Real Estate Blog

The industry is convinced that if only interest falls pent-up sidelined demand would be unleashed. But since mortgage rates started to fall in October from 8% to 6.85% today, mortgage applications have also fallen on an unadjusted basis except for one week. Today the Mortgage Bankers Association reported that the seasonally adjusted Purchase Index decreased …

Continue reading "The curious case of mortgage rates falling but demand not rising!"

What they forgot is that the Greeks also have a god named Khaos, the god of chaos. You would think after 5 years of it (2019-2023), we would have learned that volatility is the new normal. From a pandemic, to supply shortages, to a major land war in Europe, to inflation, to treasury markets stuck …

Continue reading "The markets are now believing the dot plot like it came down from the Oracle of Delphi!"

Powell turned into an Arthur Burns Pumpkin when the month struck 12! The everything stock rally has just begun so start buying everything you won’t miss. Dollar will continue to fall, commodities will rebound, top 20% of Americans will continue spending as their portfolios balloon, the bottom will still have jobs and add credit card …

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Online Black Friday sales are up 7.5% versus last year, Mastercard SpendingPlus reports a 2.5% increase, and malls are full (my anecdotal observation the last 2 days). This is great for the soft landing story but bad if you expect rates to decrease. I went to stores and watched videos of other shoppers seeing that …

Continue reading "Retail data is coming in for Black Friday and it’s looking good and that is bad!"

After the recent lost case for collusion, I don’t see the industry understanding the writing on the wall, and is doubling down. More agents and brokers are fear-mongering about buyers not getting represented because they can’t afford them. Yes, they can’t afford the current commission rates but that doesn’t mean they can’t afford something reasonable. …

Continue reading "The real estate industry has lost touch. (Part 2)"

After the recent lost case for collusion, I don’t see the industry taking seriously what is happening. Social media, statements, and emails I have seen from the industry are in defensive mode. There is all-out campaign to pump up the industry. A campaign to tell the industry’s story and convince the public that they are …

Continue reading "The real estate industry has lost touch (Part 1)"

They are there to help, advise, render services, and protect your interests. The real estate industry has lost touch. We are not in the business of selling homes or commissions but in the business of advising clients and offering services that have value. This industry now cares more about their commissions and high prices versus clients. …

Continue reading "Ask not what you will do for your realtor but what your realtor will do for you!"

As the Treasury pushes more and more debt and more and more debt at the longer end things aren’t as business as usual. October issuances have had dealers required to absorb more of the total sales higher than the usual share of around 10 to 12%, as an increasing number of potential buyers hesitated to …

Continue reading "Treasury Auctions aren’t as pretty as they used to be!"

How long before Japanese bonds blow up like US treasuries? Not sure how the BoJ and MoF can hold back the tsunami. US 10y is going over 5% soon and will weaken the yen past the 150 magic wall. Not like their inflation is getting better (flat around 3.2% for months). A few months ago …

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Me the last 3 years: “You sure about that?” I said several times that the stimulus and forbearance programs were acting as temporary financial safety nets and worse a trampoline for people to borrow more money than they could just like the pre-GFC. Thanks to Uncle Sam, credit scores shot up like a SpaceX rocket …

Continue reading "RE industry: “We don’t have the same issues as before GFC because of higher standards and credit scores!”"

Milton Friedman said to watch government spending! Boy, was he right. The government is spending like we are in a recession and little of it is hitting the real economy. Just look at the deficit, interest expense, and the reverse repo market keeling over. When the reverse repo market experiences a drain, this typically significantly …

Continue reading "Why can’t we have a soft landing or lower rates?"

Why can’t we have a soft landing? Powell has taken back his message of a soft landing and rightfully so. While we are not yet close to a recession there are signs that we are not that far away. Now the question should be, can we have a hard landing and get lower rates? That …

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Why can’t we have low rates? I see real estate agents and loan officers on social media claiming low rates are just around the corner for the last 12 months. Why do they keep getting it wrong? Well, first off they are in sales. No one in sales tells you this is a bad time …

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We have to add one more debt crisis, that few talk about, and add it to the troubles in CRE, auto ABS, zombie debt, hold-to-maturity Treasuries/MBS, and personal loans. The one we have to add to the long list had a chance to be saved until the Supreme Court decided to axe the rescue package. …

Continue reading "Is another debt bubble ready to burst?"

2M+ home sales are up 25% yoy and are back near 2021 highs. Home sales under 800k are down 20 to 45% (mid-tier homes hit the hardest) and home sales between 800k and 1M are flat to slightly negative. Even worse the share of luxury home sales versus total sales has risen after falling in …

Continue reading "The stock market is up. Yields on bonds are up. So what happens to real estate?"

Many are starting to believe that the yield curve is a false positive for a recession and that good times are just around the corner. The length of time the yield curve is inverted and the severity of the inversion are also important. Historically when one is long and the other is deep, the recession …

Continue reading "Space vs Time. An old strategic dilemma!"

Where is inflation going? Base effect and drivers. To understand inflation we have to look at both. Base Effect:Inflation ran high in the second half of 2021 and the most significant growth in CPI was concentrated in the first half of 2022. In the second half of 2022, the CPI remained rather stable and has …

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Inflation is beaten! Only one problem. 3.6% unemployment, 5.6% wage growth according to the wage tracker from the Atlanta Fed, global oil consumption is projected to hit 101.9 mb/d according to IEA (so no demand curb), and the dollar has started to slide. Sure the base effect and the previous deflationary run of energy (mostly …

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Some claim that we need to see inventory over 1.4 to 1.8M homes to become more balanced. What if our historical concept of what an acceptable inventory level number is outdated? Are other factors making the inventory seem much lower than in previous decades? My thesis is that technological changes and consumer adoption of them …

Continue reading "Since 2016, home inventory has been falling"

As everyone cheers for low inventory due to “low rates” no one asks what is the true cost of home ownership and if people can afford it. So as we see low delinquencies (not lower than in 2006 and 2005 by the way) and low inventory, the costs of homeownership retention are rising. From insurance, …

Continue reading "In the background and unseen, more real estate problems are brewing!"

You have probably seen post after post, article after article, and video after video from the real estate industry that median home price is no longer valid after being used for decades! Well, I don’t blame them. If home prices were falling before inflation, I would probably try to discredit the data too. The posts, …

Continue reading "Median home price is no longer relevant? Hold on a second!!!"

We are in the middle of a silent real estate crash and few realize it as my colleagues in the real estate industry continue to say there is no crash. Some point out that prices have barely fallen and even risen slightly in the last month at a .9% annualized rate. The problem is that …

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West Coast Port Closures are another headache we don’t need! The West Coast ports of the United States serve as vital gateways for international trade, facilitating the movement of goods and materials between Asia and North America. Any disruption to the operations of these ports can have significant consequences for container prices, logistics costs, supply …

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In September 2019, the financial markets experienced a significant event with the EFFR (Effective Federal Funds Rate) and SFOR (Secured Overnight Financing Rate) rates shooting up. These rates are crucial indicators of liquidity in the financial system. The trouble began in September 2019 when the EFFR surged to levels significantly above the target set by …

Continue reading "Another Repeat of September 2019 is coming?"

The CRE market in office and retail space is in serious trouble and I have been saying it for months before we banks get into trouble. Yet we want to continue believing that the banks are resilient. The market consists of $4.5 trillion income-producing properties and $470 billion of construction loans. Banks hold less than …

Continue reading "REITs, banks, and private equity are in trouble."

The markets are nervous about passing the debt ceiling. They should be more worried about after the debt ceiling is passed as the Treasury will issue new debt and that is going to be a problem. for banks on multiple fronts. Not like they don’t already have problems but here as we are about to …

Continue reading "To pass or not to pass the debt ceiling is not the question!"

Mortgage Rates are going up, Homes sales are falling, Home prices are going down, and Banks are tightening! According to Reding, “the typical U.S. homebuyer’s monthly housing payment hit an all-time high of $2,538 as average weekly mortgage rates rose to 6.39% after five consecutive weeks of declines”. Home sales have fallen another 2.6% and homes …

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Vacation homes are not so hot anymore! Rate locks for second homes are down 52% from pre-pandemic levels on a seasonally adjusted basis in March, compared with a 13% decline for primary homes. Yup, the days of below 3% rates are over and the top 1% has already bought a record amount of second homes …

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A Mexican stand-off in real estate! Homebuyers are refusing to buy as long as rates are above 5.5%. Sellers don’t want to sell It’s a standoff. But who is right? According to the CNBC article “The majority of potential homebuyers, 71%, say they will not accept a 30-year fixed mortgage rate over 5.5%, according to …

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Gas prices are rising again The average price for a gallon of gasoline is now 3.57 and rose by 8.8 cents compared to a week ago, according to GasBuddy. While still cheaper than last year the rise of gasoline prices could continue as demand stays strong and OPEC cuts start to bite. WTI is back …

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Credit Cruntch? Capital One, Ally, Santander and Next Gear Capital have started pulling inventory floor plans from dealers. Small and used car dealers will have a hard time buying inventory of cars as credit lines are pulled. The banking crisis reverberations are spreading as lending tightens. As rates will remain high, Fed still has no …

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Real estate in Europe is falling. Sweden is one of the hardest hit along with Greece, Spain, Italy, Portugal, and Poland. Many of these are facing the problem of using variable rates as rates continue to go up and households get their purchasing power eroded by inflation. The US is not immune. ARM use has …

Continue reading "It’s not just in the US!"

San Francisco, California home prices have crashed! According to Redfin median home sale prices in SF are now below February 2020. 2022 and 2021 gains have been erased. I warned! I warned again! and again! The peak median home price was back in April 2022 with a median sale price of $1.612M. Today it is …

Continue reading "Correction no more?"

Some people are quick to say this is not 2008. For once they are right! In 2008 we had a bank crisis because of over-speculation on risky assets. We fixed the speculation with speculation on safe assets. We unleashed fiscal spending and trapped most of it in the banks through QE. By 2009 the banks …

Continue reading "It’s not another 2008! Yes but could be worse"

Home prices only go up! If only pundits and experts in the real estate industry read history they wouldn’t repeat it so much! In the last 223 years of real estate and land values they fallen at least 13 times. That’s an average of one every 17 years. We had home and land values fall …

Continue reading "Housing History It’s not just up all the time!"

Tell me you are injecting liquidity without injecting liquidity. Discount window lending at 0.25% that’s a liquidity injection but at 4.7% percent not so much. Backstopping depositors and seizing assets to liquidate them and pay back that backstopping is not so much liquidity either. Before we get all excited about a potential third rate cut …

Continue reading "No QE!!!!!!"

Home sales are up! Drill down and do some research and prices are down and not just down but down YoY like I have been forwarning for months. But wait 5 months for double-digit. California is seeing a 20% decline, the Southwest 15%, the South 8 to 10% (except parts of Florida), and Washington DC …

Continue reading "Sales are up in February but prices are down YoY for the first time."

The chart below is showing the distribution of homeowners and what rates they currently have versus PMMS or the Primary Mortgage Market Survey of current rates and points for their most popular mortgage programs offered. At first glance this would be a boon as most homeowners have locked in rates under 4% with the largest …

Continue reading "Homeowners locked in at record low rates, a boon or a Trojan Horse?"

I will say it again, we have misunderstood the GFC and making the same mistake twice! The St. Louis Fed said back in 2014 (see link below): “In our view, the ultimate underlying cause of the foreclosure crisis was the emergence of a significant housing price bubble and its subsequent collapse.” https://www.stlouisfed.org/publications/regional-economist/july-2011/the-foreclosure-crisis-in-2008–predatory-lending-or-household-overreaching After reviewing foreclosure …

Continue reading "I will say it again, we have misunderstood the GFC and making the same mistake twice!"

Supply is low???? 4.6 Months might not be much but back in late January 2021 it was 1.6 Months. How rates affect home buying and lending cannot be underestimated. The median home sale price was $346,875, up 0.8% year over year but down 10.8% from the peak. Price never lies. Within a month or two …

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Where are mortgage rates going? If history is any guide, then they aren’t going to start falling until the Fed pivots. Mortgage rates usually hit a peak when the Fed fund rate peaks or 0-3 months before and mortgages don’t fall significantly until the Fed fund rate falls. A pivot away from rate hikes doesn’t …

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When the chickens of cheap money, low lending standards, no negative credit reporting, forbearance, moratoriums on debt payments, and free stimulus money come back to roost with a roar! $1,000 car payment and it’s not even a Mercedes! It’s an iceberg and we are on the Titanic, and the collision happened 30 minutes ago. I …

Continue reading "When chickens come back to roost"

You heard the narratives of not enough inventory, too much equity, too many homeowners with low rates, not enough new construction, blah blah what ever the real estate associations and realtors say. Well not this realtor that actually bothers to look at economic data and indicators. Demand matters, type of demand matters, banks matter, economic …

Continue reading "2023 Real Estate Market Where is it Going? Look at Indicators not Narratives!"

The home that you are now selling for 500k today needs the same qualified buyers with the same DTI, credit score, and income level that would have bought an 800k home one year ago. A $2,661 a month mortgage payment today at 7% is the equivalent of a mortgage payment a year ago for a …

Continue reading "Not trying to scare you but something you need to know!"