Mortgage Rates (4 Viewers)

[massraider]

had a realtor friend send this out today: if you're waiting for interest rates to drop before you buy, the last time interest rates were this high, it took 23 years for a significant reduction in rates

Has a realtor ever said it's a bad time to buy?

In fairness, it's not their job to convince you to NOT use their services

 

[ghostguy123]

had a realtor friend send this out today: if you're waiting for interest rates to drop before you buy, the last time interest rates were this high, it took 23 years for a significant reduction in rates

Has a realtor ever said it's a bad time to buy?

In fairness, it's not their job to convince you to NOT use their services

I agree. It's also not their job to care about keeping people from making future killing decisions. It's also not their job to care about you at all. It's their job to make a sale and take your money.
Quite the conflict of interest when it comes to anything that comes out of a realtors mouth about anything when they think they have a chance to make a sale with/for you

 

[Chadstroma]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

 

[stbugs]

And by the way, the Federal Reserve itself calls the period 1965-1982 The Great Inflation. Not 1974-1981.

Federal Reserve History - The Great Inflation

SMH. I pointed to 10 years out of that 18 year period and you are acting like I am cherry picking. Unless, we get to 2031 with continued really high inflation like the Great Inflation period then I won’t agree that rates can’t possibly drop near term. Just like the post above saying the last time interest rates were this high it took 23 years for a significant reduction, it’s ignoring that that was after a decade of much higher inflation than what we experienced for a year and a half or so.

 

[Nugget]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

 

[FreeBaGeL]

had a realtor friend send this out today: if you're waiting for interest rates to drop before you buy, the last time interest rates were this high, it took 23 years for a significant reduction in rates

Has a realtor ever said it's a bad time to buy?

In fairness, it's not their job to convince you to NOT use their services

I agree. It's also not their job to care about keeping people from making future killing decisions. It's also not their job to care about you at all. It's their job to make a sale and take your money.
Quite the conflict of interest when it comes to anything that comes out of a realtors mouth about anything when they think they have a chance to make a sale with/for you

had a realtor friend send this out today: if you're waiting for interest rates to drop before you buy, the last time interest rates were this high, it took 23 years for a significant reduction in rates

Has a realtor ever said it's a bad time to buy?

In fairness, it's not their job to convince you to NOT use their services

This was kind of my point earlier. They are a fiduciary. On the buyer's side, it IS their job to not sell their services if it's going to financially harm the person they're selling to. It IS their job to care about keeping their clients from making future killing decisions. It IS their job to care about you at all.

But in practice, very few of them treat the job that way.

There are definitely great realtors out there that do it right. When we bought our last primary I would trust that realtor with my life. Dude almost seemed like he was going out of his way to not sell us a house because he was never pushy, and the first thing he did when we went into a new house was check the utility room, the roof, etc and let us know what kind of condition things were in.

But sadly, that's a minority these days and many realtors are just used car salesmen for houses.

 

[Ministry of Pain]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

End of Times

 

[-OZ-]

They are a fiduciary

That term is supposed to mean something but rarely does in financial dealings. unless the agent is paid by the hour or a flat rate, it’s human nature to want to make more money. Some are able to put that aside, many are not.

 

[Ministry of Pain]

Seriously considering buying some property/home away from the main areas down here in Florida. One place we find appealing now that the Suncoast Highway is pretty much a full go and it seems like it keeps going North. The areas North of Tampa up thru Ocala has become a hot bed IMHO and they just keep getting bigger and expanding and you can't wait forever to jump.

-I'm looking at 5 acres and a decent home, lot of room to build and expand, no neighbors looking in on you, granted over time things can change but much of this area is referred to as horse country which may sound humorous to people not form here. Mother In Law lives in Citrus County which again is not for everyone but we could take our Condo down here in South Florida and rent it out which would offset a new place up there. Easily can find something under $300k which not a chance in hell down here in South Florida right now

I anticipate some market pullback with interest rates so high but Florida continues to have a sharp population increase with 1,500+ new people arriving daily was the last I read and the numbers continue to grow. My son bought a home this past March, 24 yrs old and I thought he was nuts as prices seemed high but he's doing well, he's in the St Pete area so he's probably not going to see a major drop right now.

I'm talking myself into this

 

[Chadstroma]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

That is a really good question...

It is hard for me to see it right now. The conditions right now in many ways should be where you would see valuations fall. Highest rates in about 20 years, very little purchase transactions, days on market increasing, coming off of several years of very strong price increases and more but the valuations we are seeing are being very resilient. We are seeing a little bit of softening outside of the normal seasonal adjustments but still it is extremely resilient. I am not seeing any reason for that resiliency to evaporate either.

Also keep in mind that the high inflation that we have experienced over the last year or so is helping lock in those valuation gains (in a sense). Just as much as inflation eats away at the real value of your dollars in a savings account, it also does the same for debt and property valuations. A $400K home today is not the same 'price' as a $400K home 3 years ago (and not even talking about interest rates).

If valuations do drop then I would expect the massive amount of latent demand to enter the market and keep those prices from dropping significantly. So, how do you take away the demand and add supply? It would need to be some sort of major economic event outside of the normal recession that did not result in some massive governmental response. Keeping the demand low while putting massive amounts of properties on the market presumably in various levels of default/distress. As I mentioned, recessions usually are not that event and in fact, recessions typically drive valuations up as interest rates are lowered which then in turn drives up demand. The Great Recession being an outlier to this but this was a very different recession than most in that RE caused the recession versus a recession impacting RE.

I can come up with two possible things for now.... I see issues with both and don't think they are likely.

The first is that interest rates are driven up more. To early 1980's levels. People would freak out if there was double digit mortgage rates. RE market would grind to a halt. For the very few that had no choice to sell, there would be very little buyers.... that is until prices came down enough to make the purchase too good to pass up and cash deals from investors would snatch them all up. Inflation seems to be in check and declining so there is no reason for rates to be driven up more artificially.

The second is tied into commercial. I think commercial is going to have a tsunami of defaults. There will be little demand for a lot of these properties in urban areas other than converting them to residential properties. If there was a huge shift in supply with all these new converted condos hitting the market then these urban centers could see prices drop as buyers can be choosy on what they want. Now maybe the decline in property values in the large cities would impact the suburban valuations but I do think that these have decoupled for a few reasons such as the massive shift to remote work and the decline of American urban life. People living in the suburbs have very little interest in living in the city. Those condos would likely be filled with younger FTHBers and lower economic strata of the population.

I don't know... that is all I got. Damn good question though.

 

[Chadstroma]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

End of Times

You can get a real good deal on some property then!

 

[STEADYMOBBIN 22]

The more things change the more they stay the same

 

[dkp993]

The more things change the more they stay the same

The irony of you posting this. As a born and breed San Diegan I‘ve just always though everyone though homeownership is expensive and hard.

 

[Sand]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

Jerome keeps jacking rates and we go into a deflationary spiral.

What do I win?

 

[Chadstroma]

October CPI report: Dow ends almost 500 points higher, Treasury yields drop after subdued inflation data

Follow along to MarketWatch's coverage of the consumer price index set to be released by the Labor Department.

www.marketwatch.com

 

[Chadstroma]

October CPI report: Dow ends almost 500 points higher, Treasury yields drop after subdued inflation data

Follow along to MarketWatch's coverage of the consumer price index set to be released by the Labor Department.

www.marketwatch.com

By the way guys... this is HUGE.

 

[Chadstroma]

The Fed's next move will be to cut rates as the drop in inflation was a 'gamechanger,' former PIMCO chief economist says​

Story by jsor@insider.com (Jennifer Sor)

The Federal Reserve's next rate move will be a cut, as the drop in inflation seen in October was a "gamechanger" for central bankers, according to former PIMCO chief economist, Paul McCulley.

McCulley in an interview with CNBC pointed to the deceleration in inflation seen last month, with the Consumer Price Index cooling to 3.2% on an annual basis. That's lower than the expected 3.3% — a major victory for the Fed, which has raised interest rates aggressively over the past year to get a grip on surging prices.

Most significant is the "crack" in shelter inflation, McCulley said, which rose 6.7% year-over-year in October. That's a slower pace than the 7.2% growth recorded in September — which is good news for prices overall, as shelter was the largest contributor to price increases in September.

"I think this is a gamechanger. We're having a day of rational exuberance because the data clearly show what we've been waiting for, for a long time," McCulley told CNBC. "I think it leads to the Fed now being comfortable declaring that policy is sufficiently restrictive, and that's a big deal, because it means they've finished tightening, and the next move will be an ease."

Investors will debate over when the Fed will cut rates, he added, though most are expecting the first rate cut to happen sometime next year. Markets are pricing in an 85% chance rates will be lower than their current level by June 2024, according to the CME FedWatch tool. UBS, meanwhile, predicted the Fed could slash rates at least 275 basis-points by the end of next year as it switches to "full-on accommodation" mode.

Lower rates spell good news for stocks in particular, which were weighed down heavily last year as the Fed began its series of aggressive interest rate hikes. A pivot to rate cuts could spark a new bull run for equities, market experts have predicted.

Some economists, though, have cautioned that the Fed risks easing interest rates prematurely, which could eventually lead to a resurgence in inflation down the line. That could potentially cause consumer inflation expectations to spiral out of control, slamming the economy with a stagflationary crisis, according to economist Mohamed El-Erian.

 

[Grahamburn]

Nothing but price reductions and homes sitting in my area after record sales prices and sight unseen bidding wars the past few years.. And even when homes are getting under contract now I'm seeing them back off the pending lists in a matter of weeks as deals fall through. I've always been a proponent of the "not buying with rates like these" mentality, but @Chadstroma's premise makes a ton of sense. Buy when nobody else is buying if you can afford it, and you can likely get a home at a significant price decrease right now because nothing is moving. IF the rates drop in the future you can always refinance to a lower rate. If you wait you're battling it out with a whole bunch of other buyers who did the same and anything you're saving on interest you're paying in the cost of the home.

 

[-OZ-]

For once, the emails I get from Redfin have almost all price reductions. That’s actually a nice change imo.

 

[massraider]

Super appreciate you that are in the industry checking in here.

I think any kind of investing is better with big picture knowledge, getting an idea of how the winds are blowing in industries I know very little about.

 

[Chadstroma]

For once, the emails I get from Redfin have almost all price reductions. That’s actually a nice change imo.

We have had a prolonged time of oddity in RE and rates. This time of the year, it is normal for seasonally volume and valuation declining as it gets into the 'slow' season. I do think there is some extra softening on top of that right now but it is real easy now to forget about that completely as the markets have been so crazy for so long. The same with interest rates. People are freaking about 7% but that is much more inline with historic norms than 3 or even 4% mortgages but we have got used to things being different. Further, it is the same thing that happens with expectations of value. People tend to remember pre-2008 the market going crazy and then boom, it imploded. So, if the market has been going up then it must be another bubble that will burst. Not exactly.

 

[fantasy stud]

Seriously considering buying some property/home away from the main areas down here in Florida. One place we find appealing now that the Suncoast Highway is pretty much a full go and it seems like it keeps going North. The areas North of Tampa up thru Ocala has become a hot bed IMHO and they just keep getting bigger and expanding and you can't wait forever to jump.

-I'm looking at 5 acres and a decent home, lot of room to build and expand, no neighbors looking in on you, granted over time things can change but much of this area is referred to as horse country which may sound humorous to people not form here. Mother In Law lives in Citrus County which again is not for everyone but we could take our Condo down here in South Florida and rent it out which would offset a new place up there. Easily can find something under $300k which not a chance in hell down here in South Florida right now

I anticipate some market pullback with interest rates so high but Florida continues to have a sharp population increase with 1,500+ new people arriving daily was the last I read and the numbers continue to grow. My son bought a home this past March, 24 yrs old and I thought he was nuts as prices seemed high but he's doing well, he's in the St Pete area so he's probably not going to see a major drop right now.

I'm talking myself into this

I live in that area. It's booming with the toll road extension. And you are real close to the Tampa area and not that far from Orlando/Gainesville either.

 

[Chadstroma]

Wells Fargo cancels all HELOC loan products.
(Wells Fargo website). Home Equity Line of Credit (HELOC), all new home equity lines of credit are currently unavailable. Due to current market conditions, we are temporarily suspending new applications for home equity lines of credit.

 

[Chadstroma]

Fannie Mae extends Positive Rent Payment pilot program through December 2024.
(HousingWire by Chris Clow). A pilot program allowing on-time rental payment history to be included in credit score calculation is being extended to the end of 2024.

Fannie Mae announced on Tuesday that its Multifamily Positive Rent Payment (PRP) pilot program, originally scheduled to expire this year, has been extended through December 2024 in light of new survey data and an impact analysis.

As part of the extension and to encourage adoption, Fannie Mae will cover the cost for property owners who enroll in PRP through the extension period. The program was launched in the fall of 2022, and helps renters build their credit history and improve their credit score as they prepare to enter the housing market or find a new rental. "We will cover the costs of collecting and disseminating rent payment data for a 12-month period for multifamily property owners/operators of Fannie Mae-financed properties who leverage one of the three approved vendors to collect the data," Fannie Mae said in a blog post.

Fannie Mae saw approximately 435,000 participants in the PRP program during its first year (September 2022 through September 2023), which helped more than 23,000 renters establish credit scores for the first time. Renters who had a pre-existing credit profile at the time of enrollment in the program also saw a 40-point increase in their score, on average, by taking positive rent payment history into account.

Three fintech vendors that provide rent payment data - Esusu, Jetty and Rent Dynamics (which was acquired by Entrata over the summer) - will continue to participate in the program, Fannie Mae said.

In a research study published in 2021, Fannie Mae found that in a sample of mortgage applicants who were denied a mortgage, 17% could have received approval if their rental payment history had been considered. In August 2021, Fannie Mae began including on-time rent in its underwriting decisions.

 

[Ministry of Pain]

Seriously considering buying some property/home away from the main areas down here in Florida. One place we find appealing now that the Suncoast Highway is pretty much a full go and it seems like it keeps going North. The areas North of Tampa up thru Ocala has become a hot bed IMHO and they just keep getting bigger and expanding and you can't wait forever to jump.

-I'm looking at 5 acres and a decent home, lot of room to build and expand, no neighbors looking in on you, granted over time things can change but much of this area is referred to as horse country which may sound humorous to people not form here. Mother In Law lives in Citrus County which again is not for everyone but we could take our Condo down here in South Florida and rent it out which would offset a new place up there. Easily can find something under $300k which not a chance in hell down here in South Florida right now

I anticipate some market pullback with interest rates so high but Florida continues to have a sharp population increase with 1,500+ new people arriving daily was the last I read and the numbers continue to grow. My son bought a home this past March, 24 yrs old and I thought he was nuts as prices seemed high but he's doing well, he's in the St Pete area so he's probably not going to see a major drop right now.

I'm talking myself into this

I live in that area. It's booming with the toll road extension. And you are real close to the Tampa area and not that far from Orlando/Gainesville either.

The access between Tampa/St Pete, O-Town and Gainesville, you have a lot of options for things to do, places to launch from to get to other places.
Also, we travel up to Western NC and the Smokies about twice a year, this would cut a lot of time off a round trip up and back.
I love taking the 441 up thru Western GA, drive thru Madison and end up going straight thru Clayton, GA and Black Rock Mtn on the way.

-1st things 1st, our mortgage company miraculously can read our minds and sent us an email saying we could get an easy tap into the home equity.
Going to remodel everything inside, either we won't want to move or we can easily rent the place and recoup some of the face lift we have in mind.

-Many folks around here in Jupiter just rent for the winter months Dec-Feb and it pays the freight for the entire year and we could just bounce back and forth as needed.

 

[Chadstroma]

The Fed Will Cut Interest Rates Next Year, According to Wall Street. Here's What It Means for Stocks.​

Story by Anthony Di Pizio

When the COVID-19 pandemic struck in early 2020, the U.S. Federal Reserve acted quickly to slash interest rates to a historically low range of between 0% and 0.25%. The federal government also assembled a series of stimulus packages to shield households and businesses from lost income as society ground to a halt.

In a somewhat counterintuitive move (given the circumstances), the benchmark S&P 500 (SNPINDEX: ^GSPC) stock market index soared higher. Low interest rates served as rocket fuel for companies because funding was cheap and plentiful, which meant they could invest heavily in growth.

Thankfully, the measures undertaken by the Fed and the government worked, and the worst of the health and economic emergencies were over by the end of 2021. But that marked the dawn of a new challenge: rising inflation.

The stock market plunged in 2022​

There are no free lunches in the world of finance. The consequences of all that cheap money sloshing around the system in 2020 and 2021 came home to roost in 2022, with inflation hitting a 40-year high of 9.1% (on an annualized basis) in June of that year.

The Fed has a mandate to maintain price stability, so it doesn't tolerate high inflation. When the prices of everyday goods and services soar, it can lead to an affordability crisis for consumers, which threatens the health of the broader economy. As a result, the Fed embarked on the most aggressive campaign to hike interest rates in its history.

By the end of 2022, the federal funds rate had risen from a historic low of 0.25% to 4.5%. Investors typically don't like periods of rising interest rates, and this time was no different. The S&P 500 stock market index ended 2022 with a loss of 18.1% (including dividends).

Rising interest rates can hurt the earnings potential of corporate America, which means investors had to adjust their growth forecasts. That led to lower stock prices last year. Additionally, banks were suddenly offering attractive deposit rates by the end of 2022, and U.S. Treasury bonds were yielding the highest returns in years.

The Fed is set to reverse course in 2024​

Interest rates continued to tick higher in 2023 although at a much slower pace, and the Federal Funds rate now stands in a range between 5.25% and 5.5%. But according to a Reuters poll from earlier this month, 87% of economists believe the Fed has done its job and won't hike rates any further.

In fact, 58% of the respondents said the central bank will cut rates by the middle of next year. CME Group's FedWatch tool supports that notion. It uses a complex formula to calculate the probability of a move in either direction from the Fed, and it points to three rate cuts in 2024 -- one each in June, September, and December.

Two of Wall Street's largest investment banks, Morgan Stanley and Goldman Sachs, also expect rate cuts next year. J.P. Morgan, on the other hand, recently predicted the Fed could start cutting by the end of 2023 because the economy is slowing at a rapid pace.

Here's what it could mean for stocks​

Interest rate cuts aren't necessarily something people should be excited about. Sure, they reduce the cost of borrowing -- for both mortgage holders and companies alike -- but the Fed will typically cut interest rates because it sees weakness in the economy. That isn't good news.

But the stock market is a forward-looking machine, so when interest rates begin to fall, investors immediately start pricing the positive impacts that might have in the future.

The below chart displays a good example. The S&P 500 index began to fall at the beginning of 2022, simply because investors were anticipating higher interest rates. Then, as the pace of rate increases slowed in 2023 (signaling the end of the hiking cycle), the index staged a recovery.

The magnitude of interest rate changes is also important. Despite the Fed hiking interest rates into 2016, it moved at a very slow pace, which didn't disrupt the market until 2018. And, as I mentioned earlier, the rapid drop in rates during the pandemic ignited one of the most aggressive rallies in the S&P 500 in its history.


If interest rates do fall in 2024 as expected, investors will be looking forward to renewed business and consumer spending, which should drive earnings growth. As a result, stocks could have a great year ahead.

 

[-OZ-]

stocks could

Appreciate the insight, but these two words pretty much Sum it up.

 

[Nugget]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

That is a really good question...

It is hard for me to see it right now. The conditions right now in many ways should be where you would see valuations fall. Highest rates in about 20 years, very little purchase transactions, days on market increasing, coming off of several years of very strong price increases and more but the valuations we are seeing are being very resilient. We are seeing a little bit of softening outside of the normal seasonal adjustments but still it is extremely resilient. I am not seeing any reason for that resiliency to evaporate either.

Also keep in mind that the high inflation that we have experienced over the last year or so is helping lock in those valuation gains (in a sense). Just as much as inflation eats away at the real value of your dollars in a savings account, it also does the same for debt and property valuations. A $400K home today is not the same 'price' as a $400K home 3 years ago (and not even talking about interest rates).

If valuations do drop then I would expect the massive amount of latent demand to enter the market and keep those prices from dropping significantly. So, how do you take away the demand and add supply? It would need to be some sort of major economic event outside of the normal recession that did not result in some massive governmental response. Keeping the demand low while putting massive amounts of properties on the market presumably in various levels of default/distress. As I mentioned, recessions usually are not that event and in fact, recessions typically drive valuations up as interest rates are lowered which then in turn drives up demand. The Great Recession being an outlier to this but this was a very different recession than most in that RE caused the recession versus a recession impacting RE.

I can come up with two possible things for now.... I see issues with both and don't think they are likely.

The first is that interest rates are driven up more. To early 1980's levels. People would freak out if there was double digit mortgage rates. RE market would grind to a halt. For the very few that had no choice to sell, there would be very little buyers.... that is until prices came down enough to make the purchase too good to pass up and cash deals from investors would snatch them all up. Inflation seems to be in check and declining so there is no reason for rates to be driven up more artificially.

The second is tied into commercial. I think commercial is going to have a tsunami of defaults. There will be little demand for a lot of these properties in urban areas other than converting them to residential properties. If there was a huge shift in supply with all these new converted condos hitting the market then these urban centers could see prices drop as buyers can be choosy on what they want. Now maybe the decline in property values in the large cities would impact the suburban valuations but I do think that these have decoupled for a few reasons such as the massive shift to remote work and the decline of American urban life. People living in the suburbs have very little interest in living in the city. Those condos would likely be filled with younger FTHBers and lower economic strata of the population.

I don't know... that is all I got. Damn good question though.

Thanks for the thoughtful response. I think it is unlikely that housing prices fall significantly, but it is interesting to think about scenarios that may increase the chances.

My most likely scenario would be something that spooks investors and they want to exit the rental business quickly. I don't know if investors would sell residential real estate to offset potential commercial real estate losses. Looks like around 35% of homes are rentals - not sure what the breakdown by ownership is. I recall Zillow bought homes a couple years ago and unloaded them at a loss. If someone like SoftBank or BlackRock changes their view and has a firesale, does the contagion spread? What caused the price spiralling downward 50% in markets in 2008/2009? If 40% of homes didn't have a mortgage, what percentage of homes need to be depressed to cause a selloff/panic?

What situations cause rents to drop? Recession with continued, persistant inflation and student loan payments? If eviction rates rise, what can landlords collect and when do they prefer to sell and invest their money in tbills? Would the gov't step in to prevent evictions again?

Do we see an increase in more multigenerational housing? Do the kids move in with parents to help with long term care or to offset unattainable shelter costs. Are there other generational shifts in housing that will change the model? I think the commercial conversion you mentioned could add more housing quickly, but I'm not sure on the demand and red tape that would create. More housing projects are being considering in my town, but there is still a lot of pushback (NIMBY).

Thanks again for your contributions Chad - I'm hoarding more cash for a downpayment if I see the right home/opportunity.

 

[FreeBaGeL]

I recall Zillow bought homes a couple years ago and unloaded them at a loss. If someone like SoftBank or BlackRock changes their view and has a firesale, does the contagion spread?

Blackrock etc actually own a much smaller percentage of rental properties than people think. Here is a Graham Stefan video where he breaks this down. Ignore the salacious title, though that happened from him being unwilling to push the narrative that corporations are buying up all the homes.

- YouTube

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

www.youtube.com

What caused the price spiralling downward 50% in markets in 2008/2009? If 40% of homes didn't have a mortgage, what percentage of homes need to be depressed to cause a selloff/panic?

Seems almost impossible for the conditions of 2008 to repeat here. That was a bunch of people overleveraged into adjustable rate mortgages they couldn't afford even at their base rates, which then went up massively when the rates adjusted. Leaving them unable to afford a home they were underwater on and couldn't sell.

Banks have been way tighter lending since then, adjustable rate mortgages are way less common, and the vast majority of home owners are sitting on tons of equity.

I could see a drop if people start cutting prices to be the first ones out since they know they'll still be sitting on a tidy profit, but that will be nominal drops and not a collapse.

It's going to take something else entirely for a collapse. The most likely culprit (though still unlikely) would be if there is not a flood of new buyers when rates eventually drop, and everyone that's been holding on because they didn't want to give up their rate and because they expected prices to rise even more with the next rate drop starts panicking to get out ahead of the new supply rush that comes from people who had the same plans as them. Not likely, though.

 

[Chadstroma]

Why home prices won't crash in the next recession.
(HousingWire by Logan Mohtashami). With home prices at all-time highs and concern that the labor market will break, is another 2008-style housing crash a possibility?

Is the U.S. headed for another housing bubble crash? With home prices at all-time highs and concern that the labor market will break going into a recessionary period, is another 2008-style crash a possibility? The answer is no, and for that, we must thank the 2010 qualified mortgage (QM) rule, which has high standards for borrower credit scores and the ability to repay the loan.

With the QM rule and a return to traditional housing credit channels, we can't have a massive credit boom in housing - but that also means we can't have the same sort of credit bust we had in 2008, because we have the best homeowners on record ever. And I'm not even talking about the over 40% of homes that don't have a mortgage; I am just talking about homeowners who are paying a mortgage.

Can you paint a scenario of what would need to happen to make housing prices fall?

That is a really good question...

It is hard for me to see it right now. The conditions right now in many ways should be where you would see valuations fall. Highest rates in about 20 years, very little purchase transactions, days on market increasing, coming off of several years of very strong price increases and more but the valuations we are seeing are being very resilient. We are seeing a little bit of softening outside of the normal seasonal adjustments but still it is extremely resilient. I am not seeing any reason for that resiliency to evaporate either.

Also keep in mind that the high inflation that we have experienced over the last year or so is helping lock in those valuation gains (in a sense). Just as much as inflation eats away at the real value of your dollars in a savings account, it also does the same for debt and property valuations. A $400K home today is not the same 'price' as a $400K home 3 years ago (and not even talking about interest rates).

If valuations do drop then I would expect the massive amount of latent demand to enter the market and keep those prices from dropping significantly. So, how do you take away the demand and add supply? It would need to be some sort of major economic event outside of the normal recession that did not result in some massive governmental response. Keeping the demand low while putting massive amounts of properties on the market presumably in various levels of default/distress. As I mentioned, recessions usually are not that event and in fact, recessions typically drive valuations up as interest rates are lowered which then in turn drives up demand. The Great Recession being an outlier to this but this was a very different recession than most in that RE caused the recession versus a recession impacting RE.

I can come up with two possible things for now.... I see issues with both and don't think they are likely.

The first is that interest rates are driven up more. To early 1980's levels. People would freak out if there was double digit mortgage rates. RE market would grind to a halt. For the very few that had no choice to sell, there would be very little buyers.... that is until prices came down enough to make the purchase too good to pass up and cash deals from investors would snatch them all up. Inflation seems to be in check and declining so there is no reason for rates to be driven up more artificially.

The second is tied into commercial. I think commercial is going to have a tsunami of defaults. There will be little demand for a lot of these properties in urban areas other than converting them to residential properties. If there was a huge shift in supply with all these new converted condos hitting the market then these urban centers could see prices drop as buyers can be choosy on what they want. Now maybe the decline in property values in the large cities would impact the suburban valuations but I do think that these have decoupled for a few reasons such as the massive shift to remote work and the decline of American urban life. People living in the suburbs have very little interest in living in the city. Those condos would likely be filled with younger FTHBers and lower economic strata of the population.

I don't know... that is all I got. Damn good question though.

Thanks for the thoughtful response. I think it is unlikely that housing prices fall significantly, but it is interesting to think about scenarios that may increase the chances.

My most likely scenario would be something that spooks investors and they want to exit the rental business quickly. I don't know if investors would sell residential real estate to offset potential commercial real estate losses. Looks like around 35% of homes are rentals - not sure what the breakdown by ownership is. I recall Zillow bought homes a couple years ago and unloaded them at a loss. If someone like SoftBank or BlackRock changes their view and has a firesale, does the contagion spread? What caused the price spiralling downward 50% in markets in 2008/2009? If 40% of homes didn't have a mortgage, what percentage of homes need to be depressed to cause a selloff/panic?

What situations cause rents to drop? Recession with continued, persistant inflation and student loan payments? If eviction rates rise, what can landlords collect and when do they prefer to sell and invest their money in tbills? Would the gov't step in to prevent evictions again?

Do we see an increase in more multigenerational housing? Do the kids move in with parents to help with long term care or to offset unattainable shelter costs. Are there other generational shifts in housing that will change the model? I think the commercial conversion you mentioned could add more housing quickly, but I'm not sure on the demand and red tape that would create. More housing projects are being considering in my town, but there is still a lot of pushback (NIMBY).

Thanks again for your contributions Chad - I'm hoarding more cash for a downpayment if I see the right home/opportunity.

Yea, it is hard to see something that disrupts the supply/demand that there is currently short of massive amounts of construction. I can see that happening in the urban centers with the commercial buildings being converted but the feel I get is that people are generally leaving the big cities as well. If developers ignore that and go to a huge amount of adding supply where demand is dropping then pricing would plummet. Would that spill over into the burbs? I don't see it because the people leaving the cities are going to the burbs or even rural areas.

Collect that cash and make sure credit is solid. I think that the near term will likely be the best opportunity for a bit. Rates have come down a bit after the inflation data came out. The market is a little soft right now due to seasonality and then the high rates. I really think that once rates come down, buying will really be much harder than it is now. When ready, reach out to me. Happy to help with the lending side for you.

 

[Chadstroma]

I recall Zillow bought homes a couple years ago and unloaded them at a loss. If someone like SoftBank or BlackRock changes their view and has a firesale, does the contagion spread?

Blackrock etc actually own a much smaller percentage of rental properties than people think. Here is a Graham Stefan video where he breaks this down. Ignore the salacious title, though that happened from him being unwilling to push the narrative that corporations are buying up all the homes.

- YouTube

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

www.youtube.com

What caused the price spiralling downward 50% in markets in 2008/2009? If 40% of homes didn't have a mortgage, what percentage of homes need to be depressed to cause a selloff/panic?

Seems almost impossible for the conditions of 2008 to repeat here. That was a bunch of people overleveraged into adjustable rate mortgages they couldn't afford even at their base rates, which then went up massively when the rates adjusted. Leaving them unable to afford a home they were underwater on and couldn't sell.

Banks have been way tighter lending since then, adjustable rate mortgages are way less common, and the vast majority of home owners are sitting on tons of equity.

I could see a drop if people start cutting prices to be the first ones out since they know they'll still be sitting on a tidy profit, but that will be nominal drops and not a collapse.

It's going to take something else entirely for a collapse. The most likely culprit (though still unlikely) would be if there is not a flood of new buyers when rates eventually drop, and everyone that's been holding on because they didn't want to give up their rate and because they expected prices to rise even more with the next rate drop starts panicking to get out ahead of the new supply rush that comes from people who had the same plans as them. Not likely, though.

So much is night and day from pre-2008. Literally could write a book about it. But yes, lending, which was a significant part of the problem pre-2008 is drastically different now. It is much harder to get a loan now than it was then. And that is only one of the many differences.

 

[Nugget]

I recall Zillow bought homes a couple years ago and unloaded them at a loss. If someone like SoftBank or BlackRock changes their view and has a firesale, does the contagion spread?

Blackrock etc actually own a much smaller percentage of rental properties than people think. Here is a Graham Stefan video where he breaks this down. Ignore the salacious title, though that happened from him being unwilling to push the narrative that corporations are buying up all the homes.

- YouTube

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

www.youtube.com

What caused the price spiralling downward 50% in markets in 2008/2009? If 40% of homes didn't have a mortgage, what percentage of homes need to be depressed to cause a selloff/panic?

Seems almost impossible for the conditions of 2008 to repeat here. That was a bunch of people overleveraged into adjustable rate mortgages they couldn't afford even at their base rates, which then went up massively when the rates adjusted. Leaving them unable to afford a home they were underwater on and couldn't sell.

Banks have been way tighter lending since then, adjustable rate mortgages are way less common, and the vast majority of home owners are sitting on tons of equity.

I could see a drop if people start cutting prices to be the first ones out since they know they'll still be sitting on a tidy profit, but that will be nominal drops and not a collapse.

It's going to take something else entirely for a collapse. The most likely culprit (though still unlikely) would be if there is not a flood of new buyers when rates eventually drop, and everyone that's been holding on because they didn't want to give up their rate and because they expected prices to rise even more with the next rate drop starts panicking to get out ahead of the new supply rush that comes from people who had the same plans as them. Not likely, though.

How many homes do people think Blackrock owns - It looks like Innovation Homes has 80K rentals.

Innovation Homes

Investment Firms Aren’t Buying All the Houses. But They Are Buying the Most Important Ones. (June 2021)

 

[Chadstroma]

Cathie Wood says forget inflation, deflation is the real enemy after the Fed hiked rates too far, too fast: ‘Investors are worrying about the wrong thing’​

Story by Will Daniel

Cathie Wood, ARK Invest’s founder and CEO, is known for her big—and often risky—bets on “disruptive” technology companies. From Tesla to Zoom, she’s taken chances on some of the most high-flying, growth-focused companies on the planet—and had several big wins along the way. Over the past few years, though, many of her favorite picks have been vulnerable to rising interest rates as the Federal Reserve has moved to rein in inflation. Simply put, rising borrowing costs have crippled many of the unprofitable tech stocks that Wood relies on. But the good news is the pain may be coming to an end, she says—both for her fund and for the economy.

Not long ago, Wall Street’s biggest fear was “sticky” inflation. The idea was that consumer price increases might stagnate around 4% to 5% due to the tight labor market, entrenched inflation expectations, or even demographics, forcing Federal Reserve officials to keep interest rates “higher for longer” in order to achieve their 2% target inflation rate.

But Wood never bought the sticky inflation argument. She’s repeatedly made the case that technological innovation will lead to an era of rising productivity and falling prices while criticizing Fed officials for unnecessarily crippling the economy (and clipping her fund’s wings) with rate hikes. That’s why after the latest cooler-than-expected inflation report shocked Wall Street this week, leading stocks to surge, Wood said she wasn’t surprised at all—and consumers should expect deflation from here on out.

“The bigger risk here is deflation, not inflation. And we’re seeing more and more signs of it,” Wood told the Wall Street Journal in a Tuesday interview. “I actually think that investors are worrying about the wrong thing.”

Wood points to fading airfare, car, and commodity prices as evidence that inflation is turning to deflation across the economy. To her point, the Dow Jones Commodity Index, a broad measure of commodity futures prices, is down more than 7% over the last 12 months, and 21% since its March 2022 peak. And Tuesday’s consumer price index (CPI) report showed that despite the United Auto Workers’ strike, both new and used car prices declined in October, while airfare prices sank 13.2% year-over-year.

In a separate interview with Bloomberg this week, Wood argued that the reason deflation is now appearing in the economy is that the Fed has gone too far with its more than 20-month-long interest rate hiking campaign meant to tame inflation.

“I think the Fed’s overdone it. I think we’re going to see a lot more deflation going forward,” she said. “I would not be surprised to see CPI going negative at some point next year.”

Mounting deflation calls​

While Wood is known for making bold claims and predictions—including arguing Tesla stock will surge to $2,000 per share by 2027 and Bitcoin will hit $1.5 million just three years later—she’s not alone when it comes to forecasting deflation.

Walmart CEO Doug McMillon said on the retail giant’s third quarter earnings call Thursday that dry grocery and consumables prices may “start to deflate in the coming weeks and months,” leading to a broader deflationary trend in the economy.

“In the U.S., we may be moving through a period of deflation in the months to come," he told analysts, adding that he’s "happy about it."

Home Depot’s management team sang a similar tune in their third quarter earnings call on Tuesday as well. "I think the most important observation we've made is that the worst of the inflationary environment is behind us,” CFO Richard McPhail said, adding that “retail prices are settling in the market."

A deflationary savior for a leaking ARK?​

ARK Invest’s Wood said this week that she is pleased with the recent deflationary trend, which should benefit her portfolio of tech and other growth-focused stocks.

After an incredible run of success during the first year of the pandemic, Wood’s flagship fund, the ARK Innovation ETF, has dropped 70% from its January 2021 peak. Amid the Fed’s aggressive interest rate hikes, soaring borrowing costs and the rise of alternative investment options for the retail crowd in Treasuries and Bonds have hit ARK Invest’s growth focused holdings hard.

Wood has often criticized the central bank in the past few years of underperformance at ARK Invest, arguing that officials made a “serious mistake” with the pace and size of their rate hikes, creating an “earthquake” for the economy—and her firm’s strategy.

But the veteran Wall Street investor said this week that ARK Invest is now “in a very good place” to take advantage of the shifting tides in the economy. “Technology is deflationary. And so they know how to operate in a deflationary world,” she told the Wall Street Journal of her funds’ “disruptive” tech holdings.

 

[Chadstroma]

Rocket Mortgage faces class-action lawsuit for unsolicited telemarketing calls.
(HousingWire by Connie Kim). Rocket Mortgage faces a class-action lawsuit for unsolicited telemarketing calls violating the Telephone Consumer Protection Act. Detroit-headquartered lender Rocket Mortgage faces a class-action lawsuit for making repeated, unsolicited telephone calls, violating the Telephone Consumer Protection Act (TCPA).

According to the suit filed in the U.S. District Court for the District of Arizona on Tuesday, Kellie Deits - a resident of Arizona - received a call from a Rocket Mortgage representative in April who offered her mortgage products and services she had not requested nor inquired about. Despite Deits' request to not be contacted again, she alleges she received at least 27 more calls over the next 10 days from the same telephone number that initially contacted her, according to court documents.

The lawsuit seeks to represent a class that includes all residential telephone subscribers who received more than one telemarketing call within a 12-month period from Rocket Mortgage within five years after requesting the lender not call them. Deits does not know the exact size of the class-action lawsuit, but she believes it to be, at minimum, in the hundreds, given the number of complaints Rocket has received and the nationwide scale of its business.

Rocket dismissed the suit as baseless. "We care deeply about client service, as is evident by our 20 J.D. Power awards, numerous industry accolades and one of our ISMs, or founding principles, that insists we 'Do The Right Thing.' Despite this, plaintiff attorneys continue to litter the industry with baseless TCPA claims in hopes of securing quick and lucrative settlements," the lender said in an e-mailed statement. The barrier to file one of these cases is extremely low, but the end result is what really matters, Rocket noted.

"To date, not one single TCPA class has been certified against Rocket Mortgage. This is a clear indication of just how seriously we take our compliance obligations. There is no merit to this case, and we expect a quick and decisive ruling in our favor," the lender said.

The complaint seeks up to $500 per violation of the TCPA for the National Do-Not-Call (DNC) Registry class and for Deits. The suit also seeks an injunction prohibiting Rocket from making telemarketing calls to residential phone numbers that do not wish to receive them. Attorneys for Deits didn't respond to requests for comment.

Rocket was hit with similar class-action lawsuits this year alleging Rocket violated the TCPA. In June, a California resident sued Rocket, alleging that the lender made unsolicited calls and sent text messages to consumers who registered their phones on the DNC registry. Rocket, in response, also dismissed the lawsuit as baseless. The case was dismissed in August by the U.S. District Court for Eastern California.

 

[massraider]

Yea, it is hard to see something that disrupts the supply/demand that there is currently short of massive amounts of construction. I can see that happening in the urban centers with the commercial buildings being converted but the feel I get is that people are generally leaving the big cities as well.

Whatever winds up happening with the 'extra' commercial space in cities, I am betting against them being converted in housing. The buildings don't work.

I could see a few of the smaller and less modern commercial building being converted to some efficiency type place. Apartments you and I don't want, but maybe some lower-paid worker bees might love. And that would fill a massive need. But I dunno if that's a massive money maker for the building owner. Are they really going to be motivated to own a bunch of affordable apartments?

After 9/11 and the pandemic, NYC landlords slashed rents, and people came running. There's always enough young people who want to live right in the middle of everything.

I'm moving out of the city soon, but I want to be close--arm's length, so I can pop in any day I like. And with the number of people needing to be in the office 1 or 2 days, I could see that being more and more popular. It probably already is.

 

[BeTheMatch]

Sorry, deflation is the last thing I'm worried about.

 

[Chadstroma]

Why the Fed Could Dash Any Hope of Rate Cuts in 2024​

Story by Randall W. Forsyth

Curb Your Enthusiasm. The title of Larry David’s long-running HBO series might prove apt investment advice, given how sharply bonds and stocks rallied this past week after the government reported that consumer prices rose all of 0.1 percentage point less in October than economists had estimated. The headline consumer price index was unchanged for the month (after rounding down from a 0.04% increase) while the “core” measure, excluding food and energy costs, was up 0.2%.

After further stripping away housing expenses, inflation was nil in October. Measured from a year ago, overall consumer prices were up 3.2%, while core prices were up 4.0% and core ex-housing was up just 1.4%. In other words, inflation was negligible if you didn’t eat, drive, or pay for electricity, heat, or hot water, or put a roof over your head.

That such measures elicited huzzahs from the markets likely says more about investor psychology than the health of the economy. Main Street sees high prices, up 18% in round numbers from December 2020, and dismisses as elitist claptrap that a slower rate of increase is evidence of lower inflation. Wall Street sees a deceleration of inflation as portending the much-anticipated end of Federal Reserve interest-rate hikes and the beginning rate reductions next year.

The federal-funds futures market is pricing in four 25-basis-point (one-quarter percentage point) cuts by the end of 2024 in the wake of the latest CPI print, according to the CME FedWatch site. From the current target range of 5.25%-5.50%, the futures market prices discount the initial trim coming on May Day next year, with another at the end of July, followed by moves in mid-September and mid-December.

The latest Bank of America global fund manager survey, released just ahead of Tuesday’s CPI print, showed professional investors were already anticipating as much. Some 61% were looking for lower bond yields, the most in the history of the widely watched poll. Reflecting that conviction, the portfolio managers were the most overweight bonds in two decades, except for December 2008 and March 2009, in the teeth of the financial crisis.

This would be the seventh time since mid-2022 that the markets anticipated a “pivot” by the Fed toward lower short-term interest rates, according to a client note penned by Deutsche Bank macro strategist Henry Allen following the CPI report.

“On the previous six occasions, those hopes have been dashed, since inflation has remained too fast for the Fed to be comfortable cutting rates,” he wrote.

Since early 2021 inflation has topped the central bank’s 2% target, while its most recent Summary of Economic Projections, released in September, envisions one more hike in December and just two cuts next year. That adds up to a median expectation that the fed-funds rate will be 5.1% at the end of 2024, well above the futures market’s pricing for a 4.38% midpoint by then. The consistent story of this rate cycle is that investors have been premature in anticipating Fed rate cuts and have had to push out their timing further into the future.

The markets’ exuberance since October—with the S&P 500 index up nearly 10% from its lows and the yield on the benchmark 10-year Treasury down half a percentage point from its peak above 5%—suggests that “a Goldilocks scenario, in which inflation is vanquished and real growth remains robust, is once again the dominant narrative,” according to a report from Macro Intelligence 2 Partners.

But the resulting easing of financial conditions should mean the economy will slow only slightly in the first quarter of next year, thwarting the Fed’s avowed objective of further curbing inflation. It might sound circular, but the drop in bond yields, which was based on anticipated Fed rate cuts in 2024, might actually stay the hand of Fed Chairman Jerome Powell and his fellow monetary-policy makers from lowering rates.

Robert Tipp, chief investment strategist at PGIM Fixed Income, similarly thinks persistent inflation above 2% will keep the Fed from cutting as much as the market appears to expect. Plus, the persistent Treasury borrowing needs from the “gigantic” budget deficit will keep bond yields from declining meaningfully, he said in an interview.


Specifically, Tipp looks for the yield curve to “normalize,” with longer-term interest rates 50-to-100 basis points above short-term cash rates. So even with Fed cuts, bond investors should expect returns only from interest income, not from price appreciation that would accompany declines in longer Treasury yields, as fund managers in the BofA survey anticipate.

Instead, Tipp is emphasizing returns from corporate obligations, both investment-grade and high-yield credits. In addition, he likes high-quality collateralized loan obligations. (CLOs carve up portfolios of corporate loans into tranches; the first slice gets paid first and is the least risky, with successive ones yielding more, commensurate with their greater risk.) Yields on corporate credits might outperform Treasuries as a result of the federal government’s massive borrowing needs, he says.


This tack implicitly goes against the markets’ anticipated scenario of big Fed rate cuts totaling a full percentage point in the coming year. Fixed-income investors would do well to consider the relatively defensive funds highlighted in our Oct. 30 bond-market cover story, which emphasized low durations and higher yields. In other words, they should curb their enthusiasm about further bond rallies.

 

[Chadstroma]

Homebuilders slash prices to clear inventory as confidence sinks again in November.
(HousingWire by Sarah Marx). High mortgage rates sank builder confidence again, but recent economic data suggests housing conditions will improve in the coming months. Elevated mortgage rates sank builder confidence again in November, but recent economic data suggests housing conditions will pick up in the coming months.

Builder confidence dropped six points to 34 in November, the fourth consecutive monthly drop, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The data collected for the survey was submitted ahead of Tuesday's release of the October Consumer Price Index (CPI) report from the U.S. Bureau of Labor Statistics. The HMI index gauges NAHB members' perception of current single-family home sales, expected sales for the upcoming six months and potential homebuyer traffic. An index of 50 is neutral; higher than 50 indicates that homebuilders view conditions as favorable; and lower than 50 indicates that builders view conditions as unfavorable.

On the construction side, homebuilders as well as land developers found it hard to finance projects because of high short-term interest rates. On the consumer side, a large number of prospective buyers sat on the sidelines as housing affordability worsened. Shelter remained the largest contributor to inflation in October, according to the CPI report. However, the rate of housing inflation is steadily falling and there are high hopes that interest rates will fall in 2024. "While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months," NAHB Chief Economist Robert Dietz said in a statement.

"In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December."

NAHB forecasts approximately a 5% increase for single-family housing starts in 2024 as financial conditions ease.

 

[Chadstroma]

The Share of Americans Who Are Mortgage-Free Is at an All-Time High.
(Bloomberg by Alexandre Tanzi). There's talk of a great divide in the US housing market, as new buyers get crushed by 8% mortgage rates while earlier ones cling gratefully to loans of less than 3%. Missing from this story is a third, even more fortunate group: the rapidly growing number of Americans who own their homes outright. Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

The share of US homes that are mortgage-free jumped 5 percentage points from 2012 to 2022, to a record just shy of 40%. More than half of these owners have reached retirement age. Freedom from mortgage debt gives them the option to age in place-or uproot to sunnier climes.

 

[Chadstroma]

UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession​

Story by Elliot Smith

UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world's largest economy tips into recession.

In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank's economists suggested that "fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024."

UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates "first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening."

Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%.

The central bank has since held at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.

However, Fed Chairman Jerome Powell said last week that he was "not confident" the FOMC had yet done enough to return inflation sustainably to its 2% target.

UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is "not out of the woods yet."

"The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time," UBS highlighted.

"According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings."

The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are "thinning out" and balance sheets look less robust.

"Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated," UBS said.

"In our view, the private sector looks less insulated from the FOMC's rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%."


UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.

"With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation," the bank's economists said.

Worst credit impulse since the financial crisis​

Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are "much worse now than 12 months ago," particularly in the form of the "historically large" amount of credit that is being withdrawn from the U.S. economy.

"The credit impulse is now at its worst level since the global financial crisis — we think we're seeing that in the data. You've got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising," he told CNBC's Joumanna Bercetche on the sidelines of the UBS European Conference.

Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the "massive gap" between real incomes and spending that means there is "much more scope for that spending to fall down towards those income levels."


"The counter that people then have is they say 'well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?' But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year," Kapteyn argued.

A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research Business Cycle Dating Committee defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months." This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production, and incomes.

Goldman 'pretty confident' in the U.S. growth outlook​

The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.


Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was "pretty confident" in the U.S. growth outlook.

"Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that," he told CNBC's "Squawk Box Europe."

Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.

"I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau," he concluded.

 

[FreeBaGeL]

UBS sees a raft of Fed rate cuts next year on the back of a U.S. recession​

Story by Elliot Smith

UBS expects the U.S. Federal Reserve to cut interest rates by as much as 275 basis points in 2024, almost four times the market consensus, as the world's largest economy tips into recession.

In its 2024-2026 outlook for the U.S. economy, published Monday, the Swiss bank said despite economic resilience through 2023, many of the same headwinds and risks remain. Meanwhile, the bank's economists suggested that "fewer of the supports for growth that enabled 2023 to overcome those obstacles will continue in 2024."

UBS expects disinflation and rising unemployment to weaken economic output in 2024, leading the Federal Open Market Committee to cut rates "first to prevent the nominal funds rate from becoming increasingly restrictive as inflation falls, and later in the year to stem the economic weakening."

Between March 2022 and July 2023, the FOMC enacted a run of 11 rate hikes to take the fed funds rate from a target range of 0%-0.25% to 5.25%-5.5%.

The central bank has since held at that level, prompting markets to mostly conclude that rates have peaked, and to begin speculating on the timing and scale of future cuts.

However, Fed Chairman Jerome Powell said last week that he was "not confident" the FOMC had yet done enough to return inflation sustainably to its 2% target.

UBS noted that despite the most aggressive rate-hiking cycle since the 1980s, real GDP expanded by 2.9% over the year to the end of the third quarter. However, yields have risen and stock markets have come under pressure since the September FOMC meeting. The bank believes this has renewed growth concerns and shows the economy is "not out of the woods yet."

"The expansion bears the increasing weight of higher interest rates. Credit and lending standards appear to be tightening beyond simply repricing. Labor market income keeps being revised lower, on net, over time," UBS highlighted.

"According to our estimates, spending in the economy looks elevated relative to income, pushed up by fiscal stimulus and maintained at that level by excess savings."

The bank estimates that the upward pressure on growth from fiscal impetus in 2023 will fade next year, while household savings are "thinning out" and balance sheets look less robust.

"Furthermore, if the economy does not slow substantially, we doubt the FOMC restores price stability. 2023 outperformed because many of these risks failed to materialize. However, that does not mean they have been eliminated," UBS said.

"In our view, the private sector looks less insulated from the FOMC's rate hikes next year. Looking ahead, we expect substantially slower growth in 2024, a rising unemployment rate, and meaningful reductions in the federal funds rate, with the target range ending the year between 2.50% and 2.75%."


UBS expects the economy to contract by half a percentage point in the middle of next year, with annual GDP growth dropping to just 0.3% in 2024 and unemployment rising to nearly 5% by the end of the year.

"With that added disinflationary impulse, we expect monetary policy easing next year to drive recovery in 2025, pushing GDP growth back up to roughly 2-1/2%, limiting the peak in the unemployment rate to 5.2% in early 2025. We forecast some slowing in 2026, in part due to projected fiscal consolidation," the bank's economists said.

Worst credit impulse since the financial crisis​

Arend Kapteyn, UBS global head of economics and strategy research, told CNBC on Tuesday that the starting conditions are "much worse now than 12 months ago," particularly in the form of the "historically large" amount of credit that is being withdrawn from the U.S. economy.

"The credit impulse is now at its worst level since the global financial crisis — we think we're seeing that in the data. You've got margin compression in the U.S. which is a good precursor to layoffs, so U.S. margins are under more pressure for the economy as a whole than in Europe, for instance, which is surprising," he told CNBC's Joumanna Bercetche on the sidelines of the UBS European Conference.

Meanwhile, private payrolls ex-health care are growing at close to zero and some of the 2023 fiscal stimulus is rolling off, Kapteyn noted, also reiterating the "massive gap" between real incomes and spending that means there is "much more scope for that spending to fall down towards those income levels."


"The counter that people then have is they say 'well why are income levels not going up, because inflation is falling, real disposable incomes should be improving?' But in the U.S., debt service for households is now increasing faster than real income growth, so we basically think there is enough there to have a few negative quarters mid-next year," Kapteyn argued.

A recession is characterized in many economies as two consecutive quarters of contraction in real GDP. In the U.S., the National Bureau of Economic Research Business Cycle Dating Committee defines a recession as "a significant decline in economic activity that is spread across the economy and that lasts more than a few months." This takes into account a holistic assessment of the labor market, consumer and business spending, industrial production, and incomes.

Goldman 'pretty confident' in the U.S. growth outlook​

The UBS outlook on both rates and growth is well below the market consensus. Goldman Sachs projects the U.S. economy will expand by 2.1% in 2024, outpacing other developed markets.


Kamakshya Trivedi, head of global FX, rates and EM strategy at Goldman Sachs, told CNBC on Monday that the Wall Street giant was "pretty confident" in the U.S. growth outlook.

"Real income growth looks to be pretty firm and we think that will continue to be the case. The global industrial cycle which was going through a pretty soft patch this year, we think, is showing some signs of bottoming out, including in parts of Asia, so we feel pretty confident about that," he told CNBC's "Squawk Box Europe."

Trivedi added that with inflation returning gradually to target, monetary policy may become a bit more accommodative, pointing to some recent dovish comments from Fed officials.

"I think that combination of things — the lessening drag from policy, stronger industrial cycle and real income growth — makes us pretty confident that the Fed can stay on hold at this plateau," he concluded.

I was a pretty "the soft landing talk is just optics, the only real answer here is a hard recession" guy for most of the last year, but I'm starting to have my doubts.

Inflation is way down, the stock market is back to ATH's, crypto is running wild again, unemployment remains stupidly low, risk-on trades are back, travel spending has smashed through ATH's yet again. Maybe over-exuberance is what will finally do everyone in, but I'm just having a hard time getting behind the idea that we're teetering on the edge of recession when there are so many people still able to spend so much.

It just seems like there's so much money out there on the sidelines. Every tiny bit of good news and the whole country races to book trips to Hawaii or buy up trillion dollar companies that are already up 15% this month or spend $15,000 on 8th tier crypto coins that use the number 3 in place of the letter E in their names.

 

[The Z Machine]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

 

[-OZ-]

The Share of Americans Who Are Mortgage-Free Is at an All-Time High.
(Bloomberg by Alexandre Tanzi). There's talk of a great divide in the US housing market, as new buyers get crushed by 8% mortgage rates while earlier ones cling gratefully to loans of less than 3%. Missing from this story is a third, even more fortunate group: the rapidly growing number of Americans who own their homes outright. Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

The share of US homes that are mortgage-free jumped 5 percentage points from 2012 to 2022, to a record just shy of 40%. More than half of these owners have reached retirement age. Freedom from mortgage debt gives them the option to age in place-or uproot to sunnier climes.

I might be alone in this, but having a low rate mortgage makes me less likely to move than if we owned it outright.
Also, I greatly prefer having the low rate mortgage plus investments over owning the house outright.

 

[-OZ-]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

Don’t worry, Gen Alpha will say the same thing about millennials.

 

[JAA]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

Don’t worry, Gen Alpha will say the same thing about millennials.

P
L
Z

Millennials are doomed

 

[-OZ-]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

Don’t worry, Gen Alpha will say the same thing about millennials.

P
L
Z

Millennials are doomed

the US has overcome worse situations, as has the rest of the world.

 

[The Z Machine]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

Don’t worry, Gen Alpha will say the same thing about millennials.

P
L
Z

Millennials are doomed

They are suuuuuuper screwed. Better hope that their boomer parents leave them some wealth and it doesn't just get transferred to the uber wealthy.

 

[-OZ-]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

Don’t worry, Gen Alpha will say the same thing about millennials.

P
L
Z

Millennials are doomed

They are suuuuuuper screwed. Better hope that their boomer parents leave them some wealth and it doesn't just get transferred to the uber wealthy.

Seriously, what’s with the pessimism here? This isn’t Reddit.

 

[Stoneworker]

I was a pretty "the soft landing talk is just optics, the only real answer here is a hard recession" guy for most of the last year, but I'm starting to have my doubts.

Inflation is way down, the stock market is back to ATH's, crypto is running wild again, unemployment remains stupidly low, risk-on trades are back, travel spending has smashed through ATH's yet again. Maybe over-exuberance is what will finally do everyone in, but I'm just having a hard time getting behind the idea that we're teetering on the edge of recession when there are so many people still able to spend so much.

While a "soft landing" would be great, if that's the outcome then there would be no reason for the Fed to cut interest rates. From the Fed's perspective the economy will have obtained equilibrium (2% inflation + low unemployment). They will have done their job and a Fed rate cut would just loosen the system again and re-ignite inflationary pressures.

But at some point the yield curve needs to de-invert. The financial system cannot sustainably function long-term otherwise.

So if short-term rates don't go down, then long-term rates (i.e. 5+ yr) would need to rise another 150-200 bps to re-establish a normalized yield curve (historical 10/2 spread is about 150 bps).

And since mortgage rates generally track the 10-year, they would then likely shoot up even further as well.

 

[Chadstroma]

Almost 40% of US homeowners own their homes outright as of 2022-many of them baby boomers who refinanced when rates were low.

Once again, the baby boomers have rigged the system to their favor. It happens time and again.

I am curious... how is that statistic equal "boomers have rigged the system"? I am asking because I can't see how, in any way, it is rigging the system to pay off your home.