Fed raises, mortgage rates flat

Posted on December 15, 2022 by grim

From Mortgage News Daily:

Mortgage Rates Remain Near Recent Lows Despite Fed’s Rate Hike

It’s often said here, but bears repeating: by the time the Fed officially announces a rate hike, that rate hike is old news and of no further consequence to financial market movement.  There are exceptions for times when the hike is bigger or smaller than expected, but in today’s case, everyone knew it would be 0.50%.

Does this mean mortgage rates are 0.50% higher today?  Not even remotely.  In fact, many lenders unchanged compared to yesterday.  A few are even slightly better.  

Simply avoiding any major upward pressure in rates is a victory today.  But why?  If the Fed rate hike wasn’t the threat, then what was there to be concerned about?  

In a word: dots.  

No, not the perennial bottom barrel choice of trick-or-treaters, but rather, the dot plot that the Fed uses to convey its summary of interest rate forecasts from each member.  On days like today when the Fed has very little new to say in a policy announcement, the market prefers to focus on the dots for guidance.

We knew today’s dots would show a few more rate hikes than the last set of dots from September.  The Fed said as much on several occasions in recent speeches.  But reality was perhaps slightly more aggressive than the market’s imagination.  In other words, bonds (which dictate rates) initially weakened after the dots (weaker bonds imply higher rates).  

Fortunately, Fed Chair Powell pushed back against the rising rate sentiment by acknowledging that the dots capture the current moment in time, but that the rate path would shift as soon as inflation was clearly under control.  Making that determination will be a gradual process reserved for a later date, but Powell said the Fed expects inflation to begin falling more convincingly in 2023.

All in all, the market movement was small compared to yesterday’s reaction to the CPI inflation data.  Lenders who had priced more conservatively earlier in the day ended up offering improvements after Powell’s press conference in many cases.  The net effect is a rate landscape that remains right in line with its best levels in several months.

Posted in Economics, Mortgages, National Real Estate | 95 Comments

$14.13

Posted on December 14, 2022 by grim

From the Daily Princetonian:

New Jersey’s minimum wage to increase to $14.13/hour

As of Jan. 1, the statewide minimum wage in New Jersey will increase to $14.13 per hour, according to the New Jersey Department of Labor & Workforce Development. This change marks the latest part of a multi-phase plan to increase the statewide minimum wage to $15 per hour by 2025. This legislation was signed into effect by Gov. Phil Murphy in 2019.

The phased increases have grown at a rate of $1 annually, but this year, inflation was factored in and the wage increase included an extra $0.13.

In January, the legislation boosted wages from $12 to $13. At that time, Murphy said that the policy reflected his office’s efforts to support sustainable wages and build a “stronger and fairer economy” in the state.



Posted in Economics, Employment, New Jersey Real Estate | 87 Comments

Pretty sure this means no recession…

Posted on December 13, 2022 by grim

From Motley Fool:

98% of CEOs Expect a Recession in 12-18 Months

Uncertainty has been one of the few consistent themes of recent years. It’s not surprising given that we’re still navigating the aftermath of what was an unprecedented pandemic. However, uncertainty isn’t good for the economy and it’s one reason so many CEOs think a recession could be in the cards.

Dana Peterson, chief economist at the Conference Board, told CNBC this week that 98% of the CEOs it surveyed are preparing for a recession, up from 95% earlier this year. She explained that Federal Reserve’s interest rate hikes are a major factor.

The Fed is trying to get inflation under control, and one of the tools it has at its disposal is to raise rates. This makes borrowing more expensive, and, in theory, will slow the economy down. But the side effect of that economic slowdown is the increased potential of triggering a recession. And unfortunately there’s a time lag between increasing rates and any corresponding slowdown, so it’s difficult for the Fed to know when it’s done enough.

We’ve seen some of the most aggressive rate hikes in recent U.S. history this year. As a result, CEO confidence is failing and many business leaders are preparing for difficult times. It’s not only CEOs, consumers are concerned as well. “Consumers are starting to worry about their personal finances, they’re hearing bad news about companies, and they’re concerned about their own job prospects,” said Peterson.

Posted in Demographics, Economics, Employment, National Real Estate | 97 Comments

At least you can enjoy the weather

Posted on December 12, 2022 by grim

On behalf of the snow, from the LA Times:

As home prices decline, Southern Californians who bought at the peak are nervous 

Surging mortgage interest rates threatened to squash Michael and Christine Hawkins’ dream of home ownership. But this fall when the couple saw a Canoga Park condo languish on the market, they devised a plan. 

They’d submit a “low ball” offer they could stomach if they cut back on vacations, shopping and eating out. In a year — when interest rates hopefully had dropped — they could refinance and free up their budget. 

Last month, amid a decline in overall home values, the Hawkinses, both in their 30s, closed on the two-bedroom condo for 7% less than asking. But they may be stuck with a high payment for the foreseeable future, because if home prices keep falling, they might not have enough equity to refinance.

“There is not a lot of wiggle room right now [in our budget],” said Michael Hawkins, 37. “I’m happy we did it, but I’m super nervous what is going to happen.” 

For the first time in a decade, Southern California homeowners, and those across the country, are seeing their equity fall en-masse, the result of higher mortgage interest rates that have sapped purchasing power and sent home values down.

Real estate analysts said the loss in equity — which is expected to deepen — could curtail economic growth as people have less to spend on home renovations, pay for emergencies or invest in a business.

The shift in the market is unnerving some recent buyers who told The Times they worry falling prices will trap them in their mortgages and have personal consequences such as tight budgets and delayed retirement.

Posted in Housing Bubble, National Real Estate | 100 Comments

More inventory? Nah.

Posted on December 11, 2022 by grim

From Fox Business:

Housing turnover will drop to lowest rate since the 80s, economist projects

Home sale activity next year may reach the lowest point since the early 1980s as households buying or selling real estate retreat from the market, predicts Redfin deputy chief economist Taylor Marr. 

Marr projected that only 32 out of 1,000 households will sell their home in 2023. 

Affordability in the housing market is likely to “remain a pretty strong constraint” next year even if mortgage rates ease, Marr said.

“Mortgage interest rates have risen rapidly this year … raising the monthly payment by about 50%,” Marr said. “We do expect some moderation in rates to go into next year. But even after accounting for that and the elevated prices overall, affordability is likely to remain a pretty strong constraint.”
…
People who either thought about or were selling their homes “decided they’re going to wait a couple of years until rates are much lower and economic environment is better,” he said. 

Posted in Housing Bubble, National Real Estate | 16 Comments

Why not assumable loans?

Posted on December 9, 2022 by grim

From MarketWatch:

How people bought homes in the 1980s when mortgage rates were 18%

For all the similarities between the 1980s and today, there are key differences. One of them involves “assumable mortgages,” which were plentiful then and are in short supply now.

Many mortgages were assumable at the dawn of the 1980s. With an assumable mortgage, the buyer not only gets ownership of the house but takes over the seller’s home loan, too. Picture yourself trying to buy a house when mortgage rates are in the double digits. You find a home seller who has an assumable loan with an interest rate in the single digits. That home may be affordable if you can take over the loan; it might not be affordable at a double-digit interest rate.

Posted in Economics, Mortgages, National Real Estate, Risky Lending | 166 Comments

Too damn high

Posted on December 8, 2022 by grim

From Bloomberg:

Manhattan renters face sticker shock with average rent at $5,200

Manhattan rents rose 2% in November, dashing hopes that prices would cool and forcing many renters to give up their leases or downsize, according to brokers.

The median rent for a Manhattan apartment in November hit $4,033, up from $3,964 in October, according to a report from Douglas Elliman and Miller Samuel. The average rent, which is often skewed by luxury sales, fell slightly for the month but is still up 19% over last year, hitting $5,249 in November.

The increases continue to defy predictions that New York’s sky high rents would fall after the summer and give renters some relief after rents hit all-time records. While rents are easing in many parts of the country, New York’s rents remain stubbornly high and the number of unrented or empty apartments remains low.

“Rents are not coming down as quickly as many would hope,” said Jonathan Miller, CEO of Miller Samuel.

The rise in New York rents also adds pressure to overall inflation, since rents are a large component of inflation indexes and New York is the nation’s largest rental market.

Manhattan rents are so high that many tenants have started to balk at the prices — either moving out of the city or finding smaller, less expensive rentals. The number of new leases signed in November plunged 39% over October, marking the biggest decline since the start of the pandemic in 2020, according to Miller.

Posted in New Jersey Real Estate, NYC | 22 Comments

The new inflation baseline

Posted on December 6, 2022 by grim

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 | 135 Comments

Kaboom?

Posted on December 4, 2022 by grim

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!

Posted on December 2, 2022 by grim

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

Posted on November 30, 2022 by grim

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

Posted on November 29, 2022 by grim

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

Posted on November 28, 2022 by grim

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

Posted on November 25, 2022 by grim

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…

Posted on November 23, 2022 by grim

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