The new inflation baseline

From the WSJ:

Must Inflation Be Brought Down All the Way to 2%?

“Why must inflation be around 2%?” is a question that obsessed central bankers back when inflation was stubbornly below their favorite target. It makes more sense to ask it now.

This past week, a string of data has suggested that inflation is finally on a downward trend. The U.S. personal-consumption expenditures price index excluding food and energy—the Federal Reserve’s preferred measure of inflation—recorded its second-smallest monthly increase for the year, even as consumer spending jumped and job growth continued. Meanwhile, eurozone inflation receded to 10% in November, suggesting that October’s 10.6% was the peak. 

Stocks have rallied, especially after Fed Chairman Jerome Powell said Wednesday that interest rates will go up in smaller increments from now on. But he also indicated that the tightening is far from over. Indeed, central bankers don’t ultimately care if inflation stops rising: They want it to go down, back to the 2% number they are mandated to hit. 

It underscores the misalignment between their interests and everybody else’s, which should worry investors.

Inflation in many rich countries has been decelerating since July, yet economists don’t expect it to return to 2% until a distant 2025, based on median forecasts. Derivatives markets price in that the Fed, the European Central Bank and the Bank of England will stop raising rates in 2023, cut them later in the year, and then sit on their laurels for two full years as inflation grinds down.

But what if inflation stabilizes at a higher rate—say between 4% and 6%? In this plausible case, central banks may be compelled to start needlessly raising rates again, catching investors off guard. It would make a lot more sense to raise the inflation target instead, or define it as a wider range.

Posted in Economics, Employment, Mortgages, Politics | 45 Comments

Kaboom?

From the NY Post:

Here’s how much US home prices will plunge in current market bubble

US home prices will likely have to decline by as much as 20% over the course of a multi-year correction before the housing sector can get back on track with historical trends, a research firm warned this week.

The most recent correction cycles that occurred in the US housing market, such as a bubble in the 1990s and the sector’s implosion in the mid-2000s, took several years to conclude, DataTrek Research co-founder Nicholas Colas said.

In the current market, US home prices have only begun to fall in the last few months – suggesting the declines will continue for the foreseeable future.

“US home prices need to fall by about 15-20 percent over the coming years in order to return to their long run growth trend. That process is clearly starting but has a good way to go,” Colas said in a note to investors this week obtained by Insider.

Colas stated that peak home prices in June were 29% higher than their historical trend.

Posted in Economics, Housing Bubble, National Real Estate | 71 Comments

Jobs Day!

From CNN:

What to expect from Friday’s jobs report

Friday’s closely watched jobs report is expected to show a slowdown in November, with just 200,000 positions added, according to economists polled by Refinitiv. 

But while the recent wave of layoffs hitting the tech sector has dominated news cycles and triggered concerns that a larger reckoning may be on the horizon, labor economists say those concerns are overblown.

“All these announcements that you hear: 10,000 [layoffs] here and 10,000 there, are basically a very, very small fraction of the total employment,” said Daniil Manaenkov, an economic forecaster at the University of Michigan.

Despite a slew of deep cutbacks — primarily at tech companies and other firms that scaled up during the pandemic — and fears that this is the calm before the storm, the broader labor market has barely flinched. 

“We’ve just not seen those plans bear out to the degree that we expected,” said Julia Pollak, labor economist at employment marketplace ZipRecruiter. “Companies seem to be preparing an escape route, they’re working on their disaster response plans, but they’re preparing for a downturn that hasn’t happened.”

Posted in Economics, Employment | 88 Comments

Year over year home prices slow

From CNBC:

U.S. single-family home prices slow again in September

U.S. single-family home prices slowed further in September as higher mortgage rates eroded demand, closely watched surveys showed on Tuesday.

The S&P CoreLogic Case Shiller national home price index dropped 0.8% month-over-month in September. Monthly house prices fell in July for the first time since late 2018.

House prices rose 10.6% year-on-year in September, slowing from August’s increase of 12.9%.

The housing market has been hammered by aggressive Federal Reserve interest rate hikes that are aimed at curbing high inflation by dampening demand in the economy.

The 30-year fixed mortgage rate breached 7% in October for the first time since 2002, data from mortgage finance agency Freddie Mac showed. Though the rate retreated to an average of 6.58% last week, it remains well above the 3.10% average during the same period last year.

“As the Fed continues to move interest rates higher, mortgage financing continues to be more expensive and housing becomes less affordable,” Craig Lazzara, managing director at S&P DJI, said in a statement. “Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to weaken.”

Data this month showed sales of previously owned homes logged their ninth straight monthly decline in October, while single-family homebuilding and permits for future construction dropped to the lowest levels since May 2020.

Posted in Economics, National Real Estate | 179 Comments

NJ & PA economies looking strong

From the Philly Fed:

State Coincident Indexes – October 2022

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2022. Over the past three months, the indexes increased in 36 states, decreased in 11 states, and remained stable in three, for a three-month diffusion index of 50. Additionally, in the past month, the indexes increased in 20 states, decreased in 22 states, and remained stable in eight, for a one-month diffusion index of -4. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed’s U.S. index increased 0.7 percent over the past three months and 0.1 percent in October.

Pennsylvania

In the three months to October, the coincident index for Pennsylvania rose 1.4 percent. The level of payroll employment increased over the past three months but remained slightly lower than that of February 2020. The unemployment rate fell significantly during the three-month period. However, average hours worked in manufacturing fell. Overall, Pennsylvania’s economic activity as measured by the coincident index has risen 6.9 percent over the past 12 months.

New Jersey

In the three months to October, the coincident index for New Jersey rose 1.2 percent. The level of payroll employment increased over the past three months. The unemployment rate fell during the three-month period. In addition, average hours worked in manufacturing remained stable. Overall, New Jersey’s economic activity as measured by the coincident index has risen 6.2 percent over the past 12 months.

Posted in Economics, Employment | 76 Comments

Jersey City loses their minds

From the Jersey Journal:

Jersey City considers barring property owners from selling homes until they replace lead water lines

As the Jersey City Municipality Utility Authority works on removing all lead pipes by 2031, the city council could bar property owners from selling their homes unless their lead water lines have been replaced.

The council will introduce an amended ordinance Monday that would require property owners to have proof that their lead service lines have been replaced to get a certificate of occupancy, certificate of code compliance, and smoke and carbon monoxide detector certificates — all of which are required to for any transfer of ownership of property.

However, JCMUA spokesman Phil Swibinski said the agency responsible for managing the city’s water and sewage systems will work closely with property owners throughout the year-long pipe removal process.

“As areas in the cities are prioritized, there is ample communication and opportunity for special cases, such as upcoming home sales, to be dealt with appropriately,” Swibinski said.

Owners who violate the ordinance could face fines ranging from $100 to $1,000, imprisonment or community service for up to 90 days.

Posted in Gold Coast, New Jersey Real Estate | 62 Comments

Recession 2023

From Reuters:

Factbox: World’s biggest banks see global economy slowing more in 2023, with likely U.S. recession

Posted in Economics | 47 Comments

Kids these days…

From Business Insider:

Gen Z’s finances are already tanking, and we’re not even in a recession yet

Young Americans are still spending as the holiday shopping season ramps up, but they’re running out of money. With a recessionpotentially looming next year, it arguably couldn’t come at a worse time. 

After falling in the last few years as borrowers paid down their balances, US credit card debt rose $38 billion between July and September of this year, per the New York Fed. The 15% year-over-year increase was the largest in over 20 years. 

For now, credit card debt remain below pre-pandemic levels, and to some degree, an uptick was to be expected as consumers emerged from lockdowns and contended with higher prices. 

The “real test,” however, New York Fed researchers wrote in a November blog post, is “whether these borrowers will be able to continue to make the payments on their credit cards.” Signs point to Gen Z, in particular, is starting to feel the squeeze.  

While overall delinquencies remain below pre-pandemic levels, the percent of credit card payments 90 days or more past due rose to 3.7% in the third quarter, up from 3.2% the year prior.

While all age groups saw upticks in missed payments, the biggest increase came from 18 to 29-year-olds, whose 90-plus day delinquency rate rose to over 6%, though still below the roughly 9% rate before the pandemic took hold. 

It’s not just credit card debt that young borrowers are struggling to make payments on either. Rising balances for auto loans also coincided with a spike in the auto delinquency rate.

“Is this simply a reversion to earlier levels,” the researchers wrote of the overall rise in missed payments, “with forbearances ending and stimulus savings drying up, or is this a sign of trouble ahead?”

Posted in Demographics, Economics | 80 Comments

October housing market hit a wall

From Mansion Global:

October Was a Spooky Month for the U.S. Housing Market

Would-be buyers are turning their backs on the turbulent U.S. housing market in droves, according to new data released from Redfin on Monday. 

The number of pending sales, the amount of deals being scrapped and the proportion of homes seeing their asking price slashed all reached foreboding milestones in an October chill that could rival winter’s. 

Pending sales dropped 32.1% annually to 414,492 last month, the largest decline since at least 2013, when Redfin’s records began. 

At the same time, almost 60,000 home-purchase agreements fell through, equating to 17.9% of the homes that went under contract last month, a record high, the data showed. In addition, almost one-quarter, or 23.9%, of homes for sale in October experienced a price drop, double the rate of a year earlier, the online property portal said. 

“The Fed’s actions to curb inflation are causing the housing market to slow at a pace not seen since the financial crisis,” Chen Zhao, Redfin’s economics research lead, said in the report. 

“There are already early but promising signs that inflation is cooling, which caused mortgage rates to drop last week,” she added. “If that progress continues, buyers who recently backed out of deals may return to the market and sellers may be less inclined to slash their prices.”

Posted in Demographics, Economics, Mortgages, National Real Estate | 66 Comments

Bezos says stop buying crap from Amazon

From Motley Fool:

Former Amazon CEO Jeff Bezos Has This Advice for Getting Through a Recession

The more money you have in savings leading up to a potential recession, the better equipped you’ll be to get through a period of upheaval. So it’s best to do what you can to conserve cash. Doing so, says Bezos, will allow you to “take some risk off the table.”

One good way to shore up your savings, says Bezos, is to put off large purchases for the time being. This means that if you were thinking of upgrading to a new car in the next few months, hold off, provided your existing vehicle still runs. And rather than buy new furniture or appliances for your home, stick with the ones you already have and put the money you would’ve spent into your savings.

Incidentally, this advice from Bezos doesn’t just apply to everyday consumers. It also applies to small business owners. Specifically, it’s wise for small businesses to avoid large capital expenditures during this current period of uncertainty.

Posted in Economics | 44 Comments

October sucked, ignore the price changes

From CNN:

US home sales fall for 9th month in a row in October

Home sales in the United States declined for the ninth month in a row in October as surging mortgage rates and high prices pushed buyers out of the market.

Sales of existing homes — which include single-family homes, townhomes, condominiums and co-ops — were down 28.4% in October from a year ago and down 5.9% from September, according to a National Association of Realtors report released Friday. All regions of the United States saw month-over-month and year-over-year declines.

That continues a slowing trend that began in February and marks the longest streak of declining sales on record, going back to 1999.

Sales in October were at their weakest level since May 2020, when the real estate market was at a standstill during the pandemic lockdowns. Beyond that, sales last month were the weakest they have been since December 2011.

Still, home prices continued to climb last month. The median home price was $379,100 in October, up 6.6% from one year ago, according to the report. But that’s down from the record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.

Posted in Economics, Housing Bubble, National Real Estate | 28 Comments

Blip or recession?

From NJ1015:

Record streak for New Jersey job growth snapped in October

New Jersey’s economy lost jobs in October for the first time in nearly two years, snapping the state’s longest streak of job growth since at least the 1980s.

Preliminary estimates from the U.S. Bureau of Labor Statistics announced Thursday by the state labor department show that private-sector jobs grew for the 30th consecutive month – but that 6,700 increase was eclipsed by a loss of 8,000 public-sector jobs.

Combined that leads to a drop of 1,300 jobs in October, the first decline since November 2020.

Eight out of nine private-industry sectors recorded job growth – all except financial activities. The biggest gains were in trade, transportation, and utilities, up 2,400; professional and business services, up 1,900; and education and health services, up 1,700.

Most of the public sector job losses were in local government, accounting for 7,800 fewer jobs. That reversed an unusually large increase in September.

The overall job loss was small, and it’s possible the revisions next month could show there was actually a gain. September’s employment report initially showed an increase of 3,800 jobs, but that has been revised upward by 9,100 to show a gain of 12,900.

The unemployment rate rose by 0.2 percentage points to 3.5% in October due to people re-entering the labor force seeking a job. The labor force was 23,900 larger than one month earlier, when the total fell by an unusual amount, and it is now at its largest size since June 2021.

Posted in Demographics, Economics, Employment, New Jersey Real Estate | 89 Comments

Spread ’em

From the WSJ:

Mortgage Rates Are High Because Nobody Is Buying Mortgages

Bank of America Corp. BAC -1.69%decrease; red down pointing triangle gobbled up hundreds of billions of dollars of mortgage bonds during the height of the pandemic. But with rates rising, its buying spree has ended.

Banks have stepped back from buying mortgage bonds. So has the Federal Reserve, the largest investor in that market. Foreign buyers and money managers are curtailing purchases too, analysts say. 

The lack of buyers has helped push mortgage rates to their highest level in 20 years. The average 30-year fixed mortgage rate topped 7% recently, further cooling a housing market that was red hot just a few months ago.

When lenders extend mortgages to people buying homes or refinancing, they don’t usually hold on to the loans. Instead, they pool them into bonds that get sold to investors, often with a guarantee from a government-controlled entity that investors will get repaid.

Today, a shrunken pool of buyers are demanding a higher yield to own mortgage bonds. That is driving up the rates on the mortgages inside those bonds at a faster pace than their benchmark, Treasury yields. The gap between them was recently the biggest since the 1980s, according to the Urban Institute.

“Banks stepping back, the Fed stepping back, foreign investors stepping back—that has widened the spread that mortgages trade at versus Treasurys, which directly translates to the borrower’s mortgage rate,” said Nick Maciunas, a research analyst at JPMorgan Chase & Co. 

Last year, an abundance of buyers for mortgage bonds helped hold mortgage rates at near record lows.

Posted in Mortgages, National Real Estate | 210 Comments

Deep dive on NJ from the Fed

From Liberty Street Economics @ The NY Fed:

A Look at the New York-Northern New Jersey Region’s Pandemic Housing Boom

Since the start of the pandemic, home prices in the U.S. have increased by an astonishing 40 percent. The New York-Northern New Jersey region saw a similar meteoric rise, as home prices shot up by 30 percent or more almost everywhere—even in upstate New York, where economic growth was sluggish well before the pandemic hit. New York City is the exception, where home price growth was less than half that pace. Indeed, home prices actually declined in Manhattan early in the pandemic, though they have rebounded markedly since. Much of the region’s home price boom can be traced to the rise in remote work, which increased the already strong demand for housing at a time when housing inventories were low and declining. Home price increases have largely outpaced income gains through the pandemic boom, resulting in a reduction in housing affordability in the region. However, with mortgage rates rising, it appears that the region’s housing boom is waning, as it is for the nation as a whole, with prices leveling off, though the inventory of available homes remains historically low.

There are a number of reasons home prices increased so dramatically in such a short period of time, both in the nation and the region. First, substantial government support was provided to households early in the pandemic, which contributed to a favorable financial environment. In particular, pandemic relief—including foreclosure and eviction moratoriums—provided support to the housing market during a period of economic contraction when, historically, the housing sector tends to weaken. On top of that, mortgage rates hit historic lows, which provided a boost to housing demand.

In addition, the pandemic fundamentally altered the landscape of housing demand in unexpected ways. Dense urban cores lost some of their luster. Urban amenities that during normal times had been attractive—like bars, restaurants, museums, and public transportation—turned from a blessing to a curse early in the pandemic due to fear of contagion and social distancing. In addition, proximity to urban centers became less important for those who no longer needed to commute to a centrally located job due to the rise in remote work. At the same time, the proliferation of working from home suddenly increased the demand for space, as people looked for larger houses to accommodate spending more time at home. These forces led to a substantial migration of the population toward less dense areas. Regionally, this migration was largely from New York City to its suburbs and beyond, benefitting areas in northern New Jersey, Long Island, the lower and mid-Hudson Valley, and Fairfield County, Connecticut. It also led to increased demand for locations in upstate New York, particularly among remote workers who’d become untethered from their workplaces. Overall, recent research suggests that the increase in housing demand caused by the shift to remote work explains half of the rise in home prices during the pandemic.

All of this occurred during a time of historically low inventory of available homes. Indeed, the homebuilding response to increased demand and higher prices in terms of new construction was muted by worker shortages and supply chain disruptions. Low housing inventory has been particularly severe in upstate New York, which helps explain the significant home price growth experienced there.

Posted in Economics, Employment, Housing Bubble, New Jersey Real Estate, North Jersey Real Estate, NYC | 58 Comments

Never a good time to be a first time buyer

From the NYT:

‘It’s Never Our Time’: First-Time Home Buyers Face a Brutal Market

First-time buyers account for the smallest share of the market in the 41 years that the National Association of Realtors has tracked such data. In the year from July 2021 to June 2022, first-time buyers accounted for just 26 percent of home buyers. Normally, they account for around 40 percent of the market. They were replaced by repeat buyers who were older, wealthier and whiter than they had been in decades, according to a recent survey by the trade association. 

The share of white buyers jumped to 88 percent during the survey year, representing the largest share of white buyers since 1997. The share of Black buyers fell to 3 percent from 6 percent, and Asian/Pacific Islander buyers fell to 2 percent from 6 percent from the previous survey year. The median age for all buyers was 53 years old, the oldest they’ve been since 1981, when the association first conducted its survey.

Even buyers with large budgets and significant down payments are struggling to compete against an all-cash competition. Around 27 percent of repeat buyers paid for their homes in cash, while only 3 percent of first-time buyers could make such offers in the year from July 2021 to June 2022, according to the National Association of Realtors.

Posted in Demographics, Economics, Employment, National Real Estate | 16 Comments