As a reminder, The Mortgage Bankers Association’s index of home-purchase applications tumbled to 120 – the lowest level since 1995 – as mortgage rates hit 8% for the first time in 23 years in October.
Source: Bloomberg
So, it should be no surprise that new home sales were even worse than expected, plunging 5.6% MoM (and making it even worse, the 12.3% MoM jump in Sept was revised down to +8.6%)…
Source: Bloomberg
The trend of downward revisions continues…
The New Home Sales SAAR of 679k is flat from April (that was below all economists’ forecasts)…
Source: Bloomberg
It appears the homebuilders finally hit their wall eating the gap between these two lines was just not sustainable…
Source: Bloomberg
And as we noted previously, homebuilders can’t be filling this gap either – between the current 30Y mortgage rate and the effective rates that borrowers are currently paying on their home loans – (i.e. subsidizing new home sales) forever…
Source: Bloomberg
The median new home price fell 17.6% y/y to $409,300; average selling price at $487,000
That is the lowest median price since Aug 2021, catching back down to existing home prices…
Source: Bloomberg
Is Powell winning his war on affordability? Or crushing the middle class’s main source of wealth? Or is it Hammer Time??
According to Trepp, the volume of CMBS delinquency increased 49.4% during 10 months through October.
Looking for more? This piece has been taken from Trepp and Commercial Real Estate Direct’s Q3 2023 Quarterly Data Review. Access the magazine here.
The volume of CMBS loans that are classified as delinquent increased by 49.4% during the 10 months through October to $27.91 billion. That volume amounts to 5.07% of the $601.98 billion universe tracked by Trepp. In contrast, delinquencies at the end of last year amounted to 3.03% of the $616.15 billion universe then extant.
Office Sector Drives Increase in Delinquency Volumes
The driver of the increase was the office sector, which had a 261% increase in delinquency volumes over the 10-month period through October. A total of 199 loans with a balance of $9.59 billion, or 5.91% of all CMBS office loans were at least 30 days late with their payments, as of the end of October. At the end of last year, 115 loans with a balance of $2.65 billion, or 1.63% of office loans, were delinquent.
The sector’s prospects are unlikely to improve as office occupancy rates have declined in most of the country’s major markets. That’s been driven by a substantial pullback in demand from office-using tenants.
Hit especially hard have been loans with floating coupons that are maturing and need interest-rate cap agreements in place before they qualify for term extensions. Those rate caps have skyrocketed in price in lockstep with interest rates.
On the residential side, The Fed is helping drive mortgage payments through the roof!
The Federal Reserve reminds me of The Stones’ song “Tumbling Dice.” Why? The Fed can’t tell if inflation is cooling or re-accelerating. Hence, they are just rolling dice.
Let’s start with mortgage rates, a critical component of the housing and CRE markets. Mortgage rates remain up 163% since 2021, not great for housing affordability. Despite recent small declines in the mortgage rate. The 10Y-2Y Treasury curve is also going deeper into reversion … again.
However, the data was more mixed with US Manufacturing falling more than expected to 49.4 – back into contraction – (vs 49.9 exp) from 50.0 in October. However, US Services unexpectedly rose from 50.6 to 50.8 (exp 50.3).
“The US private sector remained in expansionary territory in November, as firms signalled another marginal rise in business activity. Moreover, demand conditions – largely driven by the service sector – improved as new orders returned to growth for the first time in four months.
The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates.
Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought.
“On a more positive note, input price inflation softened again, with cost burdens rising at the slowest rate in over three years. The impact of hikes in oil prices appear to be dissipating in the manufacturing sector, where the rate of cost inflation slowed notably.
Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”
The US data comes after yesterday’s Euro area composite flash PMI increased by 0.6pt to 47.1, above consensus expectations, driven by a meaningful acceleration in Germany and the periphery, partially offset by a marginal decline in France. In the UK, the composite flash PMI improved meaningfully and entered expansionary territory at 50.1, above consensus expectations, on the back of a pickup in both sectors, with the services sector index entering positive territory at 50.5.
Goldman sees three main takeaways from today’s data.
First, we see a potential turning point in Euro area activity, with forward-looking indicators all improving in November, potentially setting a positive stage for the remainder of the year and the beginning of 2024. While the improvement seems to be broad-based, the upside surprises in the manufacturing sector in Germany and the Euro area as a whole may point to early signs of the sector’s revival.
Second, inflationary pressures, after moderating for some time, show signs of renewed intensification in the Euro area, as reflected by the output and input price components ticking up in November.
Third, UK growth momentum was meaningfully better than last month, and is picking up across the board, with the headline and services indices coming in above 50. This, however, is now accompanied by an increase in cost pressures, with both the input and output price indices edging up in November.
Finally, back to the US, S&P Global found that US business uncertainty was also heightened among US firms, as expectations regarding the year-ahead outlook slipped to the weakest since July.
A record 130.7 million people are expected to shop in stores and online in the U.S. on Black Friday this year, the National Retail Federation (NRF) estimates. The event is known for crowds lining up at big-box stores at dawn to scoop up discounted TVs and home appliances.
But at 6 a.m. on Friday at a Walmart in New Milford, Connecticut, the parking lot was only half full.
“It’s a lot quieter this year, a lot quieter,” said shopper Theresa Forsberg, who visits the same five stores with her family at dawn every Black Friday. She was at a nearby Kohl’s (KSS.N) store at 5 a.m.
Fifth Avenue, one of the world’s top shopping streets, is dead quiet on Black Friday — at least by New York’s boisterous standards.
The strip of high-end shops from brands like Louis Vuitton and Cartier has largely recovered since its pandemic lull, where vacancies had once reached nearly 30% in Midtown East. Some vestiges of that struggle remain, with a few empty storefronts covered up or filled with little art installations. Yet the street has managed to keep its title as the most expensive retail area on the planet by rent per square foot, according to Cushman & Wakefield.
Mortgage rates up 163% since 2021, manufacturing PMI in contraction and Black Friday shopping muted. Not good. The Fed is rolling the dice on what to do next.
The US is experiencing a fiscal inferno thanks to out of control Federal spending and debt issurace.
The US government collects about $2.5 trillion per year in personal income taxes. Of that about $1 trillion per year (40%) is being consumed by interest on the national debt. REAL Federal interest payments of the debt is skyrocketing!
Interest on the debt is growing as old cheap debt matures and gets refinanced at the new higher rates. Plus new debt added every year.
Within a few more years, at this pace, 100% of personal income taxes will be going to pay interest on the US nationaldebt.
Yes, US national debt is at $33.75 trillion and growing awfully fast. Of course, that is small potatoes compared to the $211.7 TRILLION in unfunded Federal promises (entitlements). That means that unfunded promises are 6.27 times the current national debt. There isn’t enough taxable income from individuals to pay for the promised entitlements.
NY Senator Chuckles Schumer: “We did it Joe! We broke the back of the US economy!”
The World Economic Forum (WEF) is a leading pusher of the ESG drug, pushed by the elite class intending to control the world. Unfortunately, numerous American politicians and influencers have attended the Davos meetings and have openly praised the WEF and its leader Klaus Schwab.
ESG investing, or sustainable responsible investing (SRI), uses this information about a company to inform investment decisions that prioritize all stakeholders.
Here’s how the Forum’s partners are leading the switch to stakeholder capitalism.
But all is not well with WEF’s ESG drug distribution. In fact, ESG flows into socially consious funds were a big thing during Covid (2020) and the first year of Biden’s Reign of Error. But ESG flows slowed sharply in 2022 and seeing net outflows in 2023.
US borrowers are retreating en masse from the world’s second-biggest ESG debt class.
The $1.5 trillion market for sustainability-linked loans, in which borrowing is tied to environmental, social or governance goals, has seen an overall slowdown in volumes this year as both interest rates and greenwashing fears rise. But nowhere has the decline been as precipitous as in the US, where the number of new sustainability-linked loans is down 80% from a year earlier.
But ESG is still relatively popular in Europe, Middle East and Africa (orange). But taste for ESG is waning around the globe. But the selection of Biden as President in the US marked a surge in ESG -tied loans in 2021 and 2022 (not to mention the insane levels of spending out of Biden and Congress, much tied to the sustainability, green energy fantasy.
Loans with terms tied to borrower’s ESG goals have fallen worldwide.
Several states (largely blue states like California, Minnesota, Illinois, and Colorado have pro-ESG laws) while several states have anti-ESG laws (largely red states like Montana, Idaho, North Dakota, Kansas, Utah, Indiana, Arkansas, Florida, and West Virginia).
And of course, global warning may not be as dire as John Kerry and Greta Thunberg say.
WEF’s Klaus Schwab about to get sniffed by his 80-year old puppet, Joe Biden. In fact, Biden is singing “I’m your puppet.”
Here is Hunter Biden welcoming the Green Energy fairy and all the trillions in misallocated spending it brings.
Its beginning to smell like Fed spirit! As the 2024 Presidential election rapidly approaches, The Fed will be pressured into lower interest rates to haul Biden’s befuddled and corrupt ass across the finish line. Or his replacement, Greasy Gavin Newsom. (Leaving an oil slick in his wake).
Lowering the mortgage rate will benefit the real estate market, which is currently been “Biden’d.” Due to inflation and The Fed’s mission to crush inflation.
High mortgage rates that approached 8% earlier this month continue to hammer builder confidence, but recent economic data suggest housing conditions may improve in the coming months.
Builder confidence in the market for newly built single-family homes in November fell six points to 34 in November, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today. This is the fourth consecutive monthly drop in builder confidence, as sentiment levels have declined 22 points since July and are at their lowest level since December 2022. Also of note, nearly the entire HMI data for November was collected before the latest Consumer Price Index was released and showed that inflation is moderating.
Mortgage rates will likely decline in 2024 as The Fed reverses its inflation-crushing policy for Presidential election interference.
And Morgan Stanley forecasts the Fed Funds Rate to plunge to 2.375%.
Joe Biden is 80 and not exactly the most energetic President that can inspire confidence.
Maybe the economy needs Viagra.
I really wish Biden would stop babbling about “his” approach to economic growth, a Chinese Communist approach of top down economic management.
Under Biden, Americans have seen a 17.6% price hike and a 3% pay cut. Inflation has averaged 5.9% — more than double the level of inflation under any of the last four presidents.
Republicans elected Mike Johnson from Louisiana as House Speaker, then were surprised when Johnson agreed with big spending Senators McConnell and Schumer on Biden’s mega spendathon. Also, several Republicans voted with Democrats NOT to impeach Cuba Pete (Mayorkas) for allowing 8 million illegals to cross the southern border. Bottom line: the Biden Administration and Congress are closely held subsidiaries of the elite 1% and US large corporations. The middle class be damned! But we will get fooled again in every election.
Since Biden’s inaugration in January 2021, the purchasing power of the US dollar is down a staggering -15%.
Yes, under control of large corporations and the 1%, the economy is an economic wasteland. But the 1% are doing great under Bidenomics! With The Fed’s help of course.
Here is a chart of core inflation relative to M2 Money printing. Easy way to cool inflation … stop printing money!
Here is China’s Xi and America’s “China Joe” Biden.
Seriously, Biden has always been known as being stupid and corrupt. Now he has dementia. A PERFECT President for the 1% in their war against the middle class. Biden is the penultimate “useful idiot” with an emphasis on idiot.
Even eating breakfast under Bidenomics is more expensive. Particularly if you like orange juice like I do. To save money, I am probably going to have to switch to nasty-tasting Tang.
Food CPI is up 3.69% year-over-year. The rate of growth in food prices is slowing. But do I trust BLS data on CPI? Of course not.
Orange juice prices are up 47% under Biden.
And we see that REAL GDP is growing at a slower rate than nominal GDP.
Speaking of Bidenomics, here is an interesting Zero Hedge story on “The Biden-Du Pont Nexus: From A Prestigious Golf Club To A Controversial Child Rape Plea Deal.” What is it with Delaware elites having sex with their children?? And why is NY AG Letitia James prosecuting Donald Trump when there has been no crime while she let’s Epstein’s clients who flew to have sex with minors (used to be illegal) off the hook?
But I feel good! After my breakfast of … Scotch Broth. OJ is just too expensive.
On a amusing or sad note, Biden campaign communications director Michael Tyler’s message to Americans who are worse off economically under Biden: “That’s precisely why we need another four years to finish the job.” OMG! What does “finish the job” mean?? I am afraid to ask.
Where we currently sit is … bank credit growth is in the red (15th straight week of negative growth) and net savings as a percentage of gross national income has seen negative growth YoY for 2 consequtive quarters.
September marked the largest consumer credit drop since May 2020, signaling a significant recession warning.
And with Bidenflation (or Yellenflation) and The Fed’s counterattack, we are seeing bank stocks losing relative to the tech sector.
Proshares Bitcoin (BITO)’s assets have nearly doubled in the past 30 days.
Yes, the Three Stooges (Biden, Yellen, Powell) have put the US on a highway to hell!
The primary reason for Moody’s downgrade of US credit? The absolutely insane ramp-up of Federal spending starting with the Covid outbreak in early 2020. And the subsequent economic shutdowns and the closure of public schools. But even as Covid faded to diminished status, Bidem demanded an increase in Federal spending. Well, Biden’s war (Ukraine) which looks like spending in perpetutity.
Of course, Biden/Congress love to spend money, but raising personal taxes to pay for it is political suicide. A private sector firm would cut spending to balance its budget, government simply doubles down on spending. Never let a crisis go to waste!
And The Federal deficit keeps on growing under Biden/Yellen’s economic reign of error.
After a disastrous 30Y bond auction this week, a collapse in Treasury market liquidity, and an accelerating rise in the market’s perception of the United States’ credit risk, Moody’s has just cut its outlook on US credit ratings to negative from stable.
Source: Bloomberg
The key driver of the outlook change to negative is Moody’s assessment that the downside risks to the US’ fiscal strength have increased and may no longer be fully offset by the sovereign’s unique credit strengths.
In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues, Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.
Continued political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.
Moody’s does affirm the Aaa rating:
The affirmation of the Aaa ratings reflects Moody’s view that the US’ formidable credit strengths continue to preserve the sovereign’s credit profile.
First, Moody’s expects the US to retain its exceptional economic strength. Further positive growth surprises over the medium term could at least slow the deterioration in debt affordability.
Second, the US’ institutional and governance strength is also very high, supported in particular by monetary and macroeconomic policy effectiveness. While the adjustment of the US economy and financial sector to higher-for-longer interest rates is underway, policymakers have facilitated the transition through transparent and effective policy.
Finally, the unique and central roles of the US dollar and Treasury bond market in the global financial system provide extraordinary funding capacity and significantly reduce the risk of a sudden spiraling of funding costs, which is particularly relevant in the context of high debt levels and weakening debt affordability.
The US’ long-term local- and foreign-currency country ceilings remain unchanged at Aaa. The Aaa local-currency ceiling reflects a small government footprint in the economy, relatively predictable and reliable institutions, very low external imbalances and moderate political risks, all of which reduce the risks posed to non-government issuers by government actions or shocks that would commonly affect the government and the private sector. The foreign-currency ceiling at Aaa reflects the country’s strong policy effectiveness and open capital account which reduce transfer and convertibility risks to minimal levels.
The market – late on a Friday – pushed yields on the 2Y and 5Y Treasyr notes to fresh new highs for the day…
Full Rationale:
ABSENT POLICY ACTION, FISCAL STRENGTH WILL DECLINE
The sharp rise in US Treasury bond yields this year has increased pre-existing pressure on US debt affordability. In the absence of policy action, Moody’s expects the US’ debt affordability to decline further, steadily and significantly, to very weak levels compared to other highly-rated sovereigns, which may offset the sovereign’s credit strengths.
Past increases in interest rates by the Federal Reserve will continue to drive the US government’s interest bill higher over the next few years. Meanwhile, although the government’s revenue base will rise in line with the economy as a whole, in the absence of specific policy action, this will occur at a much slower pace than the rise in interest payments. Moody’s expects federal interest payments relative to revenue and GDP to rise to around 26% and 4.5% by 2033, respectively, from 9.7% and 1.9% in 2022. These projections factor in Moody’s expectation of higher-for-longer interest rates, with the average annual 10-year Treasury yield peaking at around 4.5% in 2024 and ultimately settling at around 4% over the medium term. The debt affordability forecasts also take into account Moody’s expectations that, absent significant policy changes, the federal government will continue to run wide fiscal deficits of around 6% of GDP near term and to around 8% by 2033, the widening being driven by higher interest payments and aging-related entitlement spending.
By comparison, deficits averaged around 3.5% of GDP from 2015-2019. Such deficits will raise the US federal government’s debt burden to around 120% of GDP by 2033 from 96% in 2022. In turn, a higher debt burden will inflate the interest bill.
For a reserve currency country like the US, debt affordability – more than the debt burden – determines fiscal strength. As a result, in the absence of measures that limit the size of fiscal deficits, fiscal strength will increasingly weigh on the US’ credit profile.
FISCAL RISKS ARE EXACERBATED BY ENTRENCHED POLITICAL POLARIZATION UNDERSCORING RISING POLITICAL RISK
At a time of weakening fiscal strength, there is an increased risk that political divisions could further constrain the effectiveness of policymaking by preventing policy action that would slow the deterioration in debt affordability. These risks underscore rising political risk to the US’ fiscal position and overall sovereign credit profile.
Recently, multiple events have illustrated the depth of political divisions in the US: renewed debt limit brinkmanship, the first ouster of a House Speaker in US history, prolonged inability of Congress to select a new House Speaker, and increased threats of another partial government shutdown due to Congress’ inability to agree on budgetary appropriations. In Moody’s view, such political polarization is likely to continue. As a result, building political consensus around a comprehensive, credible multi-year plan to arrest and reverse widening fiscal deficits through measures that would increase government revenue or reform entitlement spending appears extremely difficult.
While the US’ Aaa rating takes into account relative weaknesses with regards to the quality of the country’s legislative and executive institutions and fiscal policy effectiveness compared to other Aaa-rated sovereigns, there is a risk that these weaknesses take greater credit relevance because the deteriorating debt affordability trend would call for a more significant and effective fiscal policy response.
In particular, the US’ lack of an institutional focus on medium-term fiscal planning, either through legislated fiscal rules aimed at improving the fiscal balance or general bipartisan consensus on the need for fiscal consolidation, is fundamentally different from what is seen in most other Aaa-rated peers such as in Government of Germany (Aaa stable) and Government of Canada (Aaa stable). Meanwhile, the more short-term focus of US fiscal policymaking, along with limited fiscal flexibility – because a very large portion of nondiscretionary budgetary spending is on mandatory entitlement programs and debt service (around 75% of total outlays), exacerbates already fractious bipartisan politics around a relatively disjointed and disruptive budget process. As annual debt service costs continue to rise, fiscal flexibility will diminish even further.
Remember, annual interest payments of the $33.8 TRILLION debt load is now over $1 TRILLION. Yes. rampant Federal spending begat inflation which begat Fed rate hikes.
Confounded Interest - Anthony B. Sanders 
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