DECEMBER 7, 2022 – On June 14th, I posted that Step 2 in the housing market cycle had occurred. Then on October 3rd, I noted we had entered Step 3. I also predicted we would get to Step 4 well before anyone expected.
Today, we are officially in Step 4. Home prices have declined nationwide. The acceleration is underway. Below is the factual data from the American Enterprise Institute. I will revisit this topic sometime in 2023 when I start to see indications of a bottom. In the interim, sit back and enjoy the bloodbath. A cleansing is always needed and we are getting one.
Shalom and Happy Holidays,
The Mann
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It’s official: The sudden reversal in home prices that began this spring has hit every one of America’s major metros with declines from their recent all-time peaks. What’s remarkable is the gigantic range of the pullbacks from region to region, and how the biggest losers are due to keep falling fast, while the metros that so far have taken the most modest hits should face only relatively small retreats from their pinnacles by the close of 2023.
That’s the evidence from a report just issued by the American Enterprise Institute’s Housing Center. Each month, the AEI measures the total change in home prices in 58 markets from their previous summits. The new chart shows that 45 of those cities crested to cap a synchronized spiral between April and June, though a handful peaked later, including Miami and North Port in July, and Greenville, Charleston and Cincinnati in September. For the first time in October, every one of the 58 markets registered a fall from their high points, ranging from -12.9% in San Jose to -0.5% in Memphis. ((Forbes))
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BULL MARKET, INTEREST RATES, & MORE
DECEMBER 2, 2022 – The DJIA bottomed at 28,661 in October. Yesterday, it surpassed 34,393, which is a 20% rise and what the market defines as being a Bull Market. I didn’t see that mentioned anywhere in the media. Strange.
I read that the average time between when the Fed stops raising rates and lowers them for the first time is 4.5 months. It appears that the stock market is telegraphing such.
Bottomline, the market is saying things will be bad through the 1st Quarter of 2023 and then improve from there.
The 30-Year Fixed Mortgage Rate declined to 6.49% this week. This is down from the top I called when rates were 7.22%. And, we are already over halfway to my forecast of rates going below 6%.
As for the US Dollar, it has declined from the top of 114.778 in late September to 104.533 at today’s close. That is a hefty 8.9% decline.
The forecasts are going well. As everything ebbs and flows, I would expect there to be some movement against my forecasts before the trends resume.
One last tidbit of information that I found simply incredible. The American Enterprise Institute reported that ‘for every [25- to 54-year old] guy who is out of work and looking for a job, there are four guys who are neither working nor looking for work.’ That is insane. For those who try to say it is unfair to generalize that the younger generations do not want to work, the facts say you are wrong. The labor force participation rate is down to 62.3%, which is well below pre-pandemic levels. I wonder how the economy holds up when that rate goes below 50%?
My inflation forecast is 7.5% to 7.8%. The Fed is estimating 7.49%. I am not expecting this report to be shocking in any way. We will find out on December 13th.
Happy Holidays to all!
Shalom,
The Mann
INFLATION FORECAST
NOVEMBER 25, 2022 – The next CPI announcement comes out December 13th. The last one was a positive surprise that resulted in a 1200-point stock market rally.
I am not seeing much occurring this time around. My forecast is 7.5%-7.8%. Last month’s annual CPI figure was 7.7%. So, I am not seeing much change this month. We shall see how it goes.
Shalom,
The Mann
A QUICK INTEREST RATE FORECAST
OCTOBER 24, 2022 – The 30-Year US Treasury Bond yield is peaking around 4.4%. Over the next 3-4 months it should decline to the 2.95% to 3.4% range. I would expect the average house mortgage to decline from the current 7% level to somewhere in the 5%-6% range in the same time period.
This will give the public the feeling that the worst is over and things are getting back to ‘normal.’ NAR and the Fake News Media will pound us with now is the time to buy. Now is the time to get a loan. We are on the rebound. Blah blah blah.
Then we will head back to interest rates above the high we are experiencing this week.
As always, we shall see how this plays out.
Shalom,
The Mann
“WE HAVE AN OVERSUPPLY OF HOUSING” – THE MANN
UPDATED – OCTOBER 26, 2022 – I have added some data regarding the number of vacant housing units in America at the bottom of this post.
OCTOBER 24, 2022 – There, I said it. Made it 100% clear for everyone to understand. I might be the lone voice saying this for the past 5-10+ years. So be it.
Population growth in this country has been slowing for the entire 21st Century. It will continue to slow. NAR, Homebuilders, and the Fake News Media can tell you that we have a housing shortage. That is what they must tell you so they can keep making their money – at the expense of John Q. Public.
Some facts….
There are over 1.7 million housing units under construction. That is almost a 50-year high (yes, 50 years ago we had a much smaller population). More importantly, in the housing crisis 15 years ago, we peaked at only 1.4 million housing units. We have more housing being built today with a much slower growing population.
In the 1970’s, when Baby Boomers were at the age to buy homes in mass, that population segment grew at a 4.5% annual pace. Millennials of the same population segment today are growing at only a 1.2% annual rate! That is almost a 75% reduction in the demand for housing! Adjusting for a 56% increase in population since 1972, this is still a 58% reduction in the demand for housing!!!
I would guess if we didn’t build a single housing unit for 5+ years we would still have vacant houses and apartments all over this country. Instead of building new shoddy manufactured houses, let’s focus on rehabbing the well-built housing of decades ago. Most of this product is in existing built-up areas with infrastructure in place. Take advantage of that.
One day when people start to admit we have had an oversupply of housing for over a decade, please remember The Mann told them so:)
Shalom,
The Mann
ADDED OCTOBER 26, 2022 – I was wondering how many vacant units we have in America. So, some quick research found the following. Sources obviously can vary in their figures.
We have 142 million housing units in America. The number of apartment units is estimated to be 21.3 million. We can assume the remainder are houses – 121.7 million.
National apartment vacancy is reported to be 6%. This indicates 1.3 million vacant units. As of 2020, the home vacancy rate was 9.7%. This indicates 11.8 million vacant units. The sum is 13.1 million vacant housing units in America.
As I noted in the original part of the post above, we could go several years without building a single house or apartment complex and we would still have many millions of vacant units.
One last tidbit of information to consider. I once worked with an economist that assumed every year 1% of existing real estate (housing, office, retail, industrial, etc.) became obsolete and/or was demolished. At 142 million housing units, that would mean 1.4 million units are taken off the market each year. That helps provide some constant need for new housing. Again, this is an assumption. It seems like an awful lot of houses and apartments being abandoned or demolished every year. But, …
That is all I have for now.
INFLATION AND THE ONGOING RECESSION
OCTOBER 16, 2022 – First, a moment of silence for Marie Antoinette who was beheaded on this day in history. Would it be appropriate, or not, to honor her by having a piece of cake….but, I already digress:)
I have never tried to forecast inflation. I have probably made a forecast on most everything. Just not the CPI.
But, as it is just numbers. And I LOVE numbers. I figure what the heck.
After doing my analysis by hand (as always…I am not into spreadsheets and so on….the old-fashion way works best for me), my forecast is for annual CPI to end 2022 below 8%. For a range, I say 7.6% to 7.8%.
I am looking at below 7% (say 6.7%) at the end of the first quarter in 2023. And below 6% (say 5.9%) at the end of the second quarter in 2023. After doing my research, I have to say it is insane to try to forecast inflation more than a quarter out.
I guaranty that I have not looked at anyone else’s forecasts. I don’t know if anyone forecasts inflation rates 3-9 months out. So, pure coincidence if you have seen anything that is around my numbers above.
Also, those numbers will do nothing to keep the Fed from raising rates by 75bp two more times. Please remember, as I have posted here forever, the MARKET will tell you how much rates are going up. The Fed has FOLLOWED the market 100% of the time. The Fed never makes the decision. The market tells the Fed what to do and when.
Hold on….did you feel that….I bet you did….my outdoor thermometer just went from 72.6 degrees to 72.4 degrees. Wow, the climate changed!
Ooops, I did it again (hats off to you Britney)…I digressed again.
My last note is regarding our ONGOING recession. ((Someone please tell Jamie Dimon, who said we might enter a recession next year, that we have been in a recession ALL YEAR!)) With the stock market hitting new lows recently, the current economic downturn is now forecast to extend thru the 1st Quarter of 2023. Additional lows in the stock market will continue to push that date out.
Oh, one other last note. The US Dollar either has, or will within the next few weeks to a month, put in a MAJOR top. I don’t know how a weaker dollar plays into your world. But, something for you to consider.
And that gets me all caught up on all my forecasts. The inflation one won’t be near as easy as the housing one was in June. Some forecasts are easy. Some are difficult.
We shall see how the above turns out.
Shalom,
The Mann
STEP 3 IN THE HOUSING MARKET HAS OCCURRED
OCTOBER 3, 2022 – My June 14th post about Step 2 occurring said it would be easy to look back in 3 months and see that the housing market had peaked. Sure enough, 3 months later everyone can now see a top is in place and a correction has been well underway.
Step 3 is an acceleration in the slowdown of price appreciation. A summary of indicators follows.
The American Enterprise Institute’s (AEI) Home Price Appreciation (HPA) Index peaked at 17.0% in March and declined to 11.3% in August. AEI projects it will decline to 4%-6% by December.
The S&P Corelogic Case-Shiller House Price Index fell 0.4% on a month-over-month basis in July for the first time in 10 years. On a year-over-year basis, the increase in home prices decelerated by the most in the index’s history, said Craig J. Lazzara, managing director at S&P DJI.
Lastly, the FHFA House Price Index dropped 0.6% in July vs. June.
These are early signs that Step 4 will be upon us sooner than later. That is when the annual change goes from appreciation to depreciation. With mortgage rates soaring towards 7% the decline in home prices is more certain than ever.
What will baffle people is the continued low supply of available housing combined with prices declining. As I have long said, you don’t have to buy, but often you do have to sell. With a lack of buyers, sellers will continue to lower prices. In September, the number of households likely to buy a house in the next 6 months fell to its lowest level since 2010.
Shalom,
The Mann
THE SUBPRIME AUTO LOAN BUBBLE
AUGUST 18, 2022 – Everyone wants to know what this cycle’s The Big Short is. This time around it is subprime auto loans. Albeit, it is also prime auto loans.
Currently, 15,000 vehicles are being repossessed every day. The expectation is more vehicles will be repossessed this year than were sold in all of 2019!!!
I can go on and on about this significant crash. But, it is just easier to tell you to go to YouTube and search for Lucky Lopez and listen to his videos.
The bottomline is there will be LOTS of deals in the car market over the next 2 years. He notes it will take about 6 more months before this is seen everywhere.
I have found only one stock that could be shorted – Credit Acceptance Corporation (Symbol – CACC). It is down this year. But, simply about the same as the overall market. It will be interesting to see how it does over the next year.
Enjoy this video with Danielle DiMartino Booth and Lucky Lopez. As I mentioned in a separate post, I think Danielle’s service is the best out there.
https://app.hedgeye.com/insights/120295-webcast-deep-dive-with-danielle-dimartino-booth-lucky-lopez?type=guest-contributors%2Chedgeye-tv
Shalom,
The Mann
40-60 AND BUBBLES
JULY 18, 2022 – As a kid, the first thing I could read was the stock market page in the newspaper. Probably since I was 5 years old I have been analyzing markets.
Early on I recognized a 16-year pattern in the stock market. I lived thru the 1966-1982 sideways (down when adjusted for inflation) market. I noticed that the market went up significantly after WWII into 1966. And looking back, we can see that from 1982 to about 1998 (actually 1999/2000) the market soared again. It hasn’t been quite as clear since then.
However, in looking at bubbles I think a pattern exists. I recall an appraiser friend telling me that you make your ‘big bucks’ in your 40’s. I assume that continues thru your 50’s. That seems very logical. People from 40 years to 60 years old invest in stocks, buy real estate, buy boats and cars, on and on. This is when they have the most amount of money to invest.
So, let’s look back at the generation before the Baby Boomers. This generation was born from 1931 to 1947. Adding 60 years to the first people and 40 years to the last people, yields 1987 to 1991. Exactly when the S&L Crisis peaked and burst.
My fellow Baby Boomers were born from 1948 to 1964. Adding 60 and 40 years, yields 2004-2008. Again, right on target with the great housing bubble.
Generation X ranges from 1965 to 1980. Adding 60 and 40 years, yields 2020-2025. And here we sit in the middle of ‘The Everything Bubble.’ With the top already in place, I assume this means we bottom by 2025.
In the last crisis there was a funny bumper sticker going around – ‘Lord, give me just one more bubble!’ Sure enough, we got another one. So, for those that missed out on this one and are wondering when the next one will occur…..Generation Y (aka Millennials) ranges from 1981 to 1997. Adding 60 and 40 years, yields 2037 to 2041. A ways off for sure. And honestly, I don’t have a clue what will be in a bubble at that time. What is left? Maybe since cryptos came about after the last bubble, the next bubble will be something that has yet to be invented.
If you and I are around and remember this post, let’s have a chat in 2037:) Of course, let’s chat before that so we are invested early on in the bubble item(s).
Shalom,
The Mann
STEP 2 IN THE HOUSING REVERSAL HAS OCCURRED
JUNE 14, 2022 – It is rare that you see and know a peak is occurring as you speak. Three months or a year down the road it is easy to look back and see when a top occurred. But, while it is going on….that is difficult. Being in the forest makes it tough to see the trees.
There are 4 steps for the housing market (any market for that matter) to go from growth to decline.
Step 1 – Acceleration in appreciation begins to slow down. This occurred 6+ months ago.
Step 2 – This is occurring now. Annual home appreciation in June will be lower than it was in May. We will look back at May-June 2022 and see the rollover in annual appreciation. Essentially, acceleration has turned negative. Better to call it deceleration.
Step 3 – This is the opposite of Step 1. The steep upward slope of accelerating price appreciation now becomes a steep downward slope of slowing price appreciation. This will occur the remainder of 2022 and into 2023.
Step 4 – The final step occurs when the accelerating slow down (think of slamming on the breaks) takes the market from price appreciation into price decline. This seems a far way off. But, I think we might be in for a surprise and see declining home prices quicker than we expect. We shall see.
As an aside, Bitcoin (slightly below $20k) and Ethereum (around $1k) are nearing major lows. The next move should take both to record highs (4x-5x moves from these levels).
Shalom,
The Mann