Fed to take a breather?

Posted on March 21, 2023 by grim

From the Hill:

Goldman Sachs expects pause in Fed’s interest rate hikes

Analysts at Goldman Sachs expect the Federal Reserve to pause its interest rate hikes this week, citing concerns about uncertainty in the global financial system spurred by a string of destabilizing bank failures.

The Fed has been on a path of monetary tightening as it continues its fight against inflation, and it was expected to raise rates by another 0.25 percentage points at its upcoming policy meeting March 21-22. But bank failures, like the fall of Silicon Valley Bank, have put immediate tightening on a possible halt.
…
“We expect the FOMC (Federal Open Market Committee) to pause at its March meeting this week because of stress in the banking system,” Goldman economists, led by Jan Hatzius, said in a analysis.

“While policymakers have responded aggressively to shore up the financial system, markets appear to be less than fully convinced that efforts to support small and midsize banks will prove sufficient.”
…
Goldman economists argued that not raising rates at the end of this month would only be a “pause” in the fight against inflation, saying the Fed will still be able to reach its long-term goals related to inflation if it does not increase interest rates immediately.

“This would mean taking a pause in the inflation fight, but that should not be such a problem. Bringing inflation back to 2% is a medium-term goal, which the FOMC expects to solve only gradually over the next two years,” the economists said. “The FOMC can get back on track quickly if appropriate, and the banking stress could have disinflationary effects.”

Posted in General | 109 Comments

And then there were 3

Posted on March 20, 2023 by grim

From CNN:

UBS is buying Credit Suisse in bid to halt banking crisis

Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month. 

“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement Sunday. It said the rescue would “secure financial stability and protect the Swiss economy.”

UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday. Owners of $17 billion worth of “additional tier one” bonds — a riskier class of bank debt — will lose everything, Swiss regulators said.

Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.

Credit Suisse (CS) had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

Shares in the 167-year-old bank fell 25% over the week, money poured from investment funds it manages and at one point account holders were withdrawing deposits of more than $10 billion per day, the Financial Times reported. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding. 

But it did “build a bridge” to the weekend, to allow the rescue to be pieced together, Swiss officials said Sunday night. 

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.

“It is absolutely essential to the financial structure of Switzerland and … to global finance,” he told reporters.

Posted in Crisis | 53 Comments

Pandemic boomtowns get crushed

Posted on March 18, 2023 by grim

From the Real Deal:

US home prices drop annually for first time in 12 years

How long has it been since the median U.S home price fell year-over-year?

Hint: Gotye’s “Somebody That I Used to Know” was the top song, Superstorm Sandy caused more than $60 billion in damage and mass shootings in Connecticut and Colorado traumatized America.

The answer is 2012 — or was, until last month, when the median sale price dropped 1 percent from February 2022 to $386,700, according to Redfin.

“Buyers are struggling because higher interest rates have increased the cost of homeownership, and sellers are struggling because they’re still adjusting to the fact that their home won’t sell for what their neighbor’s did a year ago,” Redfin agent Andrew Vallejo said in a press release.
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Austin’s price plunge can be explained by a nation-leading increase in supply, as active listings in the Texas tech hub were 79 percent more numerous last month than they were a year before. Nashville (up 72 percent), Fort Worth (69 percent) and Tampa (63 percent) also had big inventory jumps.
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The number of sales in February fell 44 percent in Miami from a year earlier, more than in any other metro area that Redfin analyzed. New York was second worst with a 40 percent drop, followed by San Jose and Baton Rouge at 38%, and Long Island at 37.

The smallest drops in closed sales were in Dallas (-1 percent), Richmond (-8 percent) and Fort Worth (-10 percent).

The price and sales data are a lagging indicator, as they reflect contracts largely signed in December and January.

Redfin noted that the biggest drops in prices and sales were inexpensive coastal markets and pandemic boomtowns. They were the most stable in affordable areas; Pittsburgh, Oklahoma City and Cleveland. 

Posted in Economics, Housing Bubble, National Real Estate | 77 Comments

Can’t buy? Just rent!

Posted on March 17, 2023 by grim

From the NY Post – Hat Tip ChiFi:

North Jersey beats out NYC for the hottest rental market in the US

As interest rates remain high to combat languishing inflation, warding off potential home buyers, the rental market has been very competitive. 

And while New York City’s Manhattan and Brooklyn boroughs have seen the biggest leaps in competitiveness, neighboring North Jersey is now considered the most aggressive market for renters in the nation, according to a new study. 

Data from RentCafe’s newest Rental Competitivity Report shows that North New Jersey — which makes up Bergen, Essex, Hudson and Passaic counties in the city suburbs — earned the top spot for rental demand.

The study found that those North Jersey areas — which comprise Jersey City, Hoboken, East Orange and Hackensack — are twice as competitive as Manhattan due to a drastic housing shortage.

Specifically, an influx of renters is pushing occupancy close to 97%.

Posted in Demographics, Economics, New Jersey Real Estate | 93 Comments

NJ – The Independent State

Posted on March 16, 2023 by grim

From WalletHub:

2023’s Most & Least Federally Dependent States

RankStateTotal ScoreState Residents’ DependencyState Government’s Dependency
1Alaska83.1832
2West Virginia76.0219
3Mississippi71.3175
4Kentucky70.95510
5New Mexico69.73217
6Wyoming64.23241
7South Carolina59.86627
8Arizona58.86136
9Montana57.77147
10Louisiana57.46223
11North Dakota55.91435
12Indiana55.34919
13Maine54.251112
14Alabama53.481016
15South Dakota52.22294
16Vermont50.131911
17Missouri44.13288
18Oklahoma41.601531
19Pennsylvania41.102022
20Idaho40.572315
21Rhode Island39.653113
22Tennessee37.942618
23New Hampshire37.394114
24Maryland36.361636
25Michigan34.672724
26Hawaii33.25850
27Oregon33.232530
28Arkansas33.184020
29Texas32.713921
30Minnesota32.291742
31Connecticut30.451844
32Virginia30.381246
33Georgia30.303528
34Florida30.203032
35Ohio29.124623
36Nebraska29.054226
37North Carolina28.433733
38Wisconsin27.892140
39New York27.274429
40Colorado25.183634
41Nevada23.453837
42Delaware22.235025
43Iowa19.283243
44Massachusetts17.324838
45California17.274541
46Illinois17.054739
47Kansas15.703447
48Utah14.963348
49Washington14.634345
50New Jersey8.414949
Posted in Economics, Politics | 124 Comments

Post Pandemic Job Recovery

Posted on March 15, 2023 by grim

From the State of NJ:

Updated Labor Data: New Jersey Experienced Higher Employment Growth Over Past 2 Years Than First Reported

TRENTON – The state’s job market performed better than initially estimated over the past two years, with 34,000 additional jobs gained, according to updated data from the Bureau of Labor Statistics (BLS). The information also shows the Garden State’s employment recovery from the pandemic occurred months earlier than first reported.
…

The BLS’s benchmark process, a required annual review and adjustment of previously released employment data at the state and metropolitan area levels, adjusts monthly, sample-based survey estimates to full-universe counts of employment, primarily derived from records of the unemployment insurance tax system.

The annual benchmarking adjustments indicate that the over-the-year (Dec. 2021 – Dec. 2022) change in total nonfarm jobs was revised to a gain of 129,700, a smaller increase from the previously reported gain of 148,900. However, including higher revisions made for 2021, the two-year job gain now stands at 395,300 – 34,000 more jobs than originally estimated.

Benchmarked data also revised employment losses due to the pandemic. The revisions show that in March and April 2020, New Jersey lost a total of 730,200 nonfarm jobs, or 17.3 percent of the state’s nonfarm employment total in February 2020. Previous estimates had shown 732,600 jobs lost. Revisions also indicate the total nonfarm employment recovery back to February 2020 levels occurred earlier than previously estimated. The payroll gain was fully realized in April 2022 – rather than in August 2022.

The revised data show that over the December 2021 – December 2022 period, all nine major private industry sectors added to their payrolls. The year-over-year gains were led by education and health services (+41,400), trade, transportation, and utilities (+29,200), leisure and hospitality (+26,900), other services (+9,300), professional and business services (+7,100), manufacturing (+6,700), information (+4,700), financial activities (+2,400), and construction (+1,800). Public sector employment was essentially flat, recording a year-over-year gain of just 100 jobs.

Labor force estimates for New Jersey residents were also revised. The average annual unemployment rate was 3.7 percent for 2022, a decline from 6.6 percent in 2021, and just one-tenth of a percentage point above the 2022 national rate of 3.6 percent. 

Posted in Economics, Employment, New Jersey Real Estate | 114 Comments

Mortgage rates drop

Posted on March 14, 2023 by grim

From CNBC:

Mortgage rates tumble in the wake of bank failures

The average rate on the popular 30-year fixed mortgage dropped to 6.57% on Monday, according to Mortgage News Daily. That’s down from a rate of 6.76% on Friday and a recent high of 7.05% last Wednesday.

Mortgage rates loosely follow the yield on the 10-year Treasury, which fell to a one-month low in response to the failures of Silicon Valley Bank and Signature Bank and the ensuing ripple through the nation’s banking sector.

In real terms, for a buyer looking at a $500,000 home with a 20% down payment on a 30-year fixed mortgage, the monthly payment this week is $128 less than it was just last week. It is still, however, higher than it was in January.

So what does this mean for the spring housing market?

In October, rates surged over 7%, and that started the real slowdown in home sales. But rates then started falling in December and were near 6% by the end of January. That caused a surprising 8% monthly jump in pending home sales,which is the National Association of Realtors’ measure of signed contracts on existing homes. Sales of newly built homes, which the Census Bureau measures by signed contracts, also surged far higher than expected.

While the numbers for February are not in yet, anecdotally, agents and builders have said sales took a big step back in February as rates shot higher. So if rates continue to drop now, buyers could return once again — but that’s a big “if.”

Posted in Economics, Housing Recovery, Mortgages, National Real Estate | 115 Comments

The bailout that’s not a bailout…

Posted on March 13, 2023 by grim

From CNBC:

Bill Ackman says U.S. did the ‘right thing’ in protecting SVB depositors. Not everyone agrees

Billionaire investor Bill Ackman said the U.S. government’s action to protect depositors after the implosion of Silicon Valley Bank is “not a bailout” and helps restore confidence in the banking system.

In his latest tweet on SVB’s collapse, the hedge fund investor said the U.S. government did the “right thing.”

“This was not a bailout in any form. The people who screwed up will bear the consequences,” wrote the CEO of Pershing Square. “Importantly, our gov’t has sent a message that depositors can trust the banking system.”

Ackman’s comments came after banking regulators announced plans over the weekend to backstop depositors with money at Silicon Valley Bank, which was shut down on Friday after a bank run.

“Without this confidence, we are left with three or possibly four too-big-to-fail banks where the taxpayer is explicitly on the hook, and our national system of community and regional banks is toast,” Ackman added.

Ackman further explained that in this incident, shareholders and bondholders of the banks will be mainly the ones affected, and the losses will be absorbed by the Federal Deposit Insurance Corporation’s (FDIC) insurance fund.

This is in contrast to the great financial crisis in 2007-2008, where the U.S. government injected taxpayers’ money in the form of preferred stock into banks, and bondholders were protected.

Posted in Economics, Politics, Risky Lending | 155 Comments

The old NAR is back..

Posted on March 12, 2023 by grim

From Insider:

A top real estate economist explains why a housing rebound is coming as rising sales and lack of supply look poised to lift home prices

While some experts have warned of an impending US housing crash, Nadia Evangelou, senior economist and director of research at the National Association of Realtors, anticipates the opposite.

Home prices and sales will dip this year, but she anticipates a rebound in 2024 with sales rising and limited supplies sparking price gains.

“It seems that home sales activity has bottomed out, and 2023 will be the turning point for the housing market,” Evangelou told Insider. “We don’t expect any housing crash.”

In fact, some indicators are already turning positive. The NAR’s pending home sales index has ticked higher for two consecutive months and saw its largest monthly increase since June 2020.
…
The real estate economist said the US continues to suffer from a severe housing shortage, which has persisted for over a decade coming out of the Great Financial Crisis. 

“Back in 2008, we had an oversupply of homes by like 4 million, but now we have less than 1 million,” Evangelou said. “And this is the main factor that keeps home prices from falling.”
…

On the demand side, she said it will stay elevated, helped by the robust labor market. So even though there are relatively few buyers now amid low inventory, housing demand continues to outpace supply, Evangelou said.

While higher interest rate expectations are weighing on homebuying activity, Evangelou anticipates the trend to ease in the latter half of this year.

NAR forecasts that there could be up to an 11% drop in home sales this year. Then in 2024, activity could jump by about 18%, she said. 

Similarly, home prices should drop about 2% this year, then rise about 3% to 4% next year, she added. That’s much more upbeat than other forecasts.

Posted in Economics, Housing Bubble, National Real Estate | 82 Comments

Suck it up

Posted on March 10, 2023 by grim

From the Record:

Is $500K the new $300K? What you’ll pay for a starter home in North Jersey

Newlyweds Joseph and Cheryl Petta just wanted to buy their first home in North Jersey.

It was a disheartening year and a half of house-hunting. Rockaway, West Milford, Midland Park, Wharton. They looked everywhere.

“We’ve looked close to 50, maybe more houses, and we made a couple offers on a couple houses, and we’ve gotten blown out of the water every time,” said Joseph Petta. “Not even considered.”

The Pettas budget is in the $400,000 range, and with uncertainty about how a recession could affect housing prices, they’re hesitant to go too far beyond that.

They may get shut out. Peruse Zillow, and you’d be hard-pressed to find a starter home listed below $500,000. 

It’s the new trend: $500,000 is the new $300,000 — what was once the typical asking price for a starter home before the COVID-19 pandemic. 

“This is definitely happening over the years, and obviously with Covid, back in 2020, when prices just skyrocketed,” said Andrew Gangi, a Woodcliff Lake realtor that serves the Pascack Valley region. “It just raised the prices of everything.” 

Added Steven Pescatore, a Wayne realtor, “it’s a lot harder for young people to get a starter home. Even if they’re looking for a condo, there’s not really a lot available. It used to be you get a nice condo for $150,000, $200,000, now it’s $350,000, $400,000.” 

Posted in Demographics, Economics, Housing Bubble, New Jersey Real Estate | 197 Comments

Welcome to the Top 10

Posted on March 9, 2023 by grim

From CoreLogic:

US Home Price Insights – March 2023

January 2023 National Home Prices

Home prices nationwide, including distressed sales, increased year over year by 5.5% in January 2023 compared with January 2022. On a month-over-month basis, home prices declined by 0.2% in January  2023 compared with December 2022 (revisions with public records data are standard, and to ensure accuracy, CoreLogic incorporates the newly released public data to provide updated results).

Forecast Prices Nationally

The CoreLogic HPI Forecast indicates that home prices will decrease on a month-over-month basis  by 0.1% from January 2023 to February 2023 and increase on a year-over-year basis by 3.1% from January 2023 to January 2024.

Home Prices Decline in Three Western States and Washington, D.C. From January 2022

U.S. home prices continued their gradual free fall in January, with the 5.5% annual gain down for the ninth straight month and the lowest recorded since June 2020. Deceleration was particularly noticeable in the Western U.S. and other states and metro areas that saw substantial appreciation over the past few years. Three Northwestern states (along with Washington, D.C.) posted at least slight annual declines as migration patterns that began during the pandemic shifted, slowing demand and driving price decreases.

Posted in Economics, Housing Bubble, National Real Estate, New Jersey Real Estate | 110 Comments

Will we see 8?

Posted on March 8, 2023 by grim

From Mortgage News Daily:

Mortgage Rates Head Back Over 7% After Powell Testimony

Jerome Powell is the Chair of the Federal Reserve–the entity that sets overnight lending rates in an attempt to keep inflation in a low, stable range.  Inflation has been anything but low and stable recently, so the Fed has hiked overnight rates at the fastest pace in 40 years.

Mortgage rates have also risen at the fastest pace in 40 years, but they are not directly dictated by the Fed.  Rather, the Fed’s direct influence on overnight rates spills over to the rest of the rate market.  The longer the duration of any given borrowing term, the less connected the interest rate may be to the Fed Funds Rate.

Moreover, the market adjusts expectations for the Fed Funds Rate constantly whereas the Fed only officially hikes/cuts 8 times a year.  When the Fed meets again in 2 weeks, they will certainly be hiking rates again.  The only question is “by how much?” 

Markets had been steadfast in their expectations for a 0.25% hike, which is viewed as the minimum increment for a rate change from the Fed.  With some recent data indicating plenty of economic resilience and persistent inflationary pressures, calls have increased for a 0.50% hike.  

In a scheduled testimony before the Senate Banking Committee today, Fed Chair Powell stopped short of specifying a number for the next rate hike, but commented qualitatively on the need to hike faster/more than previously expected.  Markets consequently upped the odds for a bigger hike in 2 weeks as well as a higher ceiling expected by the end of 2023.

Again, the Fed Funds Rate doesn’t directly dictate mortgage rates, but there was a bit of spillover as market expectations shifted in the direction of “higher for longer.”  The average mortgage lender was already close to 7% for a top tier conventional conforming 30yr fixed scenario, and today’s weakness was enough to officially push us up into the low 7’s.

Posted in Economics, Housing Bubble, Mortgages, National Real Estate | 136 Comments

NJ Economic Outlook

Posted on March 7, 2023 by grim

From Charles Steindel at the Steve Sweeny Center for Public Policy at Rowan:

Multi-Year Budget Workgroup: New Jersey Economic Outlook

New Jersey’s economy did well in 2022, setting new highs in jobs, output, and income, generally matching or exceeding growth in neighboring states, and keeping pace with the national expansion. However, the widespread expectation is that the national economy could fall into a recession in the near future, reflecting the interest rate hikes the Federal Reserve has generated to bring down price inflation. In this environment New Jersey’s economy will face headwinds. If, as is widely expected, any recession would be relatively modest and short, New Jersey should start to recover in 2024. Nevertheless, ongoing corrections in the equity and housing markets will weigh upon many New Jersey residents and impact state revenues for some time.
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Preliminary numbers show that the number of jobs in New Jersey hit a new record high in August 2022, and kept growing through the end of the year (the job figures for 2022 are still subject to the regular annual “benchmark” revision, which will be released in March. It is now anticipated that the current numbers are underestimates). The recovery from the pandemic collapse has been remarkable: New Jersey saw a drop in jobs in early 2020 that was notably larger than the national average, but has since experienced larger than average gains. The state’s job count grew 3.6% from December 2021 to December 2022, higher than the national gain of 3.0%, as well as New York’s 3.1%, and a touch better than Pennsylvania’s 3.5%.
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The data on state output and income reinforce the good news we have received on the labor front. The first three quarters of 2022 saw New Jersey set new records for the dollar value of state Gross Domestic Product (GDP), and the first and third quarters set new records for “real” (inflation-adjusted) GDP. The dollar value of GDP is of particular importance since its long-term growth is, to a rough approximation, a plausible proxy for the growth of the revenue base for both state and local governments.
….
New Jersey will not be immune from a recession. At the least, the state’s huge logistics sector will be hurt by a softening in demand for goods shipped to the Port of New York and New Jersey. New York City has experienced a subpar recovery, due to ongoing softness in the financial and tourism sectors, which are vulnerable to a national downturn. Weakness in the Big Apple will have some spillovers to New Jersey, in areas such as retail sales and real estate. As mentioned, there is also some potential for a ramp-up in foreclosures. Given a mild recession we expect a modest loss of jobs in 2023, and an uptick in the unemployment rate.

The recovery from the recession is also expected to be fairly sluggish: while the Fed might bring interest rates down substantively, given the current partisan gridlock in D.C., along with concerns over the level of federal debt, there is little likelihood of much cyclical relief on the tax or spending fronts. It was a hopeful sign that numbers of major economic indicators in New Jersey actually grew better than the national average, but in looking ahead it would be better to assume that the longer-term trend of slower growth here continues.

In this environment, not only will income and spending growth slow, but so will real estate transactions (in number and dollar values), as well as capital gains realizations. All these factors will work to hold down revenues. A return to growth in 2024 will ease the situation, but as we saw in the last decade, it will take some time before revenues again grow robustly.

Posted in Demographics, Economics, Employment, New Jersey Real Estate | 90 Comments

Finally, prices fall…

Posted on March 4, 2023 by grim

From the NY Post:

US home prices just did something they haven’t done since 2012

US home prices in February posted their first year-over-year decline in more than a decade as surging mortgage rates put the squeeze on the market.

The average US home sold for $350,246 for the four weeks ending on Feb. 26, according to an analysis by real estate firm Redfin this week. The sale price plunged by 0.6% compared to the same month one year ago — the first annual decline since February 2012.

“Prices falling from a year ago is a milestone because it hasn’t happened since the housing market was recovering from the 2008 subprime mortgage crisis,” Redfin deputy chief economist Taylor Marr said in a statement.

“Home prices skyrocketed so much over the last few years that they were likely to come down once rates rose from historic lows,” Marr added.
…
The largest price declines were in “pandemic homebuying hotspots,” the firm said. 

Austin, Texas, posted the largest year-over-year decline of 11%.

Posted in Economics, Employment, Housing Bubble, Mortgages, National Real Estate | 55 Comments

Back to 7%

Posted on March 3, 2023 by grim

From CNBC:

Mortgage rates jump back over 7% as inflation fears drive yields higher

The average rate on the 30-year fixed mortgage jumped back over 7% on Thursday, rising to 7.1%, according to Mortgage News Daily.

Growing fears that inflation is not cooling off are pushing bond yields higher.Mortgage rates loosely follow the yield on the U.S. 10-year Treasury.

“Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly. This is scary considering this week’s data is insignificant compared to several upcoming reports,” said Matthew Graham, chief operating officer at Mortgage News Daily.

Rates went over 7% last October. That was the highest level in more than 20 years. But they pulled back in the following months, as inflation appeared to be easing. By mid-January rates were touching 6%, spurring a big jump in buyers signing contracts on existing homes.

So-called pending home sales rose an unexpectedly strong 8% from December, according to the National Association of Realtors. But the past four weeks have been rough. Rates have moved 100 basis points higher since the start of February.

For a buyer purchasing a $400,000 home with 20% down on a 30-year fixed loan, the monthly payment, including principal and interest, is now roughly $230 a month more than it would have been a month ago. Compared with a year ago, when rates were in the 4% range, today’s monthly payment is about 50% higher.

As a result, mortgage applications from homebuyers have been falling for the past month and last week hit a 28-year low, according to the Mortgage Bankers Association.

“The recent jump in mortgage rates has led to a retreat in purchase applications, with activity down for three straight weeks,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market.”

Posted in Mortgages, National Real Estate | 77 Comments