The Fed Boogie! Homes Above $800,000 Drive Bidding Wars in U.S. Housing Market As Fed’s Stimulypto Persists

Massive Federal stimulus (both fiscal and monetary) have led to bidding wars among the wealthiest Americans. Despite clamoring for The Fed to increase rates and speed-up the shrinking of The Fed’s balance sheet, nothing has happened … yet.

(Bloomberg) — Home buyers willing to spend almost a $1 million are competing the most for a piece of the red-hot U.S. housing market.

Homes priced between $800,000 and $1 million saw the highest rate of bidding wars at 64.6%, followed by 62% for homes between $1 million to $1.5 million and 61.7% for homes above $1.5 million, according to December data from Redfin Corp.

“Buyers should anticipate that they may not win a house until their sixth or seventh bid,” Candace Evans, a Redfin team manager in New York, said in a statement. “If you’re the type of person who falls in love with a house, this is not your market.”

Salt Lake City had the highest bidding-war rate of 37 U.S. metropolitan areas analyzed, with 74% of offers facing competition in December, the firm said. Tucson had a 73.1% bidding-war rate and followed by 71.1% for San Diego.

Prospective buyers are competing for homes as relatively cheap mortgage rates and a proliferation of remote-working opportunities in the wake of the Covid-19 pandemic boost demand for homes in smaller cities. The number of available homes in several of the hottest markets continue to shrink. 

Nearly 60% of home offers written by Redfin agents across the U.S. faced competing bids in December, the firm said. It was the lowest rate in 12 months but an increase from 54% in December 2020 as pandemic-driven demand for housing remains strong.

Vacation homes, which are often pricey and have increased in popularity due to Covid-19, may have contributed to bidding wars in the high-end market, Redfin said. Townhouses had a bidding-war rate of 62% followed by 61.3% for single-family homes, the firm said.

Now its a race against the clock as potential home buyers try to beat Powell and the Gang as they raise mortgages rates.

Yes, Federal stimulus has made the top 1% increase their share of total net worth that includes $800,000+ homes.

Try to calm down and listen to Torquay by The Leftovers. Or listen to Danse Fed.

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%.

Kevin’s Famous Chili? 30Y Mortgage Rate Rises To 3.45% As 10Y Treasury Yields Rises To 1.869% (4 Rates Hikes By Fed Priced-in)

The 10-year Treasury Note yield rose to 1.869% this afternoon as Freddie Mac’s 30-year mortgage commitment rate rose to 3.45%.

And if you like The Fed Funds Futures data, it is pricing in 4 rate hikes by The Fed (March, June, September and December). For a grand total of … 100 basis points or 1%.

By keeping rates soooo low for soooo long, The Fed has committed a serious policy error. Or as Kevin Malone calls it, “The Fed’s Famous Chili!”

The Empire Strikes Out! Empire Manufacturing Index Slumps To Negative Territory As Inflation Roars (WTI Crude Futures UP 79% Since Jan 1st)

Well, Omicron is hitting hard. Not the virus itself, but governments’ reaction to the virus. The NY Empire Manufacturing Index has tanked into negative territory.

New orders are down 5%.

On the energy front, West Texas Intermediate Crude Oil futures are up 79% since January 1, 2021 while regular gasoline prices are up “only” 50% over the same period.

How about inflation and the Treasury yield curve? Inflation has soared to 40-year highs under Biden as energy prices (WTI Crude Futures) have soared 79%.

Container ships are still backed-up at LA and Long Beach ports. I thought Mayor Pete was supposed to fix the port congestion problem!

Maybe they should play the Darth Vader theme when Biden goes to the podium to stammer.

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.

UMich Housing Sentiment “Rises” To 83 As Inflation Hurting Retail Sales (Industrial Production Declines -0.3%)

That Bidenflation is really hurting Americans.

Start with the UMich Buying Conditions for Houses. It “rose” to 83. Unfortunately, 100 is the baseline and any number below 100 is bad. The reason? The massive increase in US home prices since 2020.

But retail sales are hurting thanks to higher prices. Retail sales less food services and auto are DOWN 3.1% MoM.

Meanwhile, US industrial production fell to -0.3%.

Shipping Blues! Cass Freight Index Expenditures Rose 43.6% In 2021 While Baltic Dry Index Has Crashed Since October 2021 (Omicron Strikes!)

Ever wonder why prices are rising so fast? One reason is that with rapidly rising energy prices under the Biden Administration, the costs are getting passed-through to consumers in the form of higher prices.

According to the Cass Corp Freight Index, the total spent in December on shipping goods to their customers in the US spiked by 43.6% from December 2020 to December 2021. Not surprising since energy prices over the past year have soared by almost 50%.

But at the same time, the Baltic Dry index (The Baltic Dry Index (BDI) is a shipping and trade index created by the London-based Baltic Exchange. It measures changes in the cost of transporting various raw materials, such as coal and steel) is crashing thanks to FEAR created by Omicron.

And yes, energy prices are surging again in 2022 after cooling off in Q4 2021.

Covid strikes!