The blow off top?

Posted on June 26, 2022 by grim

From the Street:

Something Strange is Happening With Home Prices

The latest news out of the housing market isn’t good. Mortgage rates are soaring, and sales are dropping. 

The one puzzler is what’s happening with prices.

…

“Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year,” Sam Khater, Freddie Mac’s chief economist, said in a statement. 

…

Existing-home sales fell for the fourth straight month in May — 3.4% from April and 8.6% from a year ago, according to the National Association of Realtors.

“Home sales have essentially returned to the levels seen in 2019 — prior to the pandemic — after two years of gangbuster performance,” NAR Chief Economist Lawrence Yun said in a statement.

…

However, prices aren’t behaving intuitively, yet.

The median existing-home price hit $407,600 in May, up 14.8% from May 2021. This marks 123 consecutive months of year-over-year increases, the longest streak in NAR records.

“Those of us who have been anticipating a deceleration in the growth rate of U.S. home prices will have to wait at least a month longer,” Craig Lazzara, managing director at S&P DJI, said in a statement. “The strength of the [data] suggests very broad strength in the housing market, which we continue to observe.”

Posted in Housing Bubble, National Real Estate | 111 Comments

NJ poised to fall?

Posted on June 24, 2022 by grim

From Patch:

NJ Most ‘Vulnerable’ Housing Market In The Nation: Report

When much of the economy shut down because of COVID-19, the good times rolled for many home sellers in New Jersey. But the state’s strong housing market appears headed toward a decline, with several counties among the most vulnerable homebuying sectors in the nation, according to a new report from real estate data curator ATTOM.

In fact, the nation’s three most vulnerable housing markets are in New Jersey, according to the report. Passaic, Essex and Atlantic counties top the rankings, in that order, based on factors such as home affordability, unemployment, local wages and the prevalence of foreclosures. 

…

The New York and Philadelphia metro areas, which include much of New Jersey, were among the nation’s most vulnerable housing markets, according to ATTOM. That includes Bergen, Essex, Ocean, Passaic, Sussex, Union, Camden and Gloucester counties.

Major homeownership costs — such as mortgage payments, property taxes and insurance — consumed high percentages of local wages in the nation’s most vulnerable counties.

ATTOM measured local wages against the expenses of median-priced, single-family homes in their respective areas for the first quarter of the year. Three New Jersey counties ranked worst in that regard:

  1. San Joaquin County, California: 48.9 percent of average local wages needed for major homeownership costs
  2. Bergen County: 48.3 percent
  3. Solano County, California: 46.6 percent
  4. Passaic County: 46.5 percent
  5. Ocean County: 42.5 percent
Posted in Housing Bubble, National Real Estate | 126 Comments

King Murphy

Posted on June 22, 2022 by grim

From NJ101.5:

NJ’S MURPHY SIGNALS POSSIBLE WHITE HOUSE RUN

With speculation intensifying that President Joe Biden will not seek a second term, Gov. Phil Murphy is raising his profile for a potential White House bid.

A $2 million ad blitz is underway touting Murphy’s accomplishments and promoting his progressive agenda. The ads are being paid for by the group Stronger Fairer Forward. The group is chaired by Murphy’s wife, Tammy, and run by former aide Dan Bryan.

Stronger Fairer Forward is one of two groups launched in February with the goal of raising Murphy’s profile. One is a political action committee and the other is a register non-profit. The groups do not have to report where their funding comes from.

Murphy cannot seek another term as governor and these types of organizations are often a precursor to a national run. They could fund advertising and pay for national travel.

Most New Jerseyans don’t want to see Murphy launch a national campaign.

Despite having relatively strong approval ratings in the latest Monmouth University Poll, the majority of those surveyed do not believe he would make a good president.

Murphy has a job approval rating of 55%, but 56% think he is the wrong choice for the White House.

Posted in Politics | 127 Comments

Good thing we don’t need to commute anymore

Posted on June 18, 2022 by grim

From the Star Ledger:

Canceled trains were due to an ‘illegal job action’ by engineers, NJ Transit says

NJ Transit officials said an “illegal job action” triggered a rash of canceled trains throughout the day on Friday after locomotive engineers failed to show up for work.

By mid-afternoon on Friday, the job action caused the cancelation of more than 55 trains and shut down the Princeton shuttle after engineers called out of work at “nearly triple the rate of an average weekday,” said Jim Smith, an NJ Transit spokesman.

Trains deep into the evening schedule were canceled this afternoon and rail passengers were advised to check NJ Transit’s Twitter page and other alerts before traveling.

“NJ Transit became aware of a rumor late in the day yesterday that the locomotive engineers’ union, Brotherhood of Locomotive Engineers and Trainmen (BLE&T), could potentially initiate an illegal job action today,” Smith said in a statement.

“It is clear that this is the result of an illegal job action. NJ Transit is disappointed that the union would perpetrate such an act on the more than 100,000 commuters who depend on NJ Transit rail service every day,” he continued.

The Brotherhood of Locomotive Engineers and Trainmen union did not immediately respond to emails and phone calls to comment on the matter.

Posted in New Jersey Real Estate, Unrest | 90 Comments

Just wait until rents follow…

Posted on June 16, 2022 by grim

From Fortune:

Mortgage rates hit 6.3%—the real cost to buy a house has officially spiked over 50% in just 6 months

Heading into the year, Fannie Mae predicted that the average 30-year fixed mortgage rate would climb from 3.1% to 3.3% by the end of 2022. The Mortgage Bankers Association was a bit more bullish for mortgage rates, predicting the average rate would rise to 4% by the end of 2022. 

At the time, Ali Wolf, chief economist of Zonda, told Fortune that “the impact of rising interest rates depends on where they land. If [mortgage] rates approach 4% before the end of the year, there will be a notable downshift in housing demand…If mortgage interest rates gradually rise throughout the year, allowing home sellers to price their homes accordingly, then the shock to the system will be less noticeable.”

Fast-forward to today, and it’s clear that neither Fannie Mae’s forecast nor the Mortgage Bankers Association’s prediction was anywhere close to reality. Instead, we’ve tipped over into what Wolf deems the “shock to the system” category. 

As of Tuesday, the average 30-year fixed mortgage rate has jumped to 6.28%—up from 5.3% just a month ago. That marks the highest mortgage rate since 2008. The 3.2 percentage point jump in mortgage rates over the past year also marks the biggest upward swing since 1981.

If a homebuyer took out a $400,000 mortgage in June 2021 at the then average fixed rate of 3.1%, they’d owe $1,708 per month. At a 6.28% rate, that principal and interest payment comes out to $2,471. However, that’s assuming the home didn’t change in value. Now let’s say that home jumped 20%—the latest reading for year-over-year home price growth—in value. That ups the mortgage to $480,000. At a 6.28% rate, a $480,000 mortgage comes out to a $2,965 principal and interest payment. That’s quite a jump.

…

Since April, Moody’s Analytics chief economist Mark Zandi has been telling Fortune this would happen. What we’ve entered into isn’t just a housing slowdown. Instead, Zandi says, it’s a full-blown “housing correction.” Over the coming 12 months, Moody’s Analytics forecasts the year-over-year rate of home price growth will plummet from 20% to 0%, while significantly “overvalued” housing markets like Boise and Atlanta could see home prices drop 5% to 10%. (Moody’s Analytics estimates 183 regional housing markets are “overvalued” by more than 25% relative to what local economic fundamentals would historically support.) 

Posted in Mortgages, National Real Estate | 176 Comments

Worth breaking something

Posted on June 15, 2022 by grim

From Bloomberg:

Fed Mulls ‘Game Changer’ to Jolt Inflation: Decision Day Guide

Federal Reserve Chair Jerome Powell, who’s carefully telegraphed interest rate hikes over four years, looks likely to abandon gradualism and move more forcefully to stamp out inflation along with growing concerns that it will persist.

The Federal Open Market Committee is expected to raise rates 75 basis points by Wall Street firms including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc, who cite rising inflation expectations among Americans in looking for the largest increase in nearly three decades. Citigroup Inc. and Bank of America Corp. economists are among those who still think the Fed will shift by 50 basis points as previously planned.

The Fed will announce a decision and publish fresh forecasts at 2 p.m. Wednesday in Washington. Powell will hold a press conference 30 minutes later.

“The usual rule is, if you are worried about how your moves are going to affect financial markets, you move gingerly,” said Barclays senior economist Jonathan Millar, among the first to call for 75 basis points. “You worry about the risk of breaking something. In this case, it’s worth breaking something. We are at a very critical point where it looks like their credibility is starting to erode.”

Posted in Economics, Politics, Unrest | 156 Comments

Mortgage Rate Bloodbath

Posted on June 14, 2022 by grim

From Mortgage News Daily:

Mortgage Rates Surge Well Into the 6% Range After One of The Worst Days in Decades

It’s hard to quantify just how bad today was for mortgage rates because there’s no quality day-over-day mortgage rate data from before 2009 (when we created our own).  In that time, there has only been one other comparable day to today in terms of the jump in mortgage rates.

As a fan of the whole truth, I feel compelled to say that there were a few days in March 2020 that were bigger, but I’m not counting them as comparable days because they were the product of TWO-WAY volatility and a once-in-a-lifetime combination of market conditions and Fed policy response. 

That leaves July 5, 2013 as the only truly comparable day.  It too came at a time when rates had already been rising rapidly in response to an evolving outlook for Fed policy.  The difference back then was that the Fed had simply decided it was time to finally begin unwinding some of the easy policies put into place after the Financial Crisis.  This time around, the Fed is in panic mode about runaway inflation.  And today specifically, it’s the market that’s panicked about the Fed’s potential panic at the upcoming meeting and policy announcement set to be released at 2pm on Wednesday afternoon.

…

In total, rates moved up from the high fives to the low 6s.  But pinning down an actual rate is very tricky right now due to the structure of the mortgage bond market.  It’s hard to explain without getting into esoteric details, but the gist is that there is normally more profit for banks when their clients choose a higher interest rate.  This is why no-closing-cost loans can exist.  The rates are high enough to cover the lenders’ cost and profit.  Those same lenders could also quote lower rates, but with the difference being that the borrower would be paying some closing costs.

At present, that “premium pricing” just isn’t so premium.  That means in many cases, it may make more sense to pay higher upfront costs because they will do more than normal to bring you down to the next rate lower.  To put this in perspective, if it normally costs roughly 1 point to drop your rate quote by 0.25%, that same point can bring the rate 0.50% lower in many cases today.  So if you can opt to pay a point to get your rate down to 5.625%-5.875%, but a more typical closing cost structure suggests rates are 6.125-6.375%, what’s the going rate?  

Our index accounts for fluctuations in upfront cost in order to accurately represent the day over day change.  It suggests the average going rate for the average lender rose from 5.85% to 6.18% on a flawless scenario from Friday to today.

Posted in Economics, Mortgages, National Real Estate | 161 Comments

Different this time?

Posted on June 13, 2022 by grim

From Business Insider:

The Great Recession misled millennials: It made them think high home prices will eventually come down

History often repeats itself — but when it comes to the current housing market, don’t hold your breath. 

If you were a homebuyer in the mid-2000s, today’s hot market might look eerily familiar. Like many of your fellow Americans, you might be wondering when this housing cycle will come to a close and bring prices back down to earth. 

It won’t be that simple this time around. 

That’s because the US housing market is in uncharted waters and it’s throwing homebuyers for a loop. 

A typical real-estate cycle occurs in four phases: expansion, hyper supply, recession and recovery. This is the pattern that gave rise to the housing bubble of the mid-aughts, a time when a combination of cheap debt, predatory mortgage lending, and complex financial engineering led to a foreclosure crisis as well as a credit crisis among investors — and by 2008, a global recession.  

During the Great Recession, US home prices — which had soared during the housing bubble of 2006 and 2007 — tanked to a 17-year low. This created a chance for many Americans to afford a home if they had managed to escape the crash financially unscathed.

As some of the factors that contributed to the housing crash of 2008 reemerge, many Americans, especially millennials — the largesthomebuying cohort of the 2020s who witnessed their parents navigate the rocky real-estate landscape of the 2000s — are expecting a similar outcome. However, the current housing market is a vastly different beast. Although the US is bracing for a possible recession in 2023, home prices won’t be crashing anytime soon.

As Axios’ Nathan Bomey recently wrote in a newsletter, “As an older millennial, the financial crisis trained me to think that housing prices that go up must come down. But this has the makings of a softer landing.”

Posted in Demographics, Economics, Housing Bubble, National Real Estate | 155 Comments

Let’s get those steaks sizzling – if you can afford it

Posted on June 10, 2022 by grim

From CNBC:

Consumer price inflation in May expected to run sizzling hot as energy, food and rent rose

Economists expect inflation in May continued to burn white hot, with energy, food, rent and health-care costs all rising.

According to Dow Jones, economists expect the consumer price index rose 0.7%, up from 0.3% in April. On a year-over-year basis, that would work out to an 8.3% rate, the same pace as April. The CPI report is released at 8:30 a.m. ET Friday.

Economists expect to see some cooling in core inflation, meaning the measure with energy and food excluded. Core CPI is expected to rise 0.5% or 5.9% year over year, according to Dow Jones. That compares to 0.6% in April, or 6.2% on a year-over-year basis.

“It’s a very disquieting number. It’s going to re-energize concerns about has inflation peaked,” said Mark Zandi, chief economist at Moody’s Analytics. “I think we peaked. On a quarter basis, it was 8% in Q1.”

Year-over-year inflation reached a high of 8.5% in March.

Sarah House, senior economist at Wells Fargo, does not expect oil prices have peaked, and therefore she does not expect inflation has either. She expects headline CPI rose by 8.4% in May.

“That’s what changed our view over the last few weeks. We’ve seen gasoline hit record levels. And naturally what’s prevented the peak from being behind us is what’s coming out of the energy sector,” she said. The national average for gasoline reached $4.97 per gallon Thursday, according to AAA.

The market has been keenly focused on whether inflation has peaked since that will affect how aggressive the Federal Reserve may be with interest rate hikes.

Posted in Economics, Politics | 147 Comments

Remember these guys from Bloomberg?

Posted on June 9, 2022 by grim

From Barrons:

This Fund Promised Market-Beating Returns. Now It Has Filed for Bankruptcy.

Brian Casey, who was appointed NRIA’s independent manager in late April, said in a first-day motion Wednesday that the Chapter 11 petition aimed to buy the Secaucus company time to reorganize after past overspending on salaries and other financial strains.

The petition’s goal “is to provide the debtors with a breathing spell to prevent a disorderly liquidation of their estates through subscriber redemptions and to reject and/or terminate disadvantageous contracts and other arrangements,” wrote Casey, a Towson, Md.-based real-estate finance expert.

“At the conclusion of the process, the debtors plan to propose a plan of reorganization that will provide a substantial, if not full, recovery to all stakeholders and position the debtors to continue operating as a profitable mid-sized real estate firm,” he continued.

An attorney for NRIA didn’t respond to a request from Barron’s seeking comment on the petition. 

NRIA’s principal offering is a real estate portfolio known as Partners Portfolio Fund, which is covered by the bankruptcy petition. 

The firm has sought investors for the fund through frequent ads on national broadcast outlets such as Fox News and Bloomberg Radio that promised market-beating returns. 

Posted in Lowball, Where's the Beef? | 108 Comments

“Tappable Equity” at $207,000 per Homeowner

Posted on June 7, 2022 by grim

From CNBC:

Housing wealth gains a record $1.2 trillion, but there are signs the market is cooling

Homeowners are in the money, and it just keeps coming. Two years of rapidly rising home prices have pushed the the nation’s collective home equity to new highs.

The amount of money mortgage holders could pull out of their homes while still keeping a 20% equity cushion rose by an unprecedented $1.2 trillion in the first quarter of this year, according to a new analysis from Black Knight, a mortgage software and analytics firm. That is the largest quarterly increase since the company began tracking the figure in 2005.

Mortgage holders’ so-called tappable equity was up 34%, or by $2.8 trillion, in April compared with a year ago. Total tappable equity stood at $11 trillion, or two times the previous peak in 2006. That works out to an average of about $207,000 per homeowner. 

Tappable equity is largely held by high-credit borrowers with low mortgage rates, according to Black Knight. Nearly three-quarters of those borrowers have rates below 4%. The current rate on the 30-year fixed mortgage is over 5%.

The flipside of rising home values is that prospective buyers are increasingly being priced out of the market. Mortgage rates have also been rising sharply, putting homeownership further out of reach for some.

“It really is a bifurcated landscape – one that grows ever more challenging for those looking to purchase a home but is simultaneously a boon for those who already own and have seen their housing wealth rise substantially over the last couple of years,” said Ben Graboske, president of Black Knight Data & Analytics. “Depending upon where you stand, this could be the best or worst of all possible markets.”

Posted in Demographics, Economics, Mortgages, National Real Estate | 287 Comments

Not sure I’d trust Zillow

Posted on June 6, 2022 by grim

From Marketwatch:

I’m a senior economist at Zillow. Here are 3 things home buyers should know about the housing market now

Buyers should prepare for higher monthly costs

There’s no doubt that mortgage rates are rising quickly after hitting a record low in 2020 and remaining near 3% for a 30-year mortgage for much of the past two years, keeping payments in check. But 3% mortgages are a thing of the past. “Now the typical 30-year rate is over 5%, which means much higher monthly costs for any given purchase price. Shopping around for a mortgage to find the best rate can bring significant savings and using a mortgage calculator can help a buyer stay up to date on what they can afford,” says Tucker. (You can find the lowest mortgage rates you may qualify for here.) 

Even with rising rates, there’s still a lot of competition in the market

Indeed, demand is still sky high. The median seller is accepting a purchase offer less than one week after listing their home for sale, says Tucker. “There will be a point when the cost of buying a home deters enough buyers to bring price growth back down to Earth, but for now there’s plenty of fuel in the tank,” says Tucker. 

What’s more, demand should remain high thanks to generational demographics, he says. “There’s a massive wave of millennials aging into their prime home-buying years and baby boomers are more active in the housing market than earlier generations. And inventory has a long way to catch up from more than a decade of under-building following the mid-2000s housing crash, meaning supply and demand realities will keep pressure on prices for the foreseeable future,” says Tucker.

Home prices may cool, but they likely won’t drop

Still, he says this is not a bubble and he doesn’t expect home prices will fall. “The combination of more new homes being built, higher prices and rising mortgage rates should help throw cold water on the market in the near future.” says Tucker. This will lead to a cooldown in price growth, but not a price drop, he predicts.

Posted in Demographics, Economics, National Real Estate | 171 Comments

Barry says no recession

Posted on June 2, 2022 by grim

From the Big Picture:

Are We in a Recession? (No)

Are we heading into a recession? According to quite a few observers, this is almost no longer a question, but rather seems to be a fait accompli.

I am skeptical, but others are much less so.
…

As a reminder, the official NBER’s definition states “a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Specifically, the criteria include “depth, diffusion, and duration” — none of which is present today.

Given the economic data, it is startling (if not foolish) to state we are in a recession right now. As noted, “low unemployment, continued job growth, and other signs of economic health” make that timing moot. Second, because the economy is cyclical, it means a recession is always coming. (It’s called a “Business Cycle” for a reason).

The key issue is timing. Is a recession imminent?

I think not. Not in this quarter, or the third quarter. I am doubtful even the fourth quarter of 2022 (possible, but improbable).

Why? Because most of the leading indicia of economic contractions are not present today. Inflation remains a concern, and the biggest warning sign is the stock market: Year to date, the S&P 500 is off 13.3% and fell nearly 20% from its all-time highs. But neither of those are determinative. As my colleague Ben Carlson points out, bear markets can occur outside of a recession, and “they tend to be shallower and less lengthy while recessionary bears are greater in both.”
…
The current monthly coincident state index shows all 50 states economically expanded. That not only makes it impossible for us to be in a recession today but also makes it highly unlikely we will be in a recession anytime soon.

Posted in General | 214 Comments

Blame COVID

Posted on May 31, 2022 by grim

From CNN:

The ‘Great Reshuffling’ played a big part in pushing home prices higher 

The pandemic changed the way people lived and, for many, where they lived. Working from home was a significant driver of this “Great Reshuffling” and accounted for more than half of the steep increases in home prices seen during the pandemic, new research has found.

Remote work allowed some people to move to places farther away from their office and prompted others to buy larger homes to accommodate their new lifestyles. The demand for more house and the ability to move to warmer climates played a sizable role in pushing home prices higher, according to a new National Bureau of Economic Research working paper by researchers from the Federal Reserve Bank of San Francisco and the University of California, San Diego.

Home prices grew by 23.8% during the pandemic, according to the researchers’ population-weighted analysis of Zillow’s home price index between December 2019 and November 2021. And the study found that remote work accounted for 15.1% of that growth.

The findings suggest there was more than just speculation behind the turbo-charged growth in home prices during the pandemic, said Johannes Wieland, an associate professor of economics at the University of California, San Diego, and co-author of the study. He added that the evolution of remote work is likely to have a large impact on the future path of home prices and inflation.

“We were pretty shocked remote work had this impact, once we saw the estimates,” Wieland said. “We thought about how people moving to different locations would be important. And it is. But it is the people who are remaining in a metro area — the people who need more space at home if they work at home — that is really pushing up prices. That is the majority of the story.”

Posted in Demographics, Economics, Employment, National Real Estate | 171 Comments

Sorry, you missed the top

Posted on May 29, 2022 by grim

From Fortune:

The housing market just slid into a full-blown correction, says top economist Mark Zandi

Moody’s Analytics chief economist Mark Zandi is ready to call it. He tells Fortune that we’ve officially moved from a housing boom into a “housing correction.”

The real estate data rolling in for April and May shows that the U.S. housing market is softening. New home sales fell 19% to their lowest level since April 2020. Redfin reports 19% of home listings cut their price over the past month. Inventory is rising fast, while mortgage applications and existing home sales are also falling.

This drop-off isn’t a result of seasonality, or a soft month or two. Zandi says it’s a trajectory flip: Demand is pulling back—fast—in the face of mortgage rates that have spiked dramatically. 

“The housing market has peaked…everything points to a rolling over of the housing market,” Zandi says. “In terms of home sales, they’re falling sharply. Housing demand is coming down fast. Home price growth [will] go flat here pretty quickly; we will see [home] price declines in a significant number of markets.”

Unlike a stock market correction, which means a greater than 10% drop in equities, Zandi says a “housing correction” means the end of the housing boom and the beginning of a period where home prices will fall in some regional markets. Over the coming 12 months, he expects year-over-year home price growth to be 0%. If that comes to fruition, it’d mark the worst 12-month stretch since 2012. It would also be whiplash for real estate agents and brokers who’ve watched home prices soar 19.8% over the past year.

Posted in Economics, Housing Bubble, New Jersey Real Estate | 21 Comments