A weekend topic starting with the Marietta Daily Journal in Georgia. “‘Home values are staying really healthy, but it’s not the frenzy that it used to be,’ said Ellen Hill, a real estate agent with Atlanta Fine Homes. ‘When the interest rate hiked, obviously it caused buyers to pause and to rethink things. Because it was one thing in their mind to overpay for a house — and pay significantly more than anybody ever has in that neighborhood — but money was so cheap a few months ago, that you could still justify it.’”
Columbia Basin Herald in Washington. “Nick VinZant, an analyst with a Seattle-based online market research company, has a theory as to the reason for the shift. ‘I think what is happening is two things that are related to one thing,’ he said. ‘And that is that interest rates are starting to rise. That ultimately means that money isn’t cheap anymore. We’ve seen in some places a 6% drop in two months. And I think that that is going to continue as long as there are signals that the interest rate is going to stay where it is, it’s not going to get higher.’”
From WHSV. “Unlike other housing markets in Virginia home values in the valley are continuing to increase. ‘There’s a lot of worry in the more urban markets like Northern Virginia, Richmond, and the Tidewater area of prices decreasing. They’re seeing pretty rapid and significant decreases in those areas,’ said Matt Ogden, a realtor at Kline May Realty in Harrisonburg.”
From New Jersey.com. “The effects of rising interest rates is less evident in South Jersey, said Mike DePalma of DePalma Realty in Millville. When the interest rate goes up one percentage point it takes away about 10% of a purchaser’s buying power, DePalma said. ‘When you have triple that happen, you have a problem.’”
The Review Journal. “Houses aren’t selling as fast as they used to. Among the single-family homes that traded hands last month, 56.8 percent had been on the market for 30 days or less, down from 71.7 percent of the sales in August and 83.8 percent in September 2021. The numbers point to a relatively steady month for Las Vegas’ resale market, but it still shows a dramatic change from last year’s cheap-money-fueled buying binge. This year, a sharp jump in mortgage rates put the brakes on home sales in Southern Nevada and around the country.”
Flagstaff Business News in Arizona. “What a difference a year makes. As the leaves begin to turn, our real estate market is seeing some signs of cooling temperatures as well. As of September 2022, the average single-family home price in Flagstaff is $734,092 and was $729,044 September 2021. However, at the height of the market, an average single-family home cost $984,502 in February 2022. Back then, it was conceivable we would see the average home reach a million dollars. But now, just eight months later, the outlook is a bit different. Price increases in housing had been astronomical and unsustainable and are now more moderate.”
The LA Daily News. “‘This is NOT 2008,’ say many high-profile real estate gurus of the current homebuying slowdown. Well, if 2022 isn’t 2008, then what is it? Virtually anybody who tracks housing agrees that 2022 marks the end of this real estate cycle’s history-making appreciation. Think about what the FHFA indexes are telling us this year. California home prices rose at a 21% annual pace in 2022’s first half. It was California’s eighth-highest gain in history and a rate of appreciation triple the 7% increases averaged since 1975.”
“But this eye-catching jump was only the 16th biggest among the states. To start 2022, 19 states set new record highs for one-year home-price gains. Yes, larger jumps than increases of the bubble that burst in the mid-2000s. Also, the 19.3% average increase among the states was the all-time high — and quadruple the 4.8% annual average since 1975. The grand debate, however, is what future is created by the market’s ongoing normalization/recalibration/correction — or whatever you want to call the brewing cooldown.”
From Market Watch. “People are going to start to accept the fact that higher mortgage rates are the new normal, Christine Cooper, chief U.S. economist at CoStar Group, told MarketWatch. ‘In six months or a year, we’re gonna think, okay, we’re going to be able to mange it,’ Cooper said. ‘We’re just going through a period of transition where we were expecting it to be this way, and all of a sudden, that’s not the world we’re in any more,’ she added. ‘People will adapt.’”
From Bloomberg. “The prospect of declines in home prices as mortgage rates soar is hitting homebuilding stocks hard. Whether the low valuations present opportunities for investors, however, depends on what happens to the housing market. With many of the stocks trading below book value, the firms ‘appear to be discounting a scenario where home prices fall 20-25%, because this is the amount of price reduction that would cause the builders to take large impairments to their land holdings and drive down book value,’ Evercore ISI analyst Stephen Kim said. He doesn’t expect such a downturn because of a dearth of housing inventory in the US.”
The San Antonio Business Journal in Texas. “In the wake of mounting interest rate increases imposed by the Federal Reserve, San Antonio’s housing market — once scorching hot — has been showing signs of slowing since the second quarter of 2022. Now homebuilders growing nervous about inventory collecting dust on the shelf rather than flying off it are beginning to ramp up measures to incentivize home buying. ‘Most homebuilders I’ve spoken to have said they want to close out their inventory by year-end,’ said Sean Chandler, president of Chesmar Homes’ Central Texas division.”
“The cost of housing has been on the rise in San Antonio since the pandemic, up an average 39% across the city to a median $385,340. ‘A year ago, we were selling homes as fast as we could build them, and prices were going up all the time,’ said Chandler. ’90 days ago, that came to a screeching halt. Every builder is going to have to find the right price a home will sell at. We’re going to discount the heck out of them.’”
The New York Times. “In response, in the summer of 2021, central banks began raising interest rates. Brazil led the way. In early 2022, the Federal Reserve joined in, unleashing a bandwagon effect: Once the Fed moves and the dollar strengthens, other countries either raise their interest rates or face a sharp devaluation, which further stokes inflation. The outline of this pattern is familiar. But the breadth is new. We now find ourselves in the midst of the most comprehensive tightening of monetary policy the world has seen. While the interest rate increases are not as steep as those pushed through by Paul Volcker as Fed chair after 1979, today’s involve far more central banks.”
“There are moments when history-making creeps up on you. This is one of those moments. As far as the advanced economies have been concerned, the era of globalization since the 1990s has been one of disinflation and monetary expansion by central banks. Now that balance is being reversed, and on a global scale. To respond to this imported inflation, other central banks have little option but to raise interest rates even more, which continues a vicious circle. The end result of this bidding war is unpredictable as far as the exchange rate is concerned, but one thing it will do is drive interest rates to levels higher than anyone would have picked in isolation.”
From David Rosenberg. “The assumption is that these people on the Federal Open Market Committee are smart – so they must realize how ludicrous it is to be chasing lagging indicators. Or maybe there is another agenda – come on, there has to be – in that these folks want to take the punch bowl away. But how egregious, after luring people into cheap leverage to buy homes and equities at ever-crazy price levels through all of 2021, that now the Fed is consumed with asset inflation (which is what I think the real story is here) – this is the classic Lucy and Charlie Brown skit with the football.”
“Jerome Powell is Lucy and everyone else is Charlie Brown. It’s incredible. And the apologists out there on how ‘Jay is doing a great job!’ boggle the mind. In the meantime, real-time data show that rents and home prices are now deflating. Not merely slowing, but deflating. Jay, why were you adding mortgages to the balance sheet in the face of a massive housing bubble? Why did you keep easing monetary policy into massive fiscal largesse and the reopening of the economy? You see, these are the things that the media never dare ask him at those post-meeting press scrums.”
“This is the weakest set of FOMC members I can recall in my near-40 years in the business. Mr. Powell has the temerity to compare himself to Paul Volcker, the Fed chair who was widely credited for having ended the high levels of inflation seen in the 1970s and early 1980s.”
“But Mr. Volcker inherited the inflation situation he had to deal with. Mr. Powell and his crew are just cleaning up their own mess. And now they are in the process of overtightening just as they over-eased. Both in relation to the economy and the market, the Fed has created the conditions for a boom-bust in both. The movie from March, 2020, to December, 2021, when TINA and FOMO predominated and Jay Powell played the role of bartender, is now winding down as he takes the punch bowl away.”
From CBC News. “If you listen to the right group of top economists representing business, labour and global finance, you might decide that central banks are crazy to keep on raising interest rates. But on Thursday, in the face of that chorus of criticism, Bank of Canada governor Tiff Macklem insisted that despite a ‘narrow path’ to the kind of soft landing that would avoid recession, interest rates must go higher still. This week there were new signs from Vancouver and Toronto that the Canadian housing market was on a downward path, and I ran across an ominous IMF quote in one of my columns from 10 years ago: ‘When house prices rise because households gorge themselves with debt … the ensuing recession is much deeper and more protracted than busts not preceded by such debt accumulation.’”
The Globe and Mail. “There are so many fissures emerging in the global financial system that it is difficult to predict which issue will be viewed by economic historians as the tipping point for the next crisis. Perhaps it will be the mortgage market. Mortgage rates in Canada, the United States and Europe have effectively doubled – or will soon. Buyers in the past few years are especially likely to run into trouble as they bought at prices inflated by artificially low rates. As mortgages are renewed at higher rates, household cash flows will be impaired and net worth will decline.”
“The deterioration of China financially seems to be coming to a head. Decades of debt accumulation in the Middle Kingdom and almost unfathomably bad investments are certainly cause for concern. The question is how vulnerable the rest of the global financial system is to China.”
“More broadly, a sovereign debt crisis in developing countries is a real possibility depending on how exposed the global banking system is to the economic crisis we are witnessing in places such as Sri Lanka. Governments whose populations are facing mass starvation will prioritize saving lives over timely payments to foreign bankers.”
“There are many situations that can trigger a financial crisis – when asset prices steeply decline in value, business and consumers have trouble paying debts, and liquidity shortages hit financial institutions. But once begun, they follow a typical pattern of panic, fear, and a mad scramble by central bankers and policy makers. Some institutions will be affected more dramatically than others, usually resulting in some form of debt write-off and some creditors taking large losses.”