It’s a tale of two U.S. economies. As the stock market booms to new highs, erasing all coronavirus pandemic losses, the rest of the economy remains on life support.
Today we learned that mortgage delinquencies hit the highest level ever recorded. This means that people can’t make their house payment and are in serious danger of losing their homes.
Economic “leaders” have been trying their best to hide what is happening to the economy, but the real life data doesn’t lie.
— Evan Kirstel #RemoteWork (@EvanKirstel) June 7, 2020
Rent and employment and shopping may be down, but the housing market seems to continue to be going gang busters.
There seems to be a lot of contradictions in this economy, with millions unemployed, unpaid and in the process of losing their homes on the one hand and the stock market hitting record highs and the housing market starting to take off on the other.
The housing numbers are not looking good. According to Redfin, in the four weeks that ended September 16, 2019, “more than one-quarter of the homes listed for sale had a price drop.” According to Redin’s senior economist, “there are some early signs of a softening market, and the increase in price drops may be another indicator that sellers are going to have trouble getting the prices, and the bidding wars, that they may have just months ago.” (CNBC)
According to Lawrence Yun, the chief economist for a realtors lobby group (who are nothing better than used car salesmen), there is still no reason for concern, “While inventory continues to show modest year-over-year gains, it is still far from a healthy level and new home construction is not keeping up to satisfy demand.”
Yes, Lawrence, anything a “normal person” can afford is still selling because people can afford it, but the shacks that are far over priced beyond what a “normal person” can afford, those are just sitting.
In Utah, the problem is becoming quite clear, sales dropped 9.6% from this time last year. “It’s definitely not a sellers’ market, except in some price ranges,” said Scott Robbins. Again, if a “normal person” can afford the shack for sale, then it will sell, if the shack is overpriced, then it sits. (SLT)
Meantime, new home sales are going up. Which is all fine and good until you realize they are going up because developers have cut prices by 9.7%. In other words, it’s a fire sale and the developers just want to dump their inventory. (CNBC)
The rich also have decided to take a break from buying, “Redfin tracked home sales in more than 1,000 cities across the U.S., excluding New York City, due to a lack of MLS data. Across those cities, the average sale price for luxury homes nationwide fell 1.6% to $1.55 million in the first quarter, compared to the same time last year.” (MG)
The choppy waters are starting to make used shack salespersons (realtors) quite nervous, as we are now going into the “hot season” for home sales, but with a whole lot of uncertainty. And there’s cause for concern since the “number of price cuts to homes listed in March jumped by a whopping 275.9 percent year-over-year in San Jose, by far the highest in the country. Las Vegas, Seattle, San Francisco, and Salem, Oregon, also saw price cuts jump by triple-digit percentages in March.” (Curbed)
Boy, that’s sure a lot of haircuts for a real estate market that exists during the “best economy during the history of all time,” isn’t it?
The last few days have been days of reckoning for the stock market. The question only remains: is this a small, short term stock market correction, or is this the beginning of a bear market that will take out much of the value that has been generated over the last ten years since the 2008 crisis.
HOUSING STOCKS GET HAMMERED
During the post 2008 “recovery” people were screaming hysterically about a housing market that was never going to go back down and that would continue to see prices grow year after year, forever. But as home sales and prices began to slide and interest rates crept up over the last 60 days, another very serious trend has emerged without much attention: housing company stocks have been getting absolutely destroyed. That said, most of the delusional “economist” commentators continue to insist that the “fundamentals” of the housing economy are strong.
“I think fundamentals are strong out there, but I think buyers are going to continue to be involved in the market particularly at the low end,”
How very 2008.
These “experts” seem to conclude that everything is ok–it’s just that rising interest rates are making a home purchase a little more difficult. People for decades were purchasing homes at double-digit interest rates, in fact in 2008, the interest rate was around 6%. But this time around we see the housing market beginning to look very shaky as interest rates hit 5%. Throw on top of that Trump’s insane tax cut financed with $1.5 trillion in debt and that will eliminate deductions for many home owners, tumbling housing stocks and weak wage growth and there is no way for the would-be home buyer to keep up. This is not healthy and interest rates can’t be the only thing we blame. This is a massive failure of leadership.
“On the other side, homebuilders are facing massive increases in cost, they’re really having problems with finding skilled construction workers; they’re also having higher material costs as commodity prices go up. So you’ve got higher costs in building, higher prices from a consumer perspective, and that’s just really making the earnings growth tank,” Gibbs said Friday on CNBC’s “Trading Nation.”
In what world are these “fundamentals” strong?
AMERICAN AUTO COMPANIES GET WRECKED
The “big three” American auto companies have also been taking a lot of damage in this supposed “very healthy” and “best” economy in the “history of the world.” As has been discussed repeatedly on this blog, the insanely high prices, of even a pickup truck, these days is making it very difficult for the American consumer. But instead of looking at why income isn’t keeping up with inflation or why costs are going way beyond what people can afford, the auto industry “expert” economists once again bring out the interest rate boogeyman and blame him for all of the auto companies’ problems:
So, why are Ford shares plummeting?
In the short-term, auto stocks are falling because interest rates are rising.
Actually, how about the fact that it now costs $50,000 for a fairly average pick up truck, which is basically the entire annual salary (before taxes) for the average American worker. In what world is it a good business model to offer a product that nobody can afford absent a eight year financing loan? When your entire business relies on your customers taking on a huge amount of debt in order to buy your product, perhaps the question should be about how to cut costs while still being able to make a profit instead of figuring out ways to just get your American chump to take on more debt and pay more interest.
Others now claim that auto stocks are “irrelevant,” but the reality is auto stocks usually take the biggest dump right before the economy. They are the canaries in the coal mine:
“We all know before the whole economy goes south, autos do,” said Jon Gabrielsen, CEO of Cabo San Lucas, Mexico-based J.T. Gabrielsen Consulting LLC. “That’s why I think they’re dropping off on all the autos.”
The 2008 crisis came about because bad loans were being written to people who had no business getting them. This time, loans are being offered to people who have no business getting them other thanat the low ratesthat the loans were offered. In other words, we went from an underwriting problem–where shitty loans were being offered to shitty people (in terms of creditworthiness)–to issuing loans to people who looked like they could afford thembecause the interest rates were so low.
As interest rates now begin to rise to reasonable and responsiblelevels, levels that in the history of finance are still low but closer to reality. The problem is the entire recovery has been built artificially on the back of cheap money. If not for the low interest rates, the recovery would not have happened the way it happened. All these people are waking up and realizing that they can’t make the payment on their adjustable rate loans, that they did not save any money during the supposed “boom times” because they were too busy taking on more debt. They realize they failed to get any meaningful wage growth (especially when inflation is factored in) over the last ten years, and that they have been footing the bill for increasing healthcare costs.
Meanwhile, the greed at the top continues. Their incomes grows and their tax burden falls while the rest of us eat cake.
The boom times are when you are supposed to put away money for a rainy day. Average Americans on an individual level and their government at the group level did not do that. The storm is coming and there is nothing in the piggy bank.
But hey, blame the Fed. Blame the interest rates. Blame anything other than your own crappy financial decisions.
Yesterday I reported to you that pre-existing home sales were falling and have been for some time. Today we have news that new home sales are also now declining and have fallen to a nine-month low.
The Commerce Department said on Thursday new home sales decreased 1.7 percentto a seasonally adjusted annual rate of 627,000 units last month, the lowest level since October 2017. June’s sales pace was revised up to 638,000 units from the previously reported 631,000 units.
And what does that mean?
Though the moderation in housing is largely driven by supply constraints, there are concerns that persistent weakness will eventually spill over to the broader economy. The housing market has underperformed the economy so far this year.
So what happened to the housing industry’s line that it repeated over and over again during the last year? That demand is very high for homes and we just need to get some more inventory. If demand was so high, then why the heck aren’t new or preexisting (used) homes selling like hot cakes? There are homes hitting the market, but nobody is buying what’s being sold.
Ask yourself, who out there can afford a home but still doesn’t have one at this point? Homes are too expensive and even though everyone might “want” a home, there is nobody out there left on the market who can afford one. It’s not a supply problem.
American Rampage 