Spread ’em

Posted on November 15, 2022 by grim

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

Posted on November 14, 2022 by grim

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.
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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

Posted on November 13, 2022 by grim

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.
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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

That was fast…

Posted on November 11, 2022 by grim

From CNBC:

Mortgage rates fall sharply to under 7% after inflation eases

Mortgage rates fell sharply Thursday after a government report showed that inflation had cooled in October, prompting a decline in bond yields.

The average rate on the 30-year fixed plunged 60 basis points from 7.22% to 6.62%, according to Mortgage News Daily. That matches the record drop at the start of the Covid 19 pandemic. The rate, however, is still more than double what it was at the start of this year.
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The Consumer Price Index rose in October at a slower pace than expected. As a result, bond yields dropped sharply, and mortgage rates followed, as they follow loosely the yield on the 10-year Treasury.

So what happens next?

“This is the best argument to date that rates are done rising, but confirmation requires next month’s CPI to tell the same story,” said Matthew Graham, chief operating officer of Mortgage News Daily. “This was always about needing two consecutive reports of this nature combined with acknowledgement from the Fed that the inflation narrative is shifting.”

But Graham said rates are not out of the woods yet. They are also unlikely to move dramatically lower, as there is still plenty of economic uncertainty both in U.S. and global financial markets.

Posted in Economics, Housing Bubble, Mortgages, National Real Estate | 75 Comments

Not a good time to buy a home…

Posted on November 10, 2022 by grim

From CNBC:

Consumer confidence in the housing market hits a new low, according to Fannie Mae

Rising mortgage rates, high home prices and uncertainty in the overall economy have Americans feeling more pessimistic about the state of the housing market.

In October, just 16% of consumers said they thought now is a good time to buy a home, according to a monthly survey by Fannie Mae. That is the lowest share since the survey began in 2011. The share of respondents who thought now is a good time to sell a home also dropped from 59% to 51%.

Fannie Mae’s survey looks not just at buying and selling but tests sentiment about home prices, mortgage rates and the job market. It combines them all into one number, which also fell for the eighth straight month and now sits at a new low.

A higher share of consumers, 37%, said they expect home prices to drop in the next 12 months. That compares with 35% in September. More also believe mortgage rates will rise.

Posted in Economics, Housing Bubble, National Real Estate, Where's the Beef? | 129 Comments

Mid-terms 2022!

Posted on November 8, 2022 by grim

From the Star Ledger:

Everything you need to know about N.J. midterm elections Tuesday, including all House races

Get ready, New Jersey. Tuesday is Election Day in the 2022 midterm elections, with all 12 of the state’s seats in the U.S. House of Representatives up for grabs.

Republicans are aiming to gain back control of Congress from Democrats two years into President Joe Biden’s first term. And New Jersey could play a key role, with at least one of its House races — the 7th District showdown between Democratic incumbent Tom Malinowski and Republican challenger Tom Kean Jr. — among the most closely watched in the nation. Democrats are also seeking to keep Republicans from retaking a few other New Jersey House seats that flipped blue over the last decade.

Plus, there are two special races for seats in the New Jersey Legislature, a series of increasingly bitter school board races, and a number of other local elections throughout the Garden State.

Posted in Politics | 248 Comments

Nobody positive about NJ housing

Posted on November 7, 2022 by grim

From NJ1015:

As interest rates rise, the NJ real estate market’s new twist

Interest rates have already been raised several times this year by the Federal Reserve but what’s expected to be another big hike on Wednesday will push the cost of getting a home mortgage in New Jersey even higher.

As a result, Jeff Otteau, the founder of the Otteau Group Real Estate Valuation and Consulting Co. in Matawan, and managing broker at Hudson Atlantic Realty, said the housing market in New Jersey continues to unravel.

He said over the past two years, home prices in the Garden State have increased about 35% while interest rates have increased 4.5%, making homeownership 75% more expensive — “and that’s just too much.”
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Otteau said more and more homes are sitting unsold on the market and sellers are no longer calling the shots.

“That script has now flipped to the point that we are transitioning into a buyer’s market, where the buyer has more control over negotiations and is likely to offer less than asking price in order to secure a home,” he said.

He said for the rest of this year into the first part of 2023 we can expect to see interest rates go even higher.

“We’ve gone from August of last year with a 2.7% 30-year fixed rate mortgage to more than 7% today, we’ll see very sluggish home sales,” he predicted.

Otteau said it’s likely as interest rates keep climbing home prices will actually begin to decline, but “we’re not expecting it to be a large drop in home prices, we are calling for about a 10% drop in the value of homes in New Jersey over the next couple of years.”

Posted in Economics, Mortgages, New Jersey Real Estate | 51 Comments

“People are in wait-and-see mode, because the numbers don’t work out” 

Posted on November 5, 2022 by grim

From the NYT:

The Housing Market Is Worse Than You Think

Everyone is feeling the squeeze.

“Mortgage rates are sky high, prices are sky high, and there’s no inventory,” said Mark Zandi, the chief economist at Moody’s Analytics. “This may be the worst time in my living history for the home buyer — it just doesn’t make sense.”

Mortgage rates recently broke 7 percent, the highest since 2002, and more than double what most borrowers paid near the start of the pandemic.

Between soaring prices and rising rates, the typical home buyer in October paid 77 percent more on their loan, per month, than they would have last year, according to Realtor.com. With a national median asking price of $425,000 and a 10 percent down payment, that works out to an additional $1,117 every month.

Home contract signings fell for the fourth straight month in September, down 31 percent, compared with September 2021, according to the National Association of Realtors. The same month, search interest in the phrase “U.S. Housing Bubble” reached a 15-year high, according to Google trends data. The searches were most popular in Idaho, where the median home price in Boise was $549,900 — an eye-popping 51 percent increase since September 2019, according to Realtor.com.

The days of record-low mortgage rates are over, but juiced-up home prices have not fallen in kind. And sales are stalling, as both buyers and sellers wait for the other shoe to drop.

Posted in Economics, Housing Bubble, Mortgages, National Real Estate | 26 Comments

Fed Hates Housing

Posted on November 3, 2022 by grim

From Forbes:

Fed Chair Calls Housing Market “Very Overheated”

Jerome Powell said he viewed the U.S. housing market as “very overheated” after the pandemic, and believes supply and demand need to get back into balance. 

Powell spoke at a press conference on November 2 as the U.S. Federal Reserve Committee, which Powell chairs, raised rates 0.75 percentage points to fight surging U.S. inflation. That could raise mortgage costs further, after they have already risen substantially in 2022. Powell’s actions and comments were not positive for housing.

Powell doesn’t see parallels to the great financial crisis because lending and credit standards for mortgages are now much higher in the Fed’s view than during the financial crisis, so Powell believes fallout from a weaker housing market for the broader economy market may be lower. 

Powell made clear that his main concern is managing inflation, and if anything, rather than looking to support asset valuations such as housing, stocks and bonds, Powell is far more focused on driving inflation lower. There’s not much evidence of the ‘Fed put’ today, which is the market term for how the Fed would step in and perhaps look to cut rates if stock valuations fell sharply. That may be bad news for housing too.

Powell may believe that lower asset valuations may be part of the solution to lower inflation currently, rather than a problem the Fed is seeking to remedy. 

Given that rates may rise higher still over the coming months, that is not necessarily good news for the housing markets. We should note of course that future rate expectations are typically embedded in mortgage costs, so the Fed raising rates in line with market forecasts won’t necessarily cause longer term mortgage rates to correspondingly rise too much.
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Based on today’s comments the chance of the Fed supporting the housing market appear low compared to the priority of fighting inflation. If anything, the Fed may actually be looking for house prices come down. This is because housing costs are a large portion of the inflation index which the Fed wants to tame. Lower house prices may be what the Fed needs for lower levels of U.S. inflation.

Posted in Economics, Housing Bubble, Mortgages, National Real Estate | 214 Comments

Word of the day: Reshoring

Posted on November 2, 2022 by grim

From FreightWaves:

North America’s reshoring of the global supply chain

With manufacturing and labor markets on the decline with North America’s traditional partners in Asia — and with trade with Russia collapsing — North America is in prime position to take advantage by reshoring global sourcing.

“For the most part we can keep this in America — or at least North America,” said geopolitical strategist Peter Zeihan during the opening keynote Tuesday at FreightWaves’ F3: Future of Freight Festival in Chattanooga, Tennessee.

Zeihan is the author of the recently published book “The End of the World is Just the Beginning: Mapping the Collapse of Globalization.”

He said one of the keys to boosting U.S. trade will be reforming the Jones Act, a century-old trade protection law that Zeihan contends boosts transport costs.

“This would help the country bring manufacturing back on the water in a very big way,” he said. “Mexico is now ahead of Canada from a labor productivity measure, which means that Mexico now needs a low-wage partner. Colombia and Cuba are the obvious candidates. It’s a much simpler system, one that is reliant on things close to home.

“When you want to do a trade deal with Russia or China, it’s a pain. But calling on a country like Colombia, which is kind of desperate and wants to be part of the club, it’s a much easier process and we don’t need to do things at scale to the same degree. A small container ship is fine, you don’t need that massive Triple E container ship.”
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“If at the end of the five-year period we’ve succeeded in building out the industrial plant, we go back to a much tamer system that will be lower for longer, because the supply chains will be local, the processing will be local and we’ll be following our own labor metrics, which will have evolved because we will have had to do a lot more with artificial intelligence and automation than we currently have, especially as we bring in electronics manufacturing — we will have a choice.

“But if we fail to do that, then the 9% to 15% inflation continues and there are product shortages. From my standpoint, it’s a really clear path. The alternative is to go through the worst of it and get none of the benefits.”

For companies looking to survive in the new North American supply chain, “anything that makes you more modular and more capable and allows you to adapt more quickly is something I think that can provide an outsized advantage,” Zeihan said.

“We’re going to have fewer supply chain steps closer to home, and the competitive nature to that is going to be very different from just waiting for things to show up at the dock. We’re going to have the need to do everything that is currently done in Asia but in fewer steps and right in our own world.

Posted in Economics, Employment, National Real Estate | 75 Comments

Ready … Set … HIKE!

Posted on November 1, 2022 by grim

From CNBC:

Another interest rate hike from the Federal Reserve is on the way: Here’s how it may affect you

This week, the Federal Reserve will likely raise rates for the sixth consecutive time to combat inflation, which is still running at its fastest pace in nearly 40 years. 

The U.S. central bank has already hiked its benchmark short-term rate 3 percentage points since March, including three straight 0.75 percentage point increases ahead of its upcoming policy meeting. 

“The impact of what’s been done isn’t fully reflected yet,” said Chester Spatt, professor of finance at Carnegie Mellon University’s Tepper School of Business and former chief economist of the Securities and Exchange Commission. “Inflation hasn’t come down much so far, in part because these policies take a while to kick in,” he said.

In the meantime, “the impacts on the consumer have created potentially difficult economic circumstances and are likely to get considerably worse as we get more of these rate hikes kicking in,” he added.

The next rate hike, which is widely expected to be the fourth straight 0.75 percentage point increase, will correspond with another rise in the prime rate and immediately send financing costs higher for many types of consumer loans.

“The cumulative effect of rate hikes is what is really going to have an impact on the economy and household budgets,” said Greg McBride, Bankrate.com’s chief financial analyst.

Posted in Economics, Mortgages, National Real Estate | 50 Comments

Moody’s not optimistic about housing

Posted on October 31, 2022 by grim

From MSN:

14 Markets Where Home Prices Could Plummet by 30%

The outlook for the nation’s housing market keeps deteriorating.

Earlier this year, Mark Zandi, Moody’s Analytics chief economist, told Fortune that several of the most overheated housing markets in the U.S. could see price declines of up to 5% within 12 months.

Moody’s subsequently revised its forecast downward, expecting many markets to see dips of between 5% and 10% within a year.

Now, Moody’s has revised its forecast yet again and shared it with Fortune. In all, 210 of around 400 of the largest regional U.S. housing markets were overvalued by more than 25% during the second quarter of 2022, Moody’s says.

Zandi tells Fortune that these markets can expect to see price declines of 15% to 30%, depending on the economy. According to Fortune:

“In ‘significantly overvalued’ housing markets, Moody’s Analytics now forecasts that home prices will fall between 15% to 20%. If a recession hits, Moody’s Analytics expects that U.S. home price decline to widen to between 25% to 30% in ‘significantly overvalued’ housing markets.”

By comparison, U.S. home prices declined 27% between 2006 and 2012.

In other words, what once looked like a minor housing price correction might end up rivaling the decline that triggered the Great Recession.

A handful of markets are overvalued by more than 60%, putting them at even greater risk of a correction. Following are the markets that are most overvalued and therefore most at risk for a big price decline, according to Moody’s.

Posted in Economics, Housing Bubble, National Real Estate | 92 Comments

What happened to no bubble?

Posted on October 30, 2022 by grim

From CNBC:

Pending home sales fell 10% in September, much worse than expected

Pending home sales, a measure of signed contracts on existing homes, dropped a much worse-than-expected 10.2% in September from August, according to the National Association of Realtors.

Economists had predicted a 4% decline. Sales were down 31% year over year.

This marks the lowest level on the pending sales index since June 2010, excluding April 2020, when the Covid pandemic was in its early days.

Realtors point squarely to sharply higher mortgage rates, which had sat at record lows for the first two years of the pandemic. The average rate on the popular 30-year fixed mortgage was right around 3% at the start of this year, but then rose swiftly, crossing 6% in June, according to Mortgage News Daily. It pulled back a bit in July and August, but then began rising again, crossing 7% in September, when these contracts were signed.
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Regionally, pending home sales dropped 16.2% month to month in the Northeast and were down 30.1% year over year. In the Midwest, sales were down 8.8% for the month and 26.7% from one year ago.

In the South, sales retreated 8.1% for the month and were down 30.0% year over year, and in the West, the most expensive region in the nation, sales fell 11.7% for the month and were down 38.7% from the year before. 

Posted in Economics, Housing Bubble, National Real Estate | 16 Comments

Why the delta?

Posted on October 28, 2022 by grim

From Slate:

The Reason Home Prices Are Finally Dropping

National averages mask significant variation at the metropolitan level.

Every one of California’s major cities—including Los Angeles, San Diego, and the Bay Area, some of the most expensive real estate markets in the country—has seen dramatic price declines over the last four months. Other Western and Southwestern cities, including Austin, Phoenix, Las Vegas, Portland, and Seattle, have also seen big drops.

At the other extreme, a number of Southern cities—especially in Florida—continued to enjoy substantial home price gains over the last four months. The Northeast and Midwest were somewhere in the middle, with Chicagoland homes losing 0.5 percent over the last four months and homes in the New York area gaining 0.7 percent.

While the regional pattern is clear, it’s not obvious why things are breaking down this way. Experts I talked to offered several possible explanations, but I didn’t find any of them fully convincing.
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Two factors are significant here. First, Eastern cities tend to have older housing stock, which means more opportunity to expand the supply of housing by renovating or replacing older homes. Western cities lack this safety valve, and as a result they tend to see bigger booms when demand is strong, followed by sharper price declines when demand weakens.

Tech workers seem to have been particularly successful at resisting employer pressure to return to a physical office. Perhaps as tech workers realized they could work remotely indefinitely, they began to doubt whether it made sense to pay a big premium to live physically close to their employers.

Fortune housing reporter Lance Lambert suggested to me another possible tech connection: The falling values of many tech stocks could be reducing the amount of cash sloshing around West Coast housing markets.

There’s an obvious partisan ax someone could grind here: Most of the biggest losers are blue cities in blue states, while the winners are mostly smaller cities in red states. Maybe blue-state policies on COVID, crime, or something else are making those states less attractive places to live.

But I don’t think this withstands close scrutiny. Most obviously, Salt Lake City has seen faster home price declines than most other cities, and Utah isn’t a blue state. Las Vegas and Phoenix are located in swing states. On the flip side, home prices in New York City have held up better than those in Dallas, Houston, or Atlanta.

Posted in Housing Bubble, National Real Estate, New Jersey Real Estate, NYC | 83 Comments

Here we gooooooo!

Posted on October 27, 2022 by grim

From CNBC:

Home prices cooled at a record pace in August, S&P Case-Shiller says

Home prices are still higher than they were a year ago, but gains are shrinking at the fastest pace on record, according to one key metric, as the housing market struggles under sharply higher interest rates.

Prices in August were 13% higher nationally compared with August 2021, according to the S&P CoreLogic Case-Shiller Home Price Index. That is down from a 15.6% annual gain in the previous month. The 2.6% difference in those monthly comparisons is the largest in the history of the index, which was launched in 1987, meaning price gains are decelerating at a record pace.

The 10-city composite, which tracks the biggest housing markets in the United States, rose 12.1% year over year in August, versus a 14.9% gain in July. The 20-city composite, which includes a broader array of metropolitan areas, was up 13.1%, compared with a 16% increase the prior month.

“The forceful deceleration in U.S. housing prices that we noted a month ago continued in our report for August 2022,” wrote Craig Lazzara, managing director at S&P DJI, in a release. “Price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.”

Leading the price gains in August were Miami, Tampa, Florida, and Charlotte, North Carolina, with year-over-year increases of 28.6%, 28% and 21.3%, respectively. All 20 cities reported lower price rises in the year ended in August versus the year ended in July.

The West Coast, which includes some of the costliest housing markets, saw the largest monthly declines, with San Francisco (-4.3%), Seattle (-3.9%) and San Diego (-2.8%) falling the most.

Posted in Housing Bubble, National Real Estate | 79 Comments