just government spending (so not “real” growth that benefits everyone).
Elon thinks AI and robotics will foster double-digit private sector growth. This means that we will add over $3 trillion of NEW (out of thin air) wealth to our economy each year.
Bond Investors Will Demand Sky-High Yields!
In this scenario, bond investors will demand sky-high yields – pushing rates into double-digit territory too.
This is because, once again, bond investors respond to two things: (1) growth expectations; and (2) inflation expectations.
The growth part is a given, and inflation (or price increases at least) will be sparked by a massive increase in demand.
Inflation could be tamed by massive supply increases – with the help of AI and robotics – but those sky-high growth rates will still push rates sky-high too.
Interestingly, America has never seen GDP growth even close to double digits.
1950 saw 8.7%, and 7.2% in 1951, helped by the Korean War. 1984 saw 7.3% growth, and 2021 saw 5.9% (coming out of COVID).
Inflation shot up to 7.9% in 1951 (after 1950’s stellar growth), but inflation FELL in 1985, after 1984’s stellar year (proof that growth does not always foster inflation).
Anyway… if we are hitting double-digit growth rates, the entire country (not just billionaires) will be wealthier, and the economy will be far more dynamic.
This means everyone will be moving and buying homes, irrespective of interest rates – just like we saw in the 1980s.
So, yes, agents will be doing cartwheels, and mortgage lenders will be sort of happy – with far more purchases but very few refinances.
And oh yeah… about all those contracts we received on Friday.
They were almost all in the SF Bay Area (even though we’re licensed in 11 states) – in areas that are heavily influenced by the AI boom.
In other words, all that concentrated AI wealth appears to be driving an unusually high level of purchase activity in the Bay Area.
Imagine what would happen if that level of wealth were spread across the entire country?
That’s Elon’s prediction.
This is where I remind everyone too that Elon’s been right before…
