Chart Notes
- I use monthly averages because the Fed now targets a range. Also the Fed Funds Target Rate is discontinued and only dates to 1982.
- This is the steepest, most aggressive hiking cycle ever.
You can see the impact especially in mortgage rates and thus housing.
30-Year Fixed Mortgage Rates 1975-Present
30-Year Fixed Mortgage Rates – One Year
Existing Home Sales Decline 9th Month, Down Another 5.9 Percent
With the Fed rate hikes, Existing Home Sales Decline 9th Month, Down Another 5.9 Percent
Existing Home Sales Crash
- Existing home sales are down 28.4% from one year ago.
- Existing home sales are down 31.7% since January.
That’s a crash. And never have we seen such declines other than in recessions.
The crash is in transactions, not price.
Cost of Owning
Nationally, it cost $888 a month more to buy an entry-level single-family home than to rent it, according to September data from John Burns Real Estate Consultinghttps://t.co/6eyrsaaXdw pic.twitter.com/Jut8EgPxo3
— Gunjan Banerji (@GunjanJS) November 28, 2022
“Nationally, it cost $888 a month more to buy an entry-level single-family home than to rent it, according to September data from John Burns Real Estate Consulting. A 30-year-fixed mortgage with 5% down (including principal, interest, taxes, insurance and maintenance) on such a home cost $3,058 a month, while the median monthly rent on such a single-family house was $2,170, based on John Burns research.”
The cost of owning a home with a mortgage is the most expensive since at least 2000.
The Current Housing Cycle Landscape
The Current Housing Cycle Landscape https://t.co/gUrMA0DK2v
— John Burns (@johnburnsjbrec) November 27, 2022
1-3 Year Housing Outlook
Falling Real Estate Markets
Several major markets have now reached the falling phase of the cycle, characterized by flat or declining prices, limited capital investment, and shrinking housing demand.
- Despite being among the largest resale markets in the country, new home construction in Chicago and Minneapolis, whose recoveries lagged in the post-GFC expansion, struggled to take off during the pandemic-fueled housing boom. These economies continue to underperform, and we worry about significant out-migration and sustained population loss.
- Austin, Sacramento, and Salt Lake City, all standouts for in-migration and robust, tech employment demand / job growth throughout the pandemic, have reversed course quickly.
- Phoenix and Riverside-SB have also reversed course quickly, in part due to significant speculative investment that drove prices up quickly. They also benefitted tremendously from the industrial building development boom that has now cooled.
- Sales are dropping and resale supply is skyrocketing, driving home price appreciation down fast, with home values now falling month over month. Single-family construction activity has pulled back, as many builders in these markets are reluctant to open new communities during a downturn.
Housing is Local (Until it Isn’t)
Slowing markets include Dallas, Jacksonville, and Raleigh-Durham.
The rest are plateauing. There is no major market bottoming, recovering, or growing.
It may be true at the micro level, but I’m tired of the expression “Housing is Local” when nearly the entire country is headed the same way.
Not a Crash?!
I have continually point out it’s a transaction crash. And it is.
Others point out that price follows and it usually does.
Regardless, it’s a transaction crash right now.
— Mike “Mish” Shedlock (@MishGEA) November 29, 2022
New Home Sales
Last month I noted huge new sales negative revisions for the August. This month the Census Department reports negative revisions for September.
If the pattern holds, there will be negative revisions next month too.
What About Cancellations?
The Census Department does not subtract cancellations from its reports and cancellations due to rising mortgage rates have been huge.
In declining sales environments and economic downturns (now), the Census Department dramatically overstates sales, even if we ignore revisions.
In economic upturns, the Census Department understates sales.
For discussion, please see New Home Sales Bounce 7.5 Percent From Negative Revisions
Factoring in cancellations, new home sales are about 468,000 SAAR about where they were in 1963.
But hey, let’s not call that a crash either.
Housing Hell
This is one of the huge inherent flaws of the Fed. @tyillc
The Fed can make money easier or tighter but it cannot control where the money goes.
For decades, easy money went into speculation, not productive assets.
— Mike “Mish” Shedlock (@MishGEA) November 29, 2022
Looking Ahead
BULLARD: FED WILL HAVE TO PURSUE RATE HIKES INTO 2023
BULLARD: FOMC NEEDS TO GET TO BOTTOM END OF 5%-7% RATE RANGE
— *Walter Bloomberg (@DeItaone) November 28, 2022
The range of hikes is allegedly 5-7 percent.
FED’S BULLARD: THE MOST IMPORTANT THING IS THAT WE REACH A SUFFICIENTLY RESTRICTIVE LEVEL AND THAT FINANCIAL MARKETS UNDERSTAND IT.
AND THAT FINANCIAL MARKETS UNDERSTAND IT
AND THAT FINANCIAL MARKETS UNDERSTAND IT
AND THAT FINANCIAL MARKETS UNDERSTAND IT— Michael Lebowitz, CFA (@michaellebowitz) November 29, 2022
Who Cares How We Get There
FED’S BULLARD: ON HIKE PACE, I DEFER TO CHAIR POWELL, IT DOESN’T MATTER ALL THAT MUCH IN THE GRAND SCHEME OF THINGS HOW QUICKLY WE GET TO THE RIGHT LEVEL.
— FinancialJuice (@financialjuice) November 28, 2022
Rate Hike Odds for December 2022
Expect another half-point hike on December 14.
Rate Hike Odds for December 2023
Impeccable Track Record
*BULLARD: `I DON’T THINK’ A RECESSION `IS INEVITABLE’
Bullard’s forecasting track record is impeccable pic.twitter.com/LI3nqaMXUg
— zerohedge (@zerohedge) November 28, 2022
The market does not think we get to 5.0% next year and neither do I.
Bullard has an impeccable track record of being wrong.
Meanwhile, housing is going to hell. Don’t expect that to change for 1-3 years according to John Burns.
If housing is weak for three years, expect the economy to be weak for three years as well.
Nonetheless, my forecast for unemployment is not as dire as most. For discussion, please see Expect a Long Period of Weak Growth, Whether or Not It’s Labeled Recession.
This post originated at MishTalk.Com.
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Mish
disposal of the monetary authority in a free capitalistic system through which
the volume of money can be properly controlled is legal reserves. Powell
eliminated legal reserves in March 2020. And Powell also eliminated
deposit classifications.
are math constants. Monetary policy is not transmitted through interest rates.
Monetary policy was transmitted through legal reserves, the truistic monetary base.
As I said in response to Powell removing legal reserves: “The FED will
obviously, sometime in the future, lose control of the money stock.” May
8, 2020. 10:38 AMLink
“However, on March 26, 2020, the Board of Governors reduced the
reserve requirement on checkable deposits to zero. This action ended the Fed’s
ability to control M1. In February 2021 the Board redefined M1 so that M1 and
M2 are very nearly identical. Consequently, it makes little sense to
distinguish between them. In any event, the checkable deposit portion of M2
cannot be controlled now because there are no longer reserve requirements on
these deposits. Here is the reason the Fed cannot control these deposits.”
#1 Chairman Jerome Powell: “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time”
#2 “Inflation is not a problem for this time as near as I can figure. Right now, M2 [money supply] does not really have important implications. It is something we have to unlearn.”
#3 “the correlation between different aggregates [like] M2 and inflation is just very, very low”.
So, Powell delayed the reporting of the money stock on the Federal Reserve Board’s Statistical Release H.6, “Money Stock Measures”
And Greenspan discontinued the only valid measure of money velocity in Sept. 1996.
I’m throwing my name
into the hat
link to twitter.com
I do not personally believe interest rates will continue to rise, but if I was always correct in my prognostications I’d be a billionaire.
This is a very dangerous time to invest indeed. I’m sticking with nearly debt free resource stocks. They will respond to inflation and be largely immune to interest rates. Plus, everyone needs them. I’m staying far far away from financial stocks, crypto (a billion miles away) while waiting for real estate prices to come down so I can pounce on good deals as they come up.
What the Fed got instead is a transaction crash”
When you consider all the damage the FED has done, one is left with only two possible conclusions. One is the FED is so incompetent that they shouldn’t be allowed near money ever. The second is it’s all intentional. Crash a worthless dollar and replace it with the FED’s social credit prison digital currency. I pick option three, which is both.