Biden’s $45 Billion Boondoggle For Office-To- Home Conversions Getting Harder (Biden Has To Find Housing For The 8 Million Illegal Immigrants That Have Crossed Under Biden/Mayorkas!) Why Isn’t The Private Sector Doing The Conversions??

Has anyone considered the impact of Biden/Mayorkas’s open southern border with Mexico? Other than the crime, stress on existing services like healthcare, schools and Social Security. But where will the 8 million illegal immigrants reside? Well. the Biden Administration has an answer: throw money at it! This time, $45 billion to convert empty office space to homes. Not just for illegals, but for anyone.

Conversion from office space to apartments is getting harder. Let’s discuss why, and also what the effort is really all about.

Only 3,575 apartment units were converted from office space last year. The already fraught process now faces even more challenges.

The Wall Street Journal explains why in its report Turning Empty Offices Into Apartments Is Getting Even Harder

Cities hoping to convert emptying office buildings into apartments are running into financing issues, stagnating rental markets and other challenges that are bottling up their efforts.

Developers last year created just 3,575 apartment units in the U.S. through office conversions, according to an analysis by rental listing site RentCafe. That amounts to less than 1% of all apartments built that year through new construction.

Federal and local governments are also trying to give conversions a boost. The White House said last month that it was updating guidance for existing grants and spending programs to make billions in federal dollars available for these projects. It also said it would seek the conversion of more government-owned properties into housing.

Some cities, such as Washington, D.C., New York and San Francisco, are also taking steps to encourage more conversions. Tax incentives and faster approvals are “rocket fuel” for these projects, said Sheila Botting, a principal at commercial property brokerage Avison Young.

Even so, the process has always been fraught with difficulty and few office buildings are natural candidates. Conversions are easiest in older, lower-quality and mostly empty buildings with small floors. But less than 1% of office space in the biggest U.S. cities ticks those boxes, according to Avison Young.

In significant ways, the conversion process is getting even harder now. Slowing rent growth might make apartment conversions less attractive to investors, if the trend persists into next year. Asking rents for apartments have fallen 1.2% nationally over the past 12 months, according to rentals website Apartment List.

Projects Not Economical

Without massive subsidies these projects are not economically feasible. Many aren’t even with massive subsidies.

In downtown Dallas, developer Wolfe Investments seeks to convert an 18-story, 1950s office tower into residential apartments, but has recently been fighting off foreclosure from its lender, Thistle Creek Partners, court records show.

Developers of One Camelback, a 200,000-square-foot office building in central Phoenix, are trying to convert it into what would be one of the city’s most expensive rental-apartment properties. A website advertises $8,000-a-month apartments, with floor-to-ceiling windows and crystal-clear views of nearby mountains.

But the developers, Sagamore Capital and partners defaulted on a loan of about $70 million. The project’s lender, Delphi Financial Group, has moved to foreclose. An auction of One Camelback is set for later this month, according to documents filed in Maricopa County, Ariz.

Biden Throws $45 Billion in Federal Funds to Convert Offices into Homes

On October 29, Mish (Mike Shedlock) commented Biden Throws $45 Billion in Federal Funds to Convert Offices into Homes

Questions abound. Assume you can convert offices into homes, who wants to live in them? Is a tear down cheaper?

The government has 1,500 office buildings nationally and leases on almost 200 million square feet of additional space that it does not need. Instead of canceling leases and selling the real estate, it’s going to convert them into clean energy spaces.

With enough subsidies, developers will try nearly anything. Then when the projects fail, the developers ask for more money.

How is this Being Paid For?

Taxpayers of course. But Biden is funneling $45 billion from clean energy incentives in the ridiculously named Inflation Reduction Act (IRA) into housing conversions.

You might also be wondering what this has to do with clean energy, and the answer is nothing. The questions keep piling up and I have answers.

What’s Really Going On Here?

Biden is hoping to spread the IRA dollars around to buy more votes.

But to do so, he is taking money away from his other pet projects to fund the idea of the moment. His idea of the moment is to do something about the price of rent.

According to RentCafe, Washington DC had two zip codes that led the nation in apartments completed in the last five years (up to 2022).

Why is the private sector doing so few conversions? THAT is the right question. The answer? Office-to-housing conversion is hard and the demand may not be there. But with 8 million illegal immigrants having crossed the border, Biden has to do something. So Biden steps in with $45 billion to convert empty office space to homes. And I have to ask: is this a shadow wealth transfer to large Democrat-controlled cities as an apology for the havoc caused by Biden/Mayorkas open border policy?? Just asking!

So if an idea is really bad and won’t work, like solar power in areas with limited/spotty sunlight or wind turbines in areas with little/sporadic wind, Federal and State governments are always on stand-by to do something really stupid. Like rent control, which creates even worse distortions.

Wreck Of The USS 30Y Treasury! Disastrous 30Y Auction Sees Rising Long-term Treasury Yields

Today was the Wreck of the USS 30Y Treasury. Disastrous Federal fiscal policies and Yellen’s slowness to refinance outstanding Treasury debt has created a mess. Biden’s nerves must be a wreck with Powell and Yellen managing the nation’s finances.

That’s the only way one can describe today’s 30Y auction, which many expected could be challenging after a mediocre 3Y and a subpar 10Y auction earlier this year, but nobody expected… this.

The bond priced at a high yield of 4.769%, which was below last month’s 4.837%, and just shy of the April 2010 high. But more importantly, it tailed the When Issued by a whopping 5.3bps, which was… well… terrible, because as shown in the chart below, this was the biggest tail on record (going back to 2016).

The bid to cover was just as bad: at 2.236 it was the lowest since Dec 2021.

The internals were even worse as foreign bidders (Indirects) tumbled from 65.1% to 60.1%, the lowest since Nov 2021, and with Directs taking down only 15.2%, banks (Dealers) were forced to step up and take the balance, or a whopping 24.7%, double the recent average of 12.7%, and the highest since Nov 2021.

This is a big warning flag because every time we have seen a surge in Dealer takedowns, some sort of Fed intervention – QE or otherwise – has usually followed and we doubt this time will be different.

So what happened? Well, maybe the bond market read our note from earlier this week in which we explained “How Treasury Averted A Bond Market “Earthquake” In The Last Second: What Everyone Missed In The TBAC’s Remarkable Refunding Presentation.” It may be difficult to fool the bond market for a second time.

The market reaction to the catastrophic 30Y auction was immediately, sparking a swift and painful response across markets with bonds and stocks hammered lower and the dollar spiking.

Treasury yields – as you would expect – exploded higher, with 30Y Yields back up to pre-payrolls levels…

That is the biggest spike in 30Y yields since March 2020…

But the entire curve is higher in yields…

Stocks tanked…

Regional bank stocks tumbled…

The dollar ripped back up to pre-payrolls levels…

Finally, we note that this ugly auction comes as Treasury Liquidity is evaporating dramatically…

The Fed (and The Treasury) have a problem!! Particularly since the 30Y yield reversed course and is on the rise again.

And at the 10 year tenor, the rate rose to 4.638%.

All together now!!

The Edmund Fitzgerald, symbolic of the US under Biden and Janet Yellen.

Interest On US Debt Skyrockets Above $1 Trillion For The First Time Ever (Annual Interest Payments On 30-year Mortgage In 2020 Was $8,500, But Has Almost Tripled To $24,300!)

Another day, another dose of bad fiscal/monetary news. Not surprising with the US Treasury being run by Janet Yellen, who doesn’t seem to know much economics. In fact, with Biden/Congress spending like drunken sailors in port, inflation and The Fed’s counterattack, we see that interest of US debt just hit $1 TRILLION!

$1.027 trillion in interest is calculated by multiplying the average interest rate on marketable US Treasury debt (which according to the Treasury is 3.096% as of Oct 31) by the $26.003 trillion in marketable US debt (as of Oct 31) which nets off to $805 billion, and adding to this non-marketable debt interest (which as of Oct 31 was 2.884% multiplied by the amount of non-marketable debt which is $7.696 trillion) and which in turn is an additional $222 billion in interest. Add across and you get $1.027 trillion.

Naturally, this calculation of estimated real-time interest costs – which is entirely based on Treasury data – is different than what the Treasury actually paid. Interest costs in the fiscal year that ended Sept. 30 ultimately totaled $879.3 billion, up from $717.6 billion the previous year and about 14% of total outlays, however that number is merely lagging what the pro forma print currently is, and will inevitably catch up to it, and then lag on the other side even as pro forma interest payment start dropping (once interest rates plunge after the next QE/YCC is launched).

Fans of exponential functions, we got you covered: the unprecedented surge in both interest rates and interest expense in the past two years means that total US interest has doubled since April 2022 and that’s with the inherent lag in interest catch up – as a reminder, the vast majority of 5, 7, 10 and 30 year debt is still locked in at much lower interest rates, and as such, rates will continue to rise as all of the existing debt rolls into much higher rates over the coming years.

Looking ahead, the staggering surge in both yields and total long-term Treasuries in recent months confirms the government will continue to face an escalating interest bill. As a reminder, we were the first to point out that it took just one month after US federal debt first rose above $33 trillion for the first time, to spike by another $600 billion.

On the personal finance side, annual Interest payments on a 30-year, fixed-rate mortgage before Biden was $8,500, but after Biden it almost tripled to $24,300! That means that annual mortgage interest rose 186% under Biden.

Down, Down, Down! Cost Of US Debt Surges As Federal Debt Hits $33.71 TRILLION And Unfunded Liabilities Hit $211 TRILLION (Livin’ La Vida Bidenomics!)

The US economy is drowing in debt, going down, down, down.

US Federal debt just hit $33.71 TRILLION. And unfunded liabilities (promises from Uncle Spam) are now $211 TRILLION. That is 526% of the the current debt load. Which means either lots of additional debt, higher tax rates or cuts in entitlements.

The cost of US debt continues to soars as The Fed combats Bidenflation.

But it isn’t just Federal government debt that is exploding under Bidenomics. Consumer credit card debt has exploded under Bidenomics as consumer struggle with inflation.

Livin’ La Vida Biden! And Bidenomics!!!

“Boodle Biden” Strikes Again! Biden Announces $16.4B in New Funding For Amtrak’s Northeast Corridor (For Middle Class Consumers, Borrowing Costs Rising, Housing Prices Rising, Banks Cautious About Consumer Lending, Shipper Maersk Announces Plans To Cut At Least 10,000 Jobs)

President Joe Biden and his boss Barack Obama remind me of the legendary corrupt Chicago politicians First Ward Alderman Michael “Hinky Dink” McKenna and “Bathhouse” John Coughlin. And their love of “boodle” (a slang term money, gained (Biden family payoffs from foreign countries), or spent improperly (Obama shipping large pallets of cash to US enemy Iran). Biden and Obama are indeed the modern day “Lords of the Levee”.

But in another example of Boodle, just in time for the 2024 election, we have Biden announcing $16.4 BILLION to …. Amtrak for the Northeast corridor (aka, the Acela train carrying Congress members, staff, media from Washington DC’s Union Station to NYC’s Penn Station. Bear in mind that the Amtrak route is not a payoff to the US middle class, but a gift to the elite passengers on the Washington DC to NYC (then on to Boston) route. But unlike Biden’s other boodle (the Ukraine war where Zelenskyy and his cronies are partying hearty with US taxpayer funds), at least no one will by dying on Amtrak. (other than in the film “Unbreakable.”)

But on the middle class front, we can see “cheap rates” are a thing of the past as markets have to deal with Biden’s inflation problem and Fed rate hikes.

And with rising home prices under Biden, the house price to income ratio is out of control and causing pain for the middle class.

On the MBS front, we see negative returns.

The 2-year Treasury yield is dropping faster than Biden’s polling numbers.

On the credit side, more lenders are tightening standards for C&I loans.

And banks remained restrictive in their willingness (or lack thereof) to make consumer loans, but there was a marginal improvement from prior release.

On the global front, Maersk announces plans to cut at least 10,000 jobs due to weakening global trade.

Here is a picture of Hinky Dink (Joe Biden) and Bathhouse Barry Soetoro. I mean Bathhouse John Coughlin, the Lords of the Levee.

Alarm! Bidenomics And The Tilt Effect (Mortgage Rates Up 174% Under Biden, 10Y Treasury Yield Up 402%, Real Disposable Income Declining, TLT Calls Explode!)

Alarm!

No, this isn’t the tilt effect in the mortgage market where inflation is front-loaded in mortgage rates making mortgage payments quite unaffordable. Although inflation is causing mortgage rates to be up 174% under Biden (while Biden continues to brag about how Bidenomics is helping). Meanwhile, the 10Y Treasury yield is up 402% under Biden (making refinancing the US staggering debt load more difficult to refinance. Higher mortgage rates tilt the present value of mortgage payments to the front, making housing even more unaffordable. Thanks Joe!

But the Tilt effect I am talking about is the TLT effect. TLT (iShares US Treasuries 20y+ ETF) calls. Friday was the largest TLT call volume ever.

Meanwhile, US real disposable income is declining.

I’ll feel a whole lot better when Biden is gone.

Meanwhile, inflation under Biden is still eight miles high.

“Rich Men North Of Richmond” Economy! US Debt Up 45% Since Q1 2020, But Consumer Debt Is Up 19% Under Biden (Personal Savings Down To 3.4% Compared To 7.7% In Last Month Before Covid Outbreak (Earnings Calls Reveal Concern About Continued Demand)

Call it “The Rich Men North Of Richmond” economy. Where the coastal elites drive the US economy off the cliff with insane spending and borrowing with much of the benefits flowing to big political donors, not the middle class. Think of Span Bankfraud Parboiled as an example.

President Biden loves to spend billions and go on endless vacations (he is in Rehobeth Beach Delaware yet again). He (illegally) forgave student debt, keeps spending billions on Ukraine and keeps spending on failed green energy nightmares.

Biden and his allies will tout the latest GDP numbers as an example of how marvelous Bidenomics is. BUT that GDP report was driven largely by consumer spending.

Since the Covid outbreak in 2020, Federal (public) debt is up 45%! Wow. And consumer debt is up 19% under Biden to cope with inflation (caused primarily by massive Federal spending).

To fuel consumer spending, the personal savings rate has fallen to 3.4%. For point of reference, the personal savings rate in Februray 2020 was 7.7%, so the consumer is running out of gas thanks to inflation and spending.

And with a debt-stressed consumer, earnings call revealed concern about continued demand.

Note the trend in jobs added as The Fed tightened to fight inflation.

Jobs Come Crumbling Down! October Jobs Added Only 150k, 50% Drop From September (Unproductive Government Jobs Increased By 51k While Productive Construction Jobs Grew By Only 23k) Bidenomics Hurts So Good??

Yes, the jobs come crumbling down!

Total nonfarm payroll employment increased by 150,000 in October, below the average monthly gain of 258,000 over the prior 12 months. This represents a drop of more than 50% from the original Sept print, and the second lowest since 2022!

In October, job gains occurred in health care, government, and social assistance. Employment in manufacturing declined due to strike activity. (See table B-1.) Health care added 58,000 jobs in October, in line with the average monthly gain of 53,000 over the prior 12 months. Over the month, employment continued to trend up in ambulatory health care services (+32,000), hospitals (+18,000), and nursing and residential care facilities (+8,000). Employment in government increased by 51,000 in October and has returned to its pre-pandemic February 2020 level. Monthly job growth in government had averaged 50,000 in the prior 12 months. In October, employment continued to trend up in local government (+38,000).

In October, construction employment continued to trend up (+23,000).

So, unproductive government jobs increased by 51k while productive construction employment grew by only 23k.

Average weeky; earnings growth YoY slowed to 3.2%. Too bad core inflation last printed at 4.13% YoY in September.

But the household survey shows employment collapsed by 348K, the biggest drop since the Covid shutdown.

As usual, historical data was revised massively lower, with the jobs change for August revised down by 62,000, from +227,000 to +165,000, and the change for September was revised down by 39,000, from +336,000 to +297,000. With these revisions, employment in August and September combined is 101,000 lower than previously reported. In total, 8 of the past 8 months have been revised sharply lower in what only idiots can not see is clearly mandated political propaganda designed to make the economy look stronger at first glance then quietly revise the growth away.

Bidenomics hurts so good? At least that is what Biden and KJP will say.

Soft Jobs Report Weakens Impetus for Fed Rate Hike in December. Translation? Weak jobs report = no more Fed rate hikes = falling interest and mortgage rates.

10-year US Treasury yield now down a whopping 40 basis points in the last three trading sessions.

And its beginnig to look a lot like a BAD Christmas!

How do you recession? B-I-D-E-N-O-M-I-C-S.

Back In Time! MBA Mortgage Purchase Demand (Applications) Decline To Lowest Level Since 1995 (Down -22% Since Last Year)

We are back in time … at least for the mortgage market. Thanks to Bidenomics!!!!

Mortgage applications decreased 2.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 27, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.1 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 3 percent compared with the previous week. The Refinance Index decreased 4 percent from the previous week and was 12 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 22 percent lower than the same week one year ago. Back to 1995 levels.

At least mortgage refinancing applications are back to only 2001 levels.

Two-year yields have risen 5%.

At least it looks like Powell will pause rate hikes … for the moment.

I want a new drug, other than Biden’s top-down, big-donor friendly Soviet-style command economy. How about a free market without Fed interest rate manipulation??

Guns Of August? Home Prices Rise Again In August, +2.57% YoY (Illegal Immingrant Destinations Like Chicago, New York And Detroit Are Up The Most)

Bidenomics is best represented by the novel “The Guns of August” since American’s middle class is getting blasted by Biden’s economic policies and The Fed’s rate rate hikes. Find out where Texas Governor Abbot is bussing illegal immigrants and buy in the market!!

Home prices rose for the 5th straight month in August (the latest data released by S&P Global Case-Shiller today), up 1.01% MoM (better than the 0.8% rise expected).

Source: Bloomberg

The ongoing MoM rises pushed the YoY gain in home prices at America’s 20 largest cities up 2.16%, the most since January 2023. The National Home Price index rose even faster at 2.57% YoY.

Illegal immigration destinations Chicago, New York, and Detroit all saw major home price rises (+5.0%, +4.9%, and +4.8% YoY respectively). Las Vegas, Phoenix, and San Francisco remain lower YoY (-4.9%, -3.9%, -2.5% respectively).

But, judging by the resumption of the rise of mortgage rates since the Case-Shiller data was created, we would expect prices to also resume their decline…

Source: Bloomberg

Inventory is going nowhere, buyers and sellers are stuck (affordability for the former and the mortgage cost gap for the latter), and The Fed isn’t cutting rates any time soon. Not pretty…