Average monthly federal funds rate via the St. Louis Fed
Chart Notes
- I use monthly averages because the Fed is now targeting a range. In addition, the target federal funds rate is abandoned and only dates from 1982.
- This is the steepest and most aggressive touring cycle ever.
You can see the impact particularly in mortgage rates and therefore housing.
30-year fixed mortgage rates from 1975 to today
30-year fixed mortgage rates, courtesy of Mortgage News Daily
30 Year Fixed Mortgage Rates – One Year
30-year fixed mortgage rates, courtesy of Mortgage News Daily
Existing home sales drop in 9th month, down another 5.9%
National Association of Realtors Existing Home Sales via St. Louis Fed
With Fed rate hikes, existing home sales fall in 9th month, down another 5.9%
Existing home sales crash
- Existing home sales are down 28.4% from a year ago.
- Existing home sales are down 31.7% since January.
It’s an accident. And we have never seen such declines other than in recessions.
The crash is in the transactions, not the price.
Cost of possession
“Nationally, it costs $888 more per month to buy an entry-level single-family home than to rent it, according to September data from John Burns Real Estate Consulting. interest, taxes, insurance and maintenance) on such a home cost $3,058 per month, while the median monthly rent for such a single-family home was $2,170, according to research by John Burns.
The cost of owning a home with a mortgage is the most expensive since at least 2000.
The current landscape of the housing cycle
1 to 3 year housing outlook
Image courtesy of John Burns Real Estate Consulting
Falling real estate markets
Several major markets have now entered the down phase of the cycle, characterized by flat or falling prices, limited capital investment and falling housing demand.
- Although it is one of the largest resale markets in the country, construction of new homes in Chicago and Minneapolis, whose recovery lagged in the post-GFC expansion, struggled to take off during the pandemic-fueled housing boom. These economies continue to underperform, and we worry about significant emigration and sustained population loss.
- Austin, Sacramentoand Salt Lake Cityall notable for immigration and robust, demand for tech jobs/job growth throughout the pandemic, quickly reversed course.
- Phoenix and Riverside-SB also quickly reversed course, in part due to large speculative investments that drove prices up rapidly. They have also benefited enormously from the industrial building development boom which has now cooled off.
- Sales are plummeting and resale supply is skyrocketing, leading to a rapid decline in home price appreciation, with home values now declining month-over-month. Single-family construction activity has declined as many builders in these markets are reluctant to open new communities during a downturn.
Housing is local (until it isn’t)
Slowing markets include Dallas, Jacksonville and Raleigh-Durham.
The rest level off. There is no major market dip, rally or growth.
That may be true on a micro level, but I’m tired of the phrase “Housing is local” when almost the whole country is heading in the same direction.
Not a crash? !
Long-term chart of existing home sales courtesy of Trading Economics
Scroll to continue
Sales of new homes
Census Department new home sales data, chart by Mish
Last month, I noted huge new negative sales revisions for August. This month, the Census Department reports negative revisions for September.
If the trend continues, there will also be negative revisions next month.
What about cancellations?
The Census Department does not subtract cancellations from its reports, and cancellations due to rising mortgage rates have been huge.
In declining sales environments and (current) economic downturns, the Census Department significantly overestimates sales, even though we ignore revisions.
In times of economic recovery, the census service underestimates sales.
For more, please see New Home Sales Rebound 7.5% From Negative Reviews
Factoring in cancellations, new home sales are around SAAR 468,000 around their 1963 level.
But hey, let’s not call it a crash either.
housing hell
Look forward
The hiking range would be 5-7%.
We do not care How we get there
Odds Increase Rate for December 2022
FedWatch CME Rate Hike Odds Chart
Expect another half point rise on December 14th.
Rate of rise in ratings for December 2023
FedWatch CME Rate Hike Odds Chart
An impeccable track record
The market doesn’t think we’ll hit 5.0% next year and neither do I.
Bullard has an impeccable track record of being wrong.
Meanwhile, housing is going to hell. Don’t expect that to change for 1-3 years according to John Burns.
If housing is weak for three years, expect the economy to be weak for three years as well.
Nevertheless, my unemployment forecast is not as dire as most. For more information, see Expect a long period of weak growth, whether or not it qualifies as a recession.
This post is from MishTalk.Com.
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#Fed #advancing #aggressive #pace #means #housing