A weekend topic starting with Mises.org. “Paul Volcker (1927-2019) became Chairman of the Federal Reserve Board 43 years ago on August 6, 1979. The 20th-century Great Inflation, stoked by the Federal Reserve and the other central banks of the day, was in full gallop in the U.S and around the world. In the month he started as Chairman, U.S. inflation continued its double-digit run—that August suffered a year-over-year inflation rate of 11.8%. On August 15, the Federal Reserve raised its fed funds mid-target range to 11%, but that was less than the inflation rate, so a nominal 11% was still a negative real interest rate. How bad could it get? For the year 1979, the December year-over-year inflation was an even more awful 13.3%. At that compound rate, the cost of living would double in about five years.”
“‘The best professional judgment among leading economists was that Americans should view the problem of inflation as being…intractable,’ wrote Volcker’s biographer, William Silber. Leading Wall Street forecaster Henry Kaufman, for example, was pessimistic in 1980, opining ‘that he had ‘considerable doubt’ that the Fed could accomplish its ultimate objective, which is to tame inflation. He added for good measure that the Fed no longer had ‘credibility in the real world.’ Those days are now most relevant. Although Silber could write in 2012, ‘Inflation is ancient history to most Americans,’ today it is upon us once again. What can we re-learn?”
“In September 1979, Arthur Burns, who had been Fed Chairman from 1970 to 1978, gave a remarkable speech entitled ‘The Anguish of Central Banking.’ Discussing ‘the reacceleration of inflation in the United States and in much of the rest of the word,’ ‘the chronic inflation of our times,’ and ‘the world wide disease of inflation,’ he asked, ‘Why, in particular, have central bankers, whose main business one might suppose is to fight inflation, been so ineffective?’”
From Newsweek. “House prices across the country have broken records over the past decade, as single-family home prices doubled on average in almost 70 metros. The average homeowner became a property millionaire in three Californian metros, with prices crossing the $1 million threshold. The Detroit metro area topped the list for the most substantial percent increase in value, rising 356 percent from an average of $53,800 to $245,700 for a single family home – an increase of $48 per day. Compared to 2011, the median price of a single family home increased by more than 300 percent in Boise, Idaho and more than doubled in 69 other metros. Single home prices in Naples, Florida; Phoenix, Arizona; and Cape Coral, Florida, jumped more than 250 percent in the last decade.”
“Home prices in San Jose; San Francisco; and Anaheim, California, more than doubled and crossed the $1 million psychological barrier in the last decade, with urban Honolulu, Hawaii, joining the ranks in 2022. Between January 2011 and December 2021, home prices in San Jose increased by an average of $266 per day, with San Francisco homes adding an average of $208 every day to the value of their homes over the last decade. With a 544 percent increase in condo prices since 2011, Atlanta blew all other metros out of the water.”
From Market Place. “Listener Brayden Leaverton asks: If inflation is an issue due to too much money in circulation, why can’t [the Federal Reserve] just burn off money to offset inflation? Inflation rose 8.3% year over year in August; in June it reached a 40-year high of 9.1%. Sure, the Federal Reserve could do whatever it wants with the money it has in its possession, said Ahmed Rahman, an associate professor of economics at Lehigh University.”
“‘They could have a nice bonfire in front of the Federal Reserve building,’ Rahman said. ‘Sort of a big gesture of ‘We’re serious about inflation.’ But before creating such a bonfire, the Fed needs to buy the money back. ‘That’s the real key to the goal of tamping down inflation,’ he explained. ‘The Federal Reserve can’t simply confiscate money willy-nilly.’”
From Pro Build. “These factors are undoubtedly influencing both the demand for, and the rise of, single-family rentals (SFRs) across the U.S. Seeking to capitalize on the craze, an increasing number of players are pouring exorbitant amounts of capital into the sector, either buying up existing homes at premium prices to convert into rentals or delivering new communities of varying quality. The question today centers on how the currently overheated sector will fare in the long term.”
“Others label their business model ‘built-for-rent’ though they don’t actually build anything at all. Instead, they buy homes in bulk, typically from production builders churning out value-engineered, grid housing designed for quick sale and monetization. Neither of these parties are particularly focused on a quality product and service but rather volume and profits. This is also a major and well-documented issue as these firms overpower the regular consumer by being well funded and hyper-fast acting.”
The Globe and Mail. “More than 81,000 people have been laid off from the tech sector worldwide this year, including thousands at Canadian companies like Shopify and Wealthsimple, and further cutbacks are likely. AlayaCare had some promising acquisition candidates lined up at the start of 2022. Then, one of Canada’s fastest-growing startups had a rude awakening.”
“By the time summer hit, the leadership team of the home-care software provider realized its lagging growth rate – 80 per cent of target – wasn’t just a blip, after the third quarterly miss in a row. Many businesses are now getting lean and focused, hoping to achieve something sorely lacking in boom times: profits.“ When capital was so cheap, you wouldn’t have to think that way, because money was just thrown at you,’ says Barbara Dirks, partner at Framework Venture Partners.”
From Business Insider. “Wall Street’s most influential chief executives from Goldman Sachs’ David Solomon to JPMorgan’s Jamie Dimon are ready to cull under-performing staff. Record sales in the bond market, a deluge of initial public offerings thanks in part to the special purpose acquisition company (SPAC) boom, and trillions of dollars in private-equity cash meant happy days for M&A bankers in 2021. But that has come to a screeching halt.”
From USA Today. “The Federal Reserve’s interest rate hikes may be intended to give the housing industry a ‘reset,’ as chair Jerome Powell wanted, but it also may have further confused home buyers and sellers on what to do next. As early as fall, Neda Navab, president of brokerage operations at real estate company Compass in New York, tells USA TODAY she believes that sellers ‘may come back with a more realistic view on pricing as they realize the pedal-to-the-metal days of last summer have passed.’”
Fox Business. “Rates for the 30-year mortgage increased again this week, jumping to the highest level since October 2008, experts said. ‘For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable,’ said George Raitu, Realtor.com’s chief economist. ‘In many locations, price cuts may be the only viable option to restore housing balance and affordability.’”
The Naples Daily News in Florida. “Dr. Lawrence Yun, the chief economist for the National Association of REALTORS® announced that ‘the Federal Reserve is set to do another big rate increase [75 basis points], then another one after mid-term elections [50 basis points], and another hike in early 2023 [50 basis points].’ Yun went on to say that for our area, half the homes are being sold at list price or above, but the other half needed a price concession to get a contract. ‘If a home sits on the market longer than three months, the average reduction is 11 percent so it’s important to price the home correctly at the start.’”
NBC San Diego in California. “Interest rates are around 6%, and for some San Diegans, that is still too much for purchasing a home. Although interest rates are high, Cameron Harper of California Mortgage Lending said home prices took a dip in August by about 6%. According to Harper, the average home price fell to $910,000 from $970,000. On the flip side, those higher rates are impacting home sale prices in the county. It’s a ripple effect Jason Rooney experienced when he sold his home this summer.”
“‘Yeah it was a little frustrating,’ Rooney said. ‘More trying to sell our old home versus buying a new home.’ He shared that he ended up lowering his selling price by $150,000. ‘It was just trying to get the price point we wanted for it because the market was slowing down or people weren’t as eager to buy,’ Rooney said.”
The Dallas Morning News. “Some of the nation’s largest homebuilders are lowering prices, providing discounts and pulling out of land deals as higher mortgage rates on top of already sky-high home prices continue to take a toll on buyer affordability. ‘The interest rate movements were very sudden and adjusted very quickly, and that suddenness has always led to a pullback in housing demand,’ said Stuart Miller, executive chairman of Lennar Corp. ‘Part of the pullback is driven by simple affordability, and part of the pullback is driven by the psychology of the sudden and aggressive interest rate hike causing either monthly payment sticker shock or a sense of having missed the boat.’”
“KB Home — which builds in 47 markets across the U.S., including Dallas-Fort Worth — has already seen a softening in orders due to the most recent spike in mortgage rates since Labor Day. Its cancellation rate, or the amount of deals that fell through after the contract was signed, was 35% last quarter compared to 9% in 2021. ‘The No. 1 reason for cancellation was buyer’s remorse,’ said Jeffrey Mezger, CEO of KB Home. ‘It was not necessarily that the buyers did not qualify. They did not feel comfortable moving ahead with the purchase.’”
From NBC 26. “As the Federal Reserve hikes interest rates to get inflation under control, buyers are slowing down. However, realtors are saying, maybe they shouldn’t. ‘Offers are coming in over list price right now,’ said Judd Stevenson, owner of Stevenson Appraisal and former president of the Realtors Association at Northeast Wisconsin. In 2008, property values were increasing by 6 to 12% in Neenah. Now, ‘we’re seeing 18% appreciation rates… is that sustainable?’ asked Stevenson.”
From CTV News. “There will be ‘people on the street’ globally unless steps are taken to protect the most vulnerable from inflation, International Monetary Fund’s (IMF) chief Kristalina Georgieva warned on Wednesday. ‘It is important to think that this compounded impact of multiple crises is already testing the patience and resilience of people. And if you don’t take action to support the most vulnerable, there would be consequences. If we don’t bring inflation down, this will hurt the most vulnerable, because an explosion of food and energy prices for those that are better off is inconvenience — for the poor people, tragedy. So we think of poor people first when we advocate for attacking inflation forcefully.’”
“Fiscal policy, if it goes generously to help everybody, will be actually in the way of monetary policy, it would be the enemy of monetary policy, because you increase demand and that pushes prices again up, and then there has to be more tightening,’ the IMF chief said. ‘The critical question in front of us is to restore conditions for growth, and price stability is a critical condition.’”
From Fortune. “Even after a more than 21% drop in the S&P 500 this year, Wall Street’s best minds still think stocks have further to fall. ‘The worst is yet to come,’ Carl Icahn, who boasts a net worth of $23 billion, told MarketWatch. The investor argues the Federal Reserve boosted asset prices to unsustainable levels amid the pandemic using near-zero interest rates and quantitative easing—a policy where central banks buy mortgage backed securities and government bonds in hopes of spurring lending and investment.”
“‘We printed up too much money, and just thought the party would never end,’ he said, adding that with the Fed switching stances and raising rates to fight inflation, he now believes ‘the party’s over.’ The hangover from the Fed’s loose monetary policies, according to Icahn, is sky-high inflation, which rose 8.3% from a year ago in August. ‘Inflation is a terrible thing. You can’t cure it,’ Icahn said, noting that rising inflation was one of the key factors that brought down the Roman Empire.”
“Rome famously experienced hyperinflation after a series of emperors lowered the silver content of their currency, the denarius. The situation then dramatically deteriorated after Emperor Diocletian instituted price controls and a new coin called the argenteus, which was equal in value to 50 denarii. The result of Roman emperors’ unsustainable policies was an inflation rate of 15,000% between A.D. 200 and 300, according to estimates by some historians.”