A weekend topic starting with Mortgage Professional America. “‘We were overpaid for a couple of years,’ said Dan Lourenco, a loan consultant at Mortgage Navigators. ‘and it was too easy. Now you have to work a little bit. This year, I’m probably down 40% from the last two years, which were crazy years.’”
From Market Watch. “A growing number of traders, academics, and bond-market gurus are worried that the $24 trillion market for U.S. Treasury debt could be headed for a crisis as the Federal Reserve kicks its ‘quantitative tightening’ into high gear this month. One particularly stark warning landed earlier this month, when Bank of America interest-rate strategist Ralph Axel warned the bank’s clients that ‘declining liquidity and resiliency of the Treasury market arguably poses one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.’”
From Newsweek. “The CEO of private equity company Starwood Capital Group, Barry Sternlicht, has warned that the American housing market faces a major crash. He said: ‘The Consumer Price Index, the data they are looking at is old data. All they have to do is call Doug McMillon at Walmart, call any of the real estate fellas and ask what is happening to our apartment rents. The economy is braking hard, CEO confidence is also miserable. 500,000 single family home sales, new sales, is the lowest since 1952, you are going to have a major crash in the housing market.’”
“Sternlicht also said that consumer confidence was a concern. ‘Consumer confidence is terrible. Where will that show up? It will show up at Christmas,’ he said. ’20 percent of people will spend 50 percent less than they did last year. They are doing this against piling up inventory. Inventory is moving rapidly higher, companies bought goods thinking the pandemic behavior would last forever.’”
From Bisnow. “The Fed has already raised rates by 2% this year, but inflation has yet to come down. ‘Yes, this inflation report was a surprise. The increase of 75, maybe even 100 basis points, at the next meeting and then another 50 or 75 at year’s end is not completely out of the realm of what’s being expected,’ Moody’s Senior Economist and Director of Economic Research Thomas LaSilva said. ‘For certain assets, weaker assets, ones where debt yield is already low and [landlords are] trying to refinance, this doesn’t play out very well for those.’”
“‘If you’re in real estate, you are in recession. It’s just a matter of time when it goes to financing, refinancing, restructuring. It’s going to show up,’ said Rajeev Dhawan, the director of Georgia State University’s Economic Forecasting Center. ‘The cost of doing business is going to be much higher.’”
The Hillsboro Tribune in Oregon. “Lack of buildable land, increased costs from bureaucracy and a strained supply chain. If that weren’t enough to give developers pause, add on a labor shortage. ‘It was worse with all the stimulus and unemployment kickers,’ said Harlan Borow, land development and acquisitions manager with Icon Construction. ‘Somebody calculated that if you made less than $65,000 a year it made no sense to work.’”
The Press Enterprise. “Southern California’s bosses essentially stopped hiring in August, boosting employment across the region by only 100 positions. But August’s hiring slowdown was likely more about a shortage of candidates and employers tempering expansion plans than a signal of widespread layoffs. ‘If no one wants to work, then how do you create jobs?’ asks economist Mark Schniepp of the California Economic Forecast. ‘We know there is still insatiable demand for workers. This is a slowdown in available working people — supply — rather than in demand for working people. Call out the robot army. We need them now at a restaurant and hotel near you.’”
From My Northwest on Washington. “I spent last Sunday visiting various homeless encampments in Seattle. After speaking with many living in them, most of whom were from out of state, it became clear: they’re beyond help. It’s the fault of city leadership and homeless enabling activists. The encampments I visited in SoDo were obviously filthy. Garbage and human waste festered in massive piles, with flies everywhere. The stench could make your eyes water. Used needles were strewn about and the homeless seemed not to mind because they’ve gotten used to it.”
“It’s not safe to live here. But there’s a pressure campaign to stop sweeps. Local activist groups help keep homeless encampments intact, pushing back. Tina came to Seattle from Darrington ‘to find a better life’ after a divorce. But she became addicted to heroin and her life has spiraled. She says she’s currently seeking treatment — something she’s attempted ‘several’ times before.”
“Mary from Georgia came to Seattle thinking she could find affordable housing options. She now lives with her partner and dog in a tent along a row of RVs near T-Mobile Park. ‘I heard they [the city] had better resources,’ she told me. ‘So far, I haven’t come across any. I was expecting them to have more availability, low incoming housing.’ She stays in Seattle because she says the city is ‘accepting of the tents.’”
“Believing that ‘affordable housing’ will solve their problems is, at best, naive and, at worst, delusional. It’s disturbing that activists and the city council share the opinions of the very people who are not of sound mind to come up with solutions on their own. Address the root causes and we can actually solve homelessness. Focus on ideological agendas of free housing? All it does is ensure an endless money pit into real estate that kills people indoors rather than outdoors.”
From Boise Dev. “The house next door might not be owned by your neighbor or someone who lives in Idaho at all. Last year, BoiseDev reported that as many as one in five homes in Boise are owned by someone who does not plan to live there. This matches with national real estate transfer data tracked by John Burns Real Estate Consulting, which estimates a fifth of homes sold nationwide go to investors. The percentage of investors buying homes climbs to 31% for homes priced under $200,000 nationwide.”
“Records reveal at least over 400 single-family homes in the Treasure Valley owned by investors out of state, with the vast majority held by publicly traded California-based company American Homes 4 Rent. It’s not just in Idaho, where investment companies have taken a foothold, fundamentally changing the real estate market. A months-long investigation by the Charlotte Observer unearthed the scale of Wall Street-backed firms’ real estate holdings in North Carolina earlier this year. A team of reporters uncovered 40,000 properties owned across the state by less than two dozen investment companies with deep pockets.”
“Public real estate records show American Homes 4 Rent owns 443 properties across both Ada and Canyon County, with 344 of the properties in Idaho’s largest county. Most of the homes are located in the once affordably priced outer suburbs of Kuna, Star, Meridian, and unincorporated Ada County. For example, in one Star subdivision with 214 homes, seven are owned by American Homes 4 Rent.”
The Austin Monitor in Texas. “As the city struggles to enforce short-term rental regulations, a large majority of Austin’s STRs continue to operate illegally, according to a Sept. 6. presentation from the Code Department to the City Council Housing and Planning Committee. There are anywhere between 9,000 and 11,000 STR listings in Austin, depending on the day, according to José Roig, director of the Code Department, but only around 2,000 of those are licensed.”
“Some residents say STRs are hurting their quality of life. ‘We can’t call enough for the parties, the trash, the noise, etc.,’ Deborah Blumentritt said. ‘It’s ruining our neighborhoods.’ Roig said that hosting platforms like Airbnb or Vrbo do not cooperate with the city’s enforcement efforts, and the city can only cite property owners, not the platforms. The Code Department has six officers who enforce STR regulations and handle code violations.”
The Globe and Mail. “Canadians saw their collective net worth fall by the largest amount on record in the second quarter as financial markets and residential real estate hit a rough patch, ending a streak of massive wealth generation during the previous two years of the COVID-19 pandemic.”
“Household net worth fell by $990-billion in the second quarter to $15.2-trillion, a decline of 6.1 per cent from the first quarter, Statistics Canada said Monday in a report. That was the largest decrease since at least 1990, and eclipsed a 5-per-cent fall in the third quarter of 2008, coinciding with the global financial crisis. Despite the drop, household wealth was still nearly $3-trillion higher than before the pandemic.”
“Canadians are seeing their personal finances tested as the Bank of Canada aggressively raises interest rates to slow the economy and rein in the highest inflation rates in decades. The real estate market has entered a prolonged slump of dwindling sales and prices, while employment has fallen for three consecutive months as companies taper their demand for labour.”
“This marks an abrupt shift from the euphoria that persisted for much of 2020 and 2021. After the initial shock of COVID-19, stocks and real estate went on dizzying rallies, helped by rock-bottom interest rates and government pandemic aid, both of which were needed to prevent economic collapse. With fewer options for spending, many people bought wealth-generating assets.”
“At the same time, Canadians packed on loads of debt, a perennial concern for the domestic economy. That remained the case in the second quarter of this year as households added a near record $56.3-billion in debt, taking total borrowing to $2.8-trillion, mostly in mortgages. Canadians now owe $1.82 for every dollar of disposable income, just shy of a record $1.85.”
From Mises.org. “Jay ‘The Inflation We Caused Is Transitory’ Powell finally did it. On Friday, the Fed chair finally mustered the courage to say that he is going to do the job he has been hired to do: the Fed will not ‘pivot’ to cut interest rates until inflation slows meaningfully and persistently—even if the stock, bond, and housing bear markets become much worse and the economy goes into recession. ‘Overarching focus’ means that stock prices, housing prices, employment, and economic growth are minor concerns for the Fed compared to their goal of trying to bring inflation down from the recent +8.5 percent level to their arbitrary +2 percent level (which cuts the dollar’s value by 50 percent in thirty-four years).”
“The dangers of inflation that Powell highlights are very real. Other dangers he didn’t mention include how the inflation the Fed creates also causes the boom-and-bust business cycle, destroys scarce capital resources, lowers overall living standards, and increases the size and power of the government. ‘Some pain’ means lower stock prices, lower housing prices, less wealth, more joblessness, lower living standards, more bankruptcy, more poverty, and more misery. It’s highly unusual for a politician or bureaucrat to admit they intend to cause pain.”
“The Fed continues to say they do not expect their policies to cause a recession. But remember, they recently thought inflation was ‘transitory.’ The Fed has a terrible track record of not only ‘managing’ the economy, but also forecasting the economy. Unfortunately, a recession is likely unavoidable at this point, even if the Fed started cutting interest rates right now. Keep in mind, the Fed cut interest rates all throughout the recessions of the early 2000s and 2008–09, and they were unable to prevent them.”
“The boom-and-bust business cycle is caused by the Fed and banks creating money out of thin air, which artificially lowers interest rates and leads to an economic boom. Eventually, money supply growth slows, and interest rates rise. That leads to an economic bust. As economist Ludwig von Mises summarized in his treatise Human Action: ‘The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion.’”
“The Fed is aggressively tightening monetary policy in the face of an impending recession for the first time in over forty years. The perfect storm of record-high stock market valuations and Fed tightening into a recession will likely lead to the worst stock bear market and recession since the Great Depression, when stocks fell nearly 90 percent. Now is the time to get prepared for the ‘pain’ Powell plans to inflict.”