'The purpose of homeownership has been lost'
“We can never recapture the purchasing power of the dollar that has been lost.”
William McChesney Martin, the longest-serving Fed chairman, August 1955
The Great Liquidity Debate | Michael Howell & Andy Constan Oh boy. High-level discussion here (they spent the first 5 minutes dissing a chart I like to toss out from time to time of the Central Bank balance sheets vs the SPX). Howell seems to be pro-equity but negative on bonds, while Constan is shorting both equally apparently. Anyway, still plenty of liquidity! The depressing part is their prophecy that the Federal Reserve and Janet Yellen will mess far more with what remains of “markets” in the future.
$2 Trillion deficits as far as the eye can see, financing over 20% of that at the short-end while we have a ridiculously inverted yield curve, “Not-QE QE”, Yield Curve Control, private investors levered up 50-1 on bonds, human sacrifice, dogs and cats living together, mass hysteria... Truly a dystopian future, where the same statist, unaccountable clowns who led us into the desert remain in charge of leading us…further into the desert. But that’s just my take!
Howell and Costan talk a lot about how the watch works, while I just try to look at the time.
I wonder if they had podcasts like the above back in early 1920’s Weimar Germany.
Von Havenstein faced a very real dilemma. Were he to refuse to print the money necessary to finance the deficit, he risked causing a sharp rise in interest rates as the government scrambled to borrow from every source. The mass unemployment that would ensue, he believed, would bring on a domestic economic and political crisis, which in Germany’s current fragile state might precipitate a real political convulsion. [Remember, Hitler’s Beer Hall Putsch was in Nov. 1923, at the peak of the hyperinflation. - RH]
As the prominent Hamburg banker Max Warburg, a member of the Reichsbank’s board of directors, put it, the dilemma was “whether one wished to stop the inflation and trigger the revolution” or continue to print money. Loyal servant of the state that he was, Von Havenstein had no wish to destroy the last vestiges of the old order.
The Move Index
No fear VIX.
Related: BusinessWeek cover story, August 13, 1979: "The Death of Equities - How inflation is destroying the stock market"
Whatever caused it, the institutionalization of inflation—along with structural changes in communications and psychology—have killed the U.S. equity market for millions of investors. "We are all thinking shorter term than our fathers and our grandfathers," says Manuel Alvarez de Toledo, of Shearson Loeb Rhoades Inc.'s Hong Kong office.
Today, the old attitude of buying solid stocks as a cornerstone for one's life savings and retirement has simply disappeared. Says a young U.S. executive: "Have you been to an American stockholders' meeting lately? They're all old fogies. The stock market is just not where the action's at."
This is excellent: "The banks own the place." Jeff Connaughton, author of “The Payoff: Why Wall Street Always Wins”, in 2014.
Multi-Family Serious Delinquency Rate
LA tenants have until Aug. 1 to pay 18 months of back rent
Under a tenant protection package passed early this year, tenants have until Aug. 1 to repay the debts incurred between March 1, 2020 and Sept. 1, 2021…Yukelson said landlords were “left powerless” against non-paying tenants and were taken advantage of during the pandemic. There were instances, he said, where landlords didn’t receive rent payments while their tenants bought new cars, went on vacations and even bought properties.
I thought this was good (unedited):
The purpose of homeownership has been lost
It used to be that you'd work at your job and rent until you could save up 3.5-20% for a mortgage downpayment. That had been the traditional path to generational wealth for decades, because instead of burning money with rent payments, you'd have equity in an appreciating asset* you could live in.
Some people could afford 2nd homes for vacations or as an additional asset to grow wealth through rent, and that was okay.
But then real-estate investors went nuts with properties. And after that, social media influencers got popular with one simple trick: Buy properties, and then use those properties as leverage to finance the purchase of new properties until you felt happy with the cashflow.
But now there's a monster in the system. Institutional investors and private companies have been buying homes all over the country and reducing supply, pricing out individuals and families who can no longer afford downpayments, let alone full cash purchases above asking price.
This isn't going to change and the market won't correct itself. The level of greed has become unmanageable and housing prices will keep rising, while we sit on the sidelines waiting for a bubble that will not burst until something worse, like the USD collapsing, occurs.
Whatever this country is doing is clearly not working for
the majoritya lot of people and only bold legislation that serves individuals rather than profit-driven companies can fix this, perhaps at the cost of losing the super appreciation of properties in the middle and long term.We are now divided into those who bought homes before the rate hikes and those who didn't. The inequality that will arise from this will take time to show its ugly head.
Edit: ITT some people don't know what "generational wealth" means.
*Rent = burning money, mortgage = putting money into an asset that keeps up with inflation. I'm not saying you build wealth through the appreciation itself.
I wouldn’t have crossed out “the majority."
Some comments…
Just fyi - this comment below I agree with most: “The purpose of homeownership is to have a place to live, not generate wealth.”
California house payment hits record $4,332 a month
“Let’s make it simple: California homes are simply too expensive.”
Wow. You rarely see that in a mainstream publication.
More homeowners tap equity juiced by soaring prices
“Tappable homeowner equity jumped 18% in the third quarter from a year earlier to an all-time high of $20.2 trillion”
I’m reminded of a great Rick Rule quote:
"I learned that my assets were ephemeral, while my debts were money-good."
Redfin Housing Market Update
“Active inventory declined, with for-sale homes lagging behind year ago levels by 8%. This week marks a 5th consecutive annual decline in the number of homes actively available for sale. New listings–a measure of sellers putting homes up for sale–were down again this week, by 18% from one year ago.”
Revenues from home sales decreased 4% in the second quarter of 2023 to $7.6 billion from $8.0 billion in the second quarter of 2022. Revenues were lower primarily due to a 7% decrease in average sales price of home deliveries, partially offset by a 3% increase in the number of home deliveries. New home deliveries increased to 17,074 homes in the second quarter of 2023 from 16,549 homes second quarter of 2022. The average sales price of homes delivered was $449,000 in the second quarter of 2023, compared to $483,000 in the second quarter of 2022. The decrease in average sales price of homes delivered in the second quarter of 2023 compared to the same period last year was primarily due to pricing to market and product mix.
Cut the price, and they will come. Maybe. Homebuilders have been cutting prices, they’ve been building at lower price points, they’ve been buying down mortgage rates, and they’ve been throwing incentives into the mix, as their costs have come down from the spike in 2021 and 2022, and as the supply-chain chaos has largely faded and endless delays have ended. They’re doing this because the 7% mortgage rates have slashed demand at sky-high prices. And builders have to build and sell homes, no matter what the market conditions.
The median price of new single-family houses sold in June dipped to $415,400, down by 16% from the peak in October 2022, and down 5% year-over-year (green line), according to data from the Census Bureau today.
The three month-moving average, which irons out the monthly ups and downs and revisions of the median price, fell to $414,433, the lowest since October 2021, down by 14% from the peak in December 2022 (red line). But these prices do not include the costs to the builder of mortgage-rate buydowns and other incentives.
United States Pending Home Sales YoY
“The sudden disappearance of two firms specializing in non-prime loans has given rise to uncomfortable questions”
[Note that this article below is a year old. I misread the date at first, but the points about liquidity that jumped out at me still apply, so I left it in. - RH]
…there have been reports recently that lenders have been changing loan terms at short notice, raising liquidity issues and placing non-QM firms in a difficult position with customers. And, according to the latest reports, up to 16 non-QM lenders are having funding issues and will be required to advance a greater percentage of cash to fund loans from now on…Kirk Tatom, president of Tatom Lending, said non-QM lenders faced specific issues not common to other lenders. He said: “One of the biggest issues with non-QM is liquidity. Non-QM, just like subprime loans, are meant to be a patch. They’re short-term lenders…
For his part, Jon Maddux, CEO and co-founder of non-QM specialist FundLoans…expressed surprise at Sprout’s sudden closure but suggested that the company may have taken a risk by allegedly buying and holding loans that were submarket coupons. He insisted that non-QM was a safe product that performed “very well” but conceded that liquidity was a concern.
50% of Baltimore CRE Loans Are “Distressed”
An analysis of July commercial mortgage-backed securities, or CMBS, data by the Business Journals shows the Baltimore metro area has 274 properties including offices, hotels and smaller retail hubs with a combined balance of $2.8 billion maturing by the end of 2024. Of those, 137 properties — with a combined $946 million in debt — are classified as distressed, or mortgages that are on loan servicer watchlists or already in special servicing, marked as delinquent, in foreclosure, bankrupt or matured and nonperforming.
"There is no doubt about it," Higgs said. "When new sales take place, a new comp is set and they will use that as a basis for determining a new value of property. This will definitely happen. I see a wave coming."
He dryly added the city could make up for the lost revenue of property tax losses in an unpopular way by "adjusting the tax rates" — or raising property taxes.
"That would be an option," Higgs said.
‘Unglamorous strip centers are signing leases faster than tenants can move in’
Car Payments
Kansas City Fed Manufacturing Survey
The Kansas City Fed Manufacturing Survey is a monthly survey of ~300 manufacturing plants that provides information on current manufacturing activity and future expectations in the tenth district (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri). The composite manufacturing index is an average of indexes on production, new orders, employment, delivery time, and raw materials inventory. This is a diffusion index, meaning negative readings indicate contraction while positive ones indicate expansion. The survey offers clues on inflationary pressures and the pace of growth in the manufacturing sector for this region of the country and the accumulated results can help trace long-term trends. Quarterly data for this indicator dates back to 1995, but monthly data is only available from 2001. All figures are seasonally adjusted.
Interesting exchange on the latest Valero conference call about demand for refined fuels, via CBS:
Manav Gupta
The second question here is the DOE data is telling us whatever it is, and there are obviously some concerns around demand out there, but the cracks are telling us a completely different story. The cracks are telling us the demand for products is remarkably strong. So just wondered if you could highlight some of the -- what you're seeing in terms of demand in various regions?
Gary Simmons
Yes, Manav, this is Gary. We do believe that the DOE is understating gasoline demand. But even their data is showing on a 4-week average basis gasoline demand up about 3%. But if you look at our numbers, of course, Lane mentioned we had record volumes in both May and June of over 1 million barrels a day. We're seeing gasoline sales in our system up 14% year-over-year, up 22% from pre-pandemic levels.
Gasoline inventory year-over-year is down 7.5 million barrels. So it's trending at the low end of the 5-year average range. Typically, this time of year, you have an open arb to ship barrels from Europe into the United States. But with inventory low in Europe, that arb is closed, which is hindering imports, and we see strong export demand from the U.S. Gulf Coast into South America.
So the fundamentals around gasoline look very good. Diesel inventory is up 6 million barrels, but continues to trend below the 5-year average range. Diesel inventory is flat, where historically, this time of year, we start to see diesel building. Again, while the DOE reflects weaker diesel demand year-over-year, it looks like the weekly data is continually being revised up.
CBS: “Last year when oil and fuel prices were spiking, the government stopped publishing data on demand for two weeks because of a "voltage irregularity," and once publication resumed after this "pause," the data has no longer seemed congruent with what other sources reported.”
Gasoline
Core PCE is still over double the Fed’s made-up 2% target!
ECB Rate (Trigger Warning!)
Bank of Japan Rate Still negative 0.1%.
‘Rising stocks and falling bond yields have resulted in looser financial conditions despite Federal Reserve’s tightening’
(Also note the Howell/Costan podcast at the top.)
This is remarkable:
Rising stock prices and falling bond yields have made it so much easier for US companies to raise funds that much of the impact of the Federal Reserve’s interest rate rises has been neutralised, according to investors and several closely watched measures.
The degree to which the environment has improved in recent weeks is reflected in the National Financial Conditions Index, compiled by the Chicago Fed, touching its lowest point in 16 months.
However, looser financial conditions run counter to the Fed’s goal of slowing the economy to bring inflation under control, and make it more likely the Fed will have to keep interest rates higher for longer.
“The reality is that financial conditions have loosened — we have [effectively] unwound roughly 450 basis points of rate hikes. Financial conditions are enough to take us back to March of last year,” said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.
Coca-Cola Prices
My personal experience is that Coca-Cola prices have about tripled in recent years, so I wondered, who the hell is still buying at these prices? (I know, it’s bad for you.)
I will keep an eye on this: unit case volumes were down in Europe, the Middle East, Africa and North America in the last 3 months. Looks like they blame Putin, but maybe that’s related to the price hikes. They’re selling less, but at higher prices, so the income statement still looks good? I’m just a caveman.
One of the points my dad made in conversation about flat tax proposals thirty years ago was they ignored the massive and very popular subsidy for mortgage interest deductibility. The long period of very low interest may have obscured this point recently. But it is a huge difference between renting and making mortgage payments, especially in the early years of a twenty or thirty year mortgage when most of the payment is going to interest.
Another reason for home ownership is the homestead exemption in bankruptcy law. Once you own your home and it isn't collateral for a loan, it, your tools, and one vehicle to get to work are really hard to claw away from you. This is going to be more apparent as tens of millions of Americans face personal bankruptcy.
These are not very humourous points though, so I'll look for silliness next time. 😁🎶
Always a good read!