Chasing the Market

Posted on December 21, 2022 by grim

From Mansion Global:

Inventory in New York City Rose in November, as Did Price Cuts

After nearly three topsy-turvy years, the real estate market in New York City has started to look more like pre-pandemic times, according to a Tuesday report from StreetEasy. 

Rising borrowing costs resulted in home sales in the city dropping 35% in November compared to the same time a year ago, the data showed. In addition, 11.7% of sellers cut their asking prices, up 2.1% from last year. 

“The New York City market is drawing a resemblance to 2019, when rising inventory led to more price cuts and tempered sale prices,” StreetEasy economist Kenny Lee said in the report. 

Indeed, inventory was up 1.7% annually in November, marking the first yearly increase since July 2021. Plus, a typical home took an additional 11 days to sell—75 on average—than it did last year. 

“In the second half of 2021, resurgence in demand driven by record-low mortgage rates drew down available inventory, which intensified competition among buyers in spring 2022,” Mr. Lee continued. “Sales inventory is now rebounding as listings are sitting on the market for longer and more buyers wait on the sidelines.”

In Manhattan, the typical home sold for $1.1 million last month, about 0.5% below its peak in August, the figures showed. At the same time, new listings fell 16.7% year over year and nearly 11% of listings got price cuts. A typical listing with a price cut slashed its asking price by 5.3%l—the highest margin since October 2020, when the market was reeling from the early impacts of the pandemic. 
…
Meanwhile, in Brooklyn, sales were down nearly 35%, and 13% of listings saw price cuts, the figures showed. But there’s still fierce competition for higher priced homes. Inventory fell 8.2% year over year, while sales prices rose 2.5% annually to $695,000.

Posted in Housing Bubble, NYC | 115 Comments

NJ UE 3.4%

Posted on December 20, 2022 by grim

From NJ Business Magazine:

NJ’s Unemployment Rate Remains Steady at 3.4%

The state’s unemployment rate remained steady at 3.4% in November. Employment reached a seasonally adjusted level of 4,257,900, with nonfarm employment increasing by 11,700 jobs for the month on the continued strength of the private sector, which added 11,400 jobs. This is the 31st consecutive month of growth dating back to May 2020, according to preliminary estimates produced by the U.S. Bureau of Labor Statistics.

October employment estimates have been revised downward by 1,300 to a total loss of 2,500 jobs between September and October, yet employment growth was still in positive territory. The unemployment rate was revised lower by one-tenth of a point to 3.4 percent.

In November, six out of nine major private industry sectors recorded job growth. Sectors that recorded employment increases were education and health services (+5,300), professional and business services (+3,700), other services (+2,900), construction (+1,600), trade, transportation and utilities (+1,000), and financial activities (+100). Sectors that recorded a loss were leisure and hospitality (-1,800), information (-800), and manufacturing (-600). The state’s public sector increased by 300 jobs for the month.

From ROINJ:

Numbers game: Jobs are up, unemployment is down – and N.J. ranks ahead of other Northeast states

How the state compares to others in the Northeast may be even more noteworthy.

According to statistics released by the labor department, the state fares well in year-to-year comparisons (based on the latest data, from October):

· New Jersey ranks 1st in year-over-year total nonfarm employment percentage growth in the Northeast at 4.2% (Massachusetts is next at 4.0%, followed by New York at 3.5%);

· New Jersey ranks 1st in private sector employment percentage change in the Northeast from a year ago at 4.6% (Massachusetts is next at 4.2%, followed by New York at 3.9%);

· New Jersey’s unemployment rate continues to be the largest year-over-year drop compared to other Northeast states. (The state’s unemployment rate was 5.5% in October of 2021).

Posted in Economics, Employment, New Jersey Real Estate | 128 Comments

Worrying our way into, and out of, a recession

Posted on December 19, 2022 by grim

From CNN:

Why recession fears are back: Americans are losing faith

From the executive suite to the grocery aisles to the halls of the Federal Reserve, the big question is: Can red-hot inflation be vanquished without tipping the economy into a recession?

Ironically, all this talking about a recession can actually help cause one. How people feel is a huge driver of consumer behavior and business planning. The famous British economist John Maynard Keynes coined the phrase “animal spirits” to describe what drives investors, consumers and business leaders. Fear, hope, uncertainty, and confidence are all hard to measure — and hugely important to how the economy fares.

Essentially, worrying about a recession and planning for one can be a self-fulfilling prophecy.

“At the end of the day, a recession is a loss of faith,” said Mark Zandi, chief economist at Moody’s Analytics. Consumers worry about losing a job and so pull back on spending, and business leaders worry their sales will decline and start laying off workers. 

“You get into this kind of self-reinforcing negative cycle,” he told CNN’s Early Start. “So when sentiment is this bad and starting to feed on itself, we run the risk of talking ourselves into one.”

The US economy grew at a 2.9% annual rate in the third quarter, and the unemployment rate is near a 50-year low. That’s not going to last. The Federal Reserve this week lowered its forecast for growth in the United States next year to just 0.5% and a jobless rate rising to 4.6% by the end of 2023.

“Look, we’re planning as if there’s going to be a mild recession next year,” United Airlines CEO Scott Kirby told CNN This Morning. “And a lot of people in the business world are trying to talk ourselves into one is what it sometimes feels like to me.”

But he added, “If I didn’t watch business shows or read the Wall Street Journal, the word recession wouldn’t be in my vocabulary because we just don’t see it in our data.”

Federal Reserve Chairman Jerome Powell and plenty of economists — including Treasury Secretary Janet Yellen — still see a path to a so-called soft landing, where the economy slows enough to lower inflation but not cause a recession. Yellen explained this week that recession risks permanently exist.

“There are always risks of a recession,” Yellen told CBS’s “60 Minutes” in an interview that aired on Sunday. “The economy remains prone to shocks.”

But Zandi said there can be a bright side to the dark worries.

“It may just, in an odd kind of way, help things out because if everyone’s so nervous about recession, they are cautious,” he said. “They don’t take big risks. They don’t take on a lot of debt. They don’t go out and make big expansion moves (and) that may cool things off sufficiently to bring inflation down so that (the Fed) doesn’t have to raise rates as much and we actually — weirdly enough — avoid a recession.”

Posted in Demographics, Economics, Employment, National Real Estate | 62 Comments

Flipper profits falling fast

Posted on December 16, 2022 by grim

From CNBC:

Home flipping profits drop at the fastest pace in over a decade

As the housing market cools quickly, house flippers are finding it harder to make fast profits.

In the third quarter, gross flipping profit, which is the difference between the median purchase price paid by investors and the median resale price, dropped to $62,000, according to ATTOM, a real estate data provider. That’s down 18.4% from the second quarter and down 11.4% year-over-year. It represents the smallest profit since the end of 2019 and the fastest quarterly drop since 2009.

With that drop in gross profits, the return on investment fell to 25% from 30% in the previous quarter. Not bad, but not as good. Still ATTOM notes it’s not the size of the profits, but how quickly they’re falling. 

With profits shrinking and higher mortgage rates hurting affordability for potential buyers, the share of home sales that were flips fell as well. Roughly 7.5% were flips in the third quarter, still historically high, but down from 8.2% in the second quarter. Flips, defined as homes bought and sold in a 12-month period, made up a 5.9% share of all home sales in the third quarter of 2021.

Home prices are weakening quickly, while renovation costs remain high. 

“It’s apparent that fix-and-flip investors aren’t immune to the shifting conditions in the housing market,” said Rick Sharga, executive vice president of market intelligence at ATTOM, in a release. “With demand from buyers weakening, prices trending down over the past few months, and financing rates significantly higher than they were at the beginning of the year, flippers face a much more difficult environment today, and probably will in 2023 as well.”

Posted in Housing Bubble, National Real Estate | 130 Comments

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