US Home Price Growth “Slows” To 18.81% YoY With Phoenix AZ At 32.2% (Simply Unaffordable!)

Happenings two months ago. The Case-Shiller home price index is out for … November 2021.

The Case-Shiller National home price index “slowed” to 18.81% YoY in November as The Fed continues its monetary stimulypto. Notice that The Fed is easing even when there is limited inventory available. Result? Hideous home price inflation.

Which metro area is growing the fastest, making housing even more unaffordable for renters? Phoenix AZ is growing at a 32.2% YoY clip while Washington DC is the slowest growing metro area at 11.1% YoY. The second faster growing metro area in Tampa FLA.

Phoenix AZ is growing at the fastest rate in the nation as The Fed still has its monetary stimulus at FULL SPEED AHEAD.

Let’s see if Fed Chair Powell decides to raise rates and let the Fed’s balance sheet run-off.

Bubble Burst? NASDAQ, WTI Crude Futures And Bitcoin All DOWN On Opening (Europe Stoxx Down 4%)

Is this the bubble burst many were expecting once The Federal Reserve starting raising rates?

Well, if today’s market opening is an indication, the answer is yes. The NASDAQ Composite Index is down 1.36% and West Texas Intermediate Crude Oil futures prices are down 2%.

The S&P 500 index is down over 10% since January 3rd.

Drawdown is taking place.

But if you think the US equities are deflating, look at European equities. The Euro Stoxx 50 index is down 4.04%.

Is this a Don Ho “Tiny Bubble” burst? Or a slow deflation of asset prices as The Fed removes its stimulus?

US Multifamily Housing Starts Jump 13.7% In December, 1-unit Starts Fall -2.25% As All Eyes On Fed

Now we have people like JPMC’s Jaime Dimon speculating about 7 rates increases in 2022 and other bankers speculating about a faster than expected withdrawal of the The Fed’s monetary stimulus in the form of asset purchases, we have to anticipate what the result will be in markets.

Like what will happen to housing starts if and when the stimulus is removed.

Today, we saw 1-unit housing starts fall 2.25% from November to December, but multifamily (5+ unit) starts rise 13.7%.

Of course, home price growth of near 20% YoY combined with declining REAL hourly earnings points to more multifamily housing and less single-family detached housing.

Here is the rest of the story, as Paul Harvey used to say. 5+ unit permits are up 19.9% in December while 1-unit permits are up 1.99%.

Logan (Un)Lucky? China Cuts Rates As Omicron Worsens And Chinese Developer Bond Rout Deepens on Hidden Debt Concerns

The Chinese Real Estate Developer Debacles continues to spread from Evergrande to other developers as China’s Central Bank cuts rates due to Omicron spread.

First, China’s Central Bank cut their 1 year medium-term lending rate to 2.85% from 2.95%. And the growing malaise in China’s real estate development continues.

Fresh turmoil rocked Chinese property bonds on Monday on concern over the true scale of the industry’s hidden debts, deepening a selloff among higher-rated firms.

A Logan Group Co. note due 2023 sank 14.1 cents to a record low 62.9 cents after Debtwire reported the developer could be on the hook for $812 million of guarantees on outstanding obligations due through 2023. Country Garden Holdings Co.’s bond due 2024 tumbled 12.9 cents to 67.7 cents, extending last week’s selloff for the country’s biggest developer.

Let’s see if the US Federal Reserve follows through with it rates increases when China is cutting their rates.

Simply Unaffordable! Fannie Mae Multifamily Financing Grew 23% … While Home Prices Grew 19.1% And Real Hourly Earnings Fell -2.36% (Rising Mortgage Rates Make The Affordability Problem WORSE)

Mortgage Orb has the tantalizing headline: “Fannie Mae’s Financing for Multifamily Affordable Housing Grew Over 23%.” At first, this sounds amazing … until you realize how simply unaffordable housing is much of urban/suburban America.

If you look at the following chart, you can see multifamily (5+ unit) starts remain elevated (pink box) which is not surprising given that home prices at growing at 19.1% YoY nationally (orange circle) and REAL hourly earnings have declined (yellow triangle) thanks to reemergence of inflation after 40 years.

Then we have the humming dragon, rising mortgage rates, that will reduce housing affordability even further.

Home ownership has become simply unaffordable much like steaks. Doctor, doctor (Yellen), we got a bad case of unaffordable home ownership.

Fed Gravy Train? Top 1% Net Worth Share SOARING With Federal Stimulypto, Near Highest In History (Bottom 50% Net Worth Share Lowest In History)

Since the 2020 Covid outbreak, the top 1% have been on the Stimulypto gravy train. The top 1% in terms of share of total net worth (blue line) is near the all-time high while the bottom 50% share of total net worth (red line) is at the all-time low.

So, you thought all that Covid relief spending along with Fed monetary stimulus would help the bottom 50%?

Inflation Nation! Commercial Real Estate Returns UP 22% YoY For Q4 2021 (Versus 19.66% YoY For Case-Shiller National Home Price Index)

Inflation is burning out of control. While home price growth has been off the cherts (as Jean-Ralphio would say), commercial real estate has jumped incredibly at 22% YoY. The Bloomberg charting function hasn’t updated for the Q4 NCREIF report yet so I had to manually write-in 22% on the following chart.

To quote Dean Martin, “Ain’t that a kick in the head.” Commercial real estate returns are now higher than house price growth.

So, what will happen IF The Fed follows through with its monetary stimulus reduction? JPMC’s Jaime Dimon warns that The Fed could hike 7 times in 2022 and not be ‘sweet and gentle’.

But The Fed seems to be stuck in underworld and doing a terrible job at signalling their intentions if Dimon thinks that The Fed could raise rates 7 times in 2022.

Mortgage Rates in the U.S. Soar to the Highest Since March 2020 (3.45% Nominal Rate, -3.59% REAL Rate)

Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years. 

The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.

Rates tracked a jump in yields for 10-year Treasuries, which climbed to levels not seen since early 2020, before the pandemic roiled financial markets. Signs point to borrowing costs rising further as the job market improves and the Federal Reserve steps up its efforts to tame inflation.

That would increase the burden on homebuyers who are already stretching to afford a purchase. Rates for 30-year mortgages tumbled to a record low of 2.65% a little more than a year ago.

Cheap loans have helped fuel a housing rally that’s still running hot even as home prices soar out of reach for many Americans.

But wait! The REAL 30-year mortgage rate (nominal 30-year rate – CPI YoY) is -3.59%.

Lael Brainard, Biden’s nominee to be Vice Chairman of The Federal Reserve, has been one of the “inflation is transitory” crowd. US Senator Toomey is questioning Brainard in today’s hearing. From Toomey’s opening statement:

Last year, Governor Brainard repeatedly insisted that inflation was transitory. We have now had nine consecutive months where inflation has been more than two times the Fed’s 2% target. That makes it pretty clear that inflation is not transitory. Yesterday’s CPI release of 7.0%—the highest in 40 years—confirms that.

Inflation is a tax that is eroding Americans’ paychecks every day. Even though wages are growing, inflation is growing faster and causing workers to fall further and further behind.

At least the REAL mortgage rate is negative!

I hope Senator Toomey shows Brainard this chart of “transitory” negative wage growth.

Negative wage growth and negative REAL mortgage rates. What a total mess!

Real Estate Hedge Against Inflation? Housing And REITs Did Better Than Inflation, NCREIF Not So Much

Now that inflation has reared its ugly head, how can investors protect themselves against the ravages of inflation?

Back in 1977, Fama and Schwert showed that housing acted as a hedge against inflation. Over the past year as inflation has reached its highest levels in 40 years, home prices have outpaced inflation by 19.08% to 6.8%.

How about real estate investment trusts? The NAREIT all-equity index rose by 35.6% YoY while inflation rose at 6.8%. The S&P 500 index rose 28.9% YoY.

Of course, the NAREIT all-equity index has a beta of 1.276.

How about the NCREIF All-property commercial real estate index? For Q3, the NCREIF property index rose by 5.22%, less than the most recent inflation reading of 6.8%.

So for the past year, housing has beaten the pants-off inflation, REITs have earned a higher return than inflation, and the NCREIF index seems to be rising slower than inflation (but with its lag problems, I anxiously await the Q4 numbers which should be higher.

FOMO Housing Market: October Home Prices “Slow” To 19.08% YoY As Mortgage Rates Rise (Phoenix Fastest At 32.3% And Minneapolis And Chicago Slowest At 11.5%)

There is a lot going on in the US housing market. Excessive monetary stimulus keeping mortgage rates low, historically low inventory available for sale, and FOMO (fear of missing out … on rapidly rising home prices).

The Case-Shiller repeat sales index for October is out … and the national home price index “slowed” to 19.08% YoY as mortgage rates rose. Note that available inventory of homes for sales remains very low.

By metro area, Phoenix AZ once again leads with 32.3% YoY. Minneapolis MN is the slowest growing metro area in terms of home prices at 11.5% (tied with Chicago, IL).

A distant relative of Anthony Fauci.