Dazed And Confused! Existing Home Sales Rise 11.5%, Highest Since 2015 As Interest Rates Decline

As the US yield curve starts smelling like recession,

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February existing home sales rose 11.8% MoM in February.  As rates decline because of recession fears in the US and Europe, the outlook for US housing improves … in the short run.

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The housing market is dazed and confused by Fed policies.

Talk about dazed and confused, President Trump is thinking of nominating Stephen Moore for the Federal Reserve Board of Governors. How about a serious economist like Stanford’s John Taylor of The Taylor Rule fame?

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US New Home Sales Decline 4.1% YoY In January As Median Price Continues To Decline

Has. the US housing market peaked?

In terms of new home sales, perhaps. January new home sales declined 4.1% YoY and the downward trend continues.

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The median prices of one family houses declined once again as one family houses for sales increased.

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The new home sales figures are disturbing given the decline in the 30-year mortgage rate since November 2018.

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Chasing Mavericks! Fannie Mae And Freddie Mac Are Chasing The Fed’s Asset Bubble (And Other Market Distortions) With Weaker Credit Standards

US home prices have escalated rapidly since The Federal Reserve began their zero-interest rate policies and asset purchases back in 2008.

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In order to serve their US homebuyers, both Fannie Mae and Freddie Mac have had to “soften” their standards for purchasing loans from lenders. Particularly since wage growth is slower than home price growth. And has been since 2012.

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For example, the mean Loan-to-Value ratio for Fannie and Freddie are higher than during the peak of the housing bubble … which blew up.

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In terms of Combined Loan-to-Value Ratio (CLTV),  Fannie Mae purchased loans have a higher CLTV than during the peak of the housing bubble.ffcltv

In terms of average credit score, both Fannie and Freddie tighted their loan purchase standards after the financial crisis, but has been gradually lowering them since 2012.

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In terms of debt-to-income ratios (DTI), both Fannie and Freddie now have average DTI at 2005 levels. We can call that “peak crisis” in terms of the house price bubble peak.

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Like Mavericks at Half Moon Bay in California, Fannie and Freddie are chasing Mavericksv (large waves) to serve the homebuying community.

To be fair, much of the elevated home prices are in coastal California where the tech industry has flourished and buildable sites are constrainted by zoning and other regulations.

*I want to thank my GMU finance students taking my Python for finance class. And downloading the Fannie and Freddie data and analysis in Python. These ambitious students include Fabiola Gonzalez, Fabiola Maldonado, Brandon Wynes, Nathan Handy, Eleri Burnett, Jessica Giron, Lisbeth Figuroa, Ulises Areas, Sarah Madi,
James Pesquera, Belinda Chambika, Alex Dilorenzo, Alexandria White, Steve Bergquist, Dudley Hinote, Amir Sayyad, Claudia Aguilar, Sabrina Hannan, Wael Ronnie Zaineldeen, and Peter Rogers. Thanks to Stuart Sanders and Hakin Azoor!

Retail Inferno! Gap, JCPenney, Victoria’s Secret, Foot Locker, 465 Store Closures in 48 Hours (Examples Of Columbus OH-Based Washington Prime REIT And Limited Brands)

The retail inferno continues!

Last week, the US experienced a large crash in retail spending in December in the form of MoM Real Personal Consumption Expenditures.

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Then we have this gut-wrenching report on retail stores.

The ‘retail apocalypse’ is alive and well this week with major chains such as Gap, JCPenney, Victoria’s Secret and Foot Locker all announcing massive closures, totaling the death of more than 465 stores over the last 48 hours.

In the last 48 hours alone, several shopping-center staples unveiled plans to trim their footprints across the U.S. Gap Inc. said it would slash the store count of its struggling namesake brand by 230 locations over the next two years, just hours after J.C. Penney Co. confirmed it would shutter18 department stores. That news came on the heels of L Brands Inc.’s decision to close 53 Victoria’s Secrets in North America this year. And it’s not just apparel: Tesla Inc., whose galleries are often inside shopping centers, just said it’s moving all its sales online.

These moves come on top of all of the chains that have already announced they’re closing down or reducing their footprints due to bankruptcy. This includes Payless Inc., which is abandoning 2,500 stores, Things Remembered, which is closing most of its 400 stores and selling the rest, while mall favorite Brookstone Inc. slims down operations and Sears continues to shutter locations. Taken as a whole, many of today’s shopping centers are becoming little more than an assemblage of fast-fashion retailers, Apple stores and food courts.

As an example of how retail Real Estate Investment Trusts (REITs) have been hurt by changing consumer shopping habits, take Washington Prime REIT (formerly Glimcher REIT) from Columbus Ohio. With Amazon’s rise since 2014, Washington Prime has dived from over $20 per share to its current share price of $5.14.

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Also, Columbus, Ohio-based Limited Brands (aka, L Brands) was trading at over $100 per share in 2015, but is now trading at $27.50. The Limited empire once included The Limited, Limited Too, Limited Express,. Galyans, Henri Bendel, Abercrombie and Fitch, Lane Bryant., Lerner, Victoria’s Secret, Bath and Body Works and Pink. Only the last three still have a mall footprint with The Limited going solely on-line. How the mighty have fallen.

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Of course, empty space can be repurposed with gyms (Planet Fitness), churches, physician’s offices, more bad chain restaurants and … day care facilities.

But it isn’t just retail. Check out the crashing price per square foot of suburban office space for Northern Virginia where office conversions are all the rage.

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And Northern Virginia office vacancies are launching into outer space.

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Global Yield Curve Inversion (Same All Over The World)

An interesting chart of the 30-year sovereign yields less Fed Funds rate reveals that much of the world is in a state of global yield curve inversion. (Graph courtesy of the great folks at Crescat Capital).

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While the US is not in a state of yield curve inversion (except for the 1-5 segment), the US remains (for the moment) is positive territory.

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I prefer using the 10-year Treasury Note for curve analysis rather than the 30-year Treasury Bond.

One might observe that Treasury volatility measures are quite low … again.

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So, yield curve inversion is the same all over the world. The US seems to be on track to invert as well.

Case-Shiller 20-City Home Price Growth YoY Slows To 4.18%, Slowest Since September 2012 (Vegas, Phoenix Post Biggest YoY Gains, San Diego Slowest Growing)

S&P Corelogic Case-Shiller indices were released for December (yes Lee Adler, I know it is late February!)  The report reveals that YoY home price growth is 4.18%, the lowest growth rate since September 2012.

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Las Vegas and Phoenix reported the highest year-over-year gains among the 20 cities. In December, Las Vegas led the way with an 11.4% year-over-year price increase, followed by Phoenix with an 8.0% increase and Atlanta with a 5.9% increase. Three of the 20 cities reported greater price increases in the year ending December 2018 versus the year ending November 2018.

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Yes, San Diego has replaced Washington DC as the slowest growing US metro area in term of home prices.

Hopefully, this will lead to fewer people surfing in Cardiff!