A weekend topic starting with Deutsche Welle. “100 years ago, prices in Germany were soaring by 50% each month, a loaf of bread cost millions of mark. How did the young republic rein in inflation? When the young republic was lagging behind with its reparations payments, French and Belgian troops occupied the Ruhr Valley to secure the rich coal mines in the region. The local population went on strike to resist the occupation, and the government in Berlin fired up the money printing presses so that it could keep paying the ‘patriotic’ strikers their wages. ‘Inflation and a loose monetary policy go hand in hand,’ economist Jutta Hoffritz explains.”
“‘I get a lot of stories from people who, as children, found a pack of bills in the attic and felt totally rich for five minutes. It’s like, ‘I’ve found Grandpa’s hidden treasure!’ To their disappointment, Hoffritz reports, her readers were quickly disillusioned: ‘Then grandma comes in and says, yes, that’s what’s left over from 1923. And back then we couldn’t even buy a buttered bread roll with it.’”
From Bloomberg. “The bond market humbled Wall Street’s best and brightest in 2022. Oblivious to what lay ahead — the most-aggressive interest rate hikes in decades — one bond fund manager after another was saddled with heavy losses. Morgan Stanley’s Jim Caron says markets just aren’t prepared for how far US central bankers are willing to go to tame the hottest inflation in a generation. ‘People expect rates to come down and I think we need to listen to what the central bankers are saying,’ and their worries about inflation, said Caron.”
“Scott Solomon and William Eigen, who actively manage at least $1 billion are the only two that have managed to record a gain this year. With core inflation still at 6%, triple the Fed’s target level, Solomon and Eigen believe policy makers will be in no hurry to start cutting rates. Fed Chair Jerome Powell said as much last week, pushing back against market positioning for the Fed to quickly reverse course, after he led the board in lifting borrowing costs at a seventh straight meeting. ‘The Fed has let the inflation genie out of the bottle,’ Eigen said. ‘It’s very difficult to put it back in.’”
“Solomon expresses it this way: ‘The worst-case scenario for the Fed is an inflation path that bottoms and goes back up again, which is why we believe they will be slow to signal significant cuts. Not a lot of the market is willing to recognize that risk.’ ‘Right now people are assuming that the Fed’s going to be rapidly easing by the time we get to mid-year next year,’ Eigen said. ‘I just don’t see it.’”
From David Rosenberg. “This Fed is trying to find any reason to keep on tightening. And it isn’t really about the economy or consumer inflation. It is about asset inflation. It is about financial conditions. It is all about taking the punch bowl away. This Fed is trying to find any reason to tighten, break the multi-decade extreme relationship between the financial economy and the real economy, and extinguish the notion that there is a ‘Fed put.’”
From Mansion Global. “Realtor.com predicted that while inventory of existing homes next year will still lag behind 2019 pre-pandemic levels, it will be up from 2022 by more than 20%. For luxury buyers who didn’t manage to get their hands on a home in one of these growing markets during the pandemic, that means more to choose among—from golf course lots in Las Vegas to beachfront condos in Sarasota, Florida, to foothills mansions in Boise, Idaho. Throughout the summer and fall, inventory has increased dramatically across Las Vegas. The market finished October with 10,034 homes listed, as compared to a low of 5,572 in January.”
“‘There’s more inventory on the market and it’s been growing for the last few months,’ said Avi Dan-Goor, an agent with Douglas Elliman in Las Vegas. Now, though, buyers are returning their attention to those properties, especially after ones that may have had a price adjustment. ‘The perception has completely changed in terms of what a good deal is,’ Mr. Dan-Goor said.”
“As demand has slowed and the time on market has increased, prices are also slumping. The median price for a Las Vegas home decreased to $475,000 as of October, from a peak of $525,000 in May, according to the Las Vegas Realtors report. Luxury properties have seen price reductions anywhere from $100,000 to even multimillion-dollar discounts. ‘There have been a lot of overzealous sellers,’ Mr. Dan-Goor said.”
The Waco Tribune in Texas. “The list of permits issued to build new single-family homes in Waco used to run longer than the proverbial letter to grandma. Now it is more like a blurb, thanks to rising interest rates, recession fears and less confidence speculative homes will find a buyer in a timely fashion. Laura Sterr, a regional sales manager for Stylecraft Builders, said the company started building fewer speculative homes when the fourth quarter of the year arrived. She said Stylecraft also began rationing sales when interest rates were at their lowest ‘because we were getting a lot of investors scooping up everything they could before homeowners could act.’”
“That dilemma has corrected itself as the Federal Reserve raises interest rates. ‘I don’t know if we’ll ever get back to how fast things were 12 to 18 months ago,’ customer homebuilder Keith Gunn said of the breathtaking sales pace builders saw. Homes sold for an average $361,430 in October, 29% more than the $280,212 norm in the same month last year.”
From Market Place. “The housing market in Fresno, California, is not dead. But how’s the market now compared to last year when the influx of remote workers from the Bay Area was in full force? ‘I would say like the tortoise and the hare,’ said Sabrina Brown, a local real estate broker. ‘We have people that are changing jobs,’ she said. ‘They’re saying, ‘No, get back to the office.’ So we have those people [who] are selling, as well.’”
KOKH Oklahoma City. “The market is still in an upward projection, but sellers are seeing fewer showings, offers under the asking price, and requests for home repairs or help with closing costs. ‘Last year you had 20 people trying to drink out of the same water fountain, this year you may have three or four people trying to drink out of the same water fountain,’ said Peter Levinson, Levinson Real Estate. ‘If you take the last couple years in real estate, obviously there was a huge uptick,’ Levinson said. ‘Go back to the market pre-COVID and what we should look at is, are we on the same trajectory if 2020 didn’t happen, if 2021 didn’t happen, if 2022 didn’t happen? Is the market growing as it should have pre-2019?’”
“The Oklahoma City Metro Association of Realtors reports sales year over year dropped nearly a third last month, to just 1,100 transactions, sending inventory soaring 75% to 3,000 listings.”
From Better Dwelling. “Canadian real estate markets went from boom to crash in less than a year. Real estate prices are off the peak in every major market across the country. At the national level, a typical home is down 16.4% (-$142,300) since peaking in March 2022. No market is being spared, with some falling more than 20% from peak—fitting the technical definition of a crash. Markets experiencing the largest percentage point decline have shed a quarter of their value. The biggest drops were observed in London-St Thomas (-26.1%), Kitchener-Waterloo (-25.8%), and Cambridge (-25.1%). All three markets have officially crashed, with 18 major market indexes showing a crash.”
“Those in the Greater Toronto region might have noticed the biggest drops a short drive away. In fact, 9 of the top ten largest price drops occurred in the Greater Toronto region. Special shoutout to Hamilton (-22.6%), a small commuter city about an hour out of Toronto. Canadian real estate’s astronomical growth means very large dollar declines. The largest drops from peak were in Oakville-Milton (-$398,700), Mississauga (-$286,000), and Cambridge (-$249,600). Once again, those markets are all within an hour of Toronto, and considered commuter suburbs. In general, a typical home across Ontario (-$210,900) has seen the price drop significantly since peaking in March 2022.”
“Toronto and Vancouver real estate didn’t quite make the extremes, but they aren’t immune to the correction. A typical home in Toronto has dropped 18.4% (-$245,200) since peaking in March 2022. Over in Vancouver, prices are down 10.5% (-$133,100) from the April 2022 peak.”
“The Canadian real estate price correction is widely blamed on interest rates. Those play a big role when it comes to financing, and profitability for investors, helping to cool demand. However, it’s worth noting that prices peaked in March—before interest rates had a substantial impact on buying power. Most buyers would have a buyer pre-approval that would have limited the impact of the rate hike on absorption.”
“Some banks have argued this reinforces the belief that sentiment was driving growth. Sentiment-driven price growth tends to produce the largest bubbles and sharpest corrections, since the only thing that has to change is the belief prices will always rise. It appears more people are starting to realize prices can’t always go up.”
The Sydney Morning Herald. “In what could only be described as good news for first home buyers, the International Monetary Fund is warning that house prices in Australia could fall sharply in coming years. But in good news for those who already own a home, and who are banking on some nice tax-free capital gain, the policies proposed by the IMF to make housing more affordable have virtually no chance of becoming law in Australia any time soon.”
“Welcome to the topsy-turvy land of Australian housing policy, a land in which our leaders simultaneously pretend they want houses to be ‘more affordable’ for those who don’t yet own them while reassuring those who own one or more houses that we want to ‘protect the value of their assets.’ Talk about having a bet each way.”
“The confusion is no accident. It protects governments and oppositions from having to answer the simple question: ‘Do you want house prices to keep rising or do you think it would be better if they fell?’”
“As it’s impossible to simultaneously please the third of the population which does not own a home and the two-thirds that does, the default politician response is to avoid this simple question with a complicated answer about ‘housing affordability,’ a concept that owes everything to politics and nothing to economics.”
“The key to understanding the politics of house prices in Australia is to realise that the term ‘housing affordability’ is meaningless. While politicians often talk about the price of petrol, electricity and airfares, you’re unlikely to hear a prime minister or opposition leader talk about ‘petrol affordability’ or the ‘ratio of electricity prices to median income.’ They are certain they prefer low petrol prices and airfares to high ones, but they prattle on about ‘affordability’ with housing because they don’t know whether they want home prices to rise or fall, or they don’t want to make their priorities clear.”