Global Recession?

[Ready2Downsize]

This tidbit caught my eye this morning:

In Phoenix, 32% of single-family purchases in January were by investors with fewer than 10 properties, up from 28% a year earlier, according to data from John Burns Real Estate Consulting. By comparison, large investor purchases accounted for 12% of transactions.
https://www.bloomberg.com/news/arti...-homeowners-use-cash-out-refis-to-buy-rentals

So 44% of all single-family homes in Phoenix are purchased by investors.  A lot of this is funded by cheap cash-out refi's on other properties they own in other parts of the country (the point of the article).  If investor demand dries up due to a combination of higher mortgage costs and renters missing payments due to nationwide job losses, it's going to have an outsized effect on the Phoenix market.  This cycle has played out repeatedly, which is why Phoenix is more of a boom/bust market.

Phoenix has been boom and bust because they didn't have job growth. They have that now.

Alot of those investor homes were bought up by companies that rent out homes and it was cheaper to buy a house than to rent it when rents were rising. Now that rents are higher and rates are higher, they will just hand onto them. These are BIG companies that rent homes nationwide. It's like saying well the Irvine company has all these places they rent out and when rates rise they are going to have to SELL baby!

Maricopa is the fourth largest county in the country and there is a big difference between downtown phoenix and the area that is included in Phoenix metro. It's like saying Orange County is made up of Santa Ana, Garbage Grove, Anacrime there so Irvine must be overpriced and is headed for a cliff!

During the pandemic, The OC lost population (small amount) along with San Diego, Los Angeles and the Bay area. Maricopa county population went up by 1.7% and it has been going up for years. Phoenix/Chandler/Mesa went up over 2% and indeed the growth in Arizona is not in Phoenix. Phoenix is a lower income area that is built out. The newer areas are growing supported by jobs coming to the state. I know it's weird to think that companies are actually building new factories and offices when you're used to companies reducing their footprint in your state but it does still happen.

If Irvine population went up that much in one year, it would be 6000 new residents. If only 25% of those wanted to buy a house and you used 2000 of the residents as your household assuming some are single, couples and families that would be an additional 500 houses that would have to be built. That is in addition to what is already in demand from household formation and young people entering the market. Good thing the OC didn't see a population jump like that. Imagine the supply/demand ratio!

 

[daedalus]

Pretty simple, in an inflationary environment you want to own real assets and real estate falls into that category.

Does toilet paper count? 

 

[Liar Loan]

If the Fed funds rate reaches 6%, how high would mortgage rates end up going?  Job losses + the highest mortgage rates in a generation will not end well for the housing market.

Deutsche Bank Sees 5%-6% Fed Target Rate and Deep U.S. Recession

The Federal Reserve is likely to need to engage in the most aggressive monetary tightening since the 1980s to tamp down an inflation rate at a four-decade high, which will lead to a deep U.S. recession next year, Deutsche Bank AG economists warned.

?We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time,? the authors including David Folkerts-Landau, group chief economist and head of research, wrote in a report Tuesday. ?This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction, which our U.S. economics team estimates will be equivalent to a couple additional 25 basis-point rate hikes.?

This monetary tightening and the financial upheaval that accompanies it ?will push the economy into a significant recession by late next year,? Folkerts-Landau said, adding Deutsche sees the unemployment ultimately rising ?several percentage points.?
https://www.bloomberg.com/news/arti...es-5-6-fed-target-rate-and-deep-u-s-recession

 

[Liar Loan]

Why would home builders be so worried?  Maybe because there are the largest number of homes under construction since 1973?

Looming 'housing recession' has builders appeal to Biden administration

As mortgage rates and home prices reach record highs, the National Association of Home Builders is now calling on the White House to take action.

"We are very concerned that we will have a housing recession, and that this unsustainable, undesirable fact that right now the average American can't afford the average house will continue to get worse," Jerry Howard, chief executive officer of the National Association of Home Builders told FOX Business."We will have a real and unsolvable housing crisis if we don't get on top of it soon."

The letter, signed by over 10,000 homebuilders...
https://www.foxbusiness.com/economy...ation-housing-recession-inflation-real-estate

 

[Liar Loan]

Ruh Roh Shaggy!  US exports are tanking leading to a decline in GDP.

U.S. Economy Posts Surprise Contraction, Belying Solid Consumer Picture

The U.S. economy shrank for the first time since 2020, reflecting an import surge tied to solid consumer demand.

While the surprise contraction adds to political headaches for President Joe Biden, it?s unlikely to dissuade the Federal Reserve from hiking interest rates aggressively to combat inflation.

Gross domestic product fell at a 1.4% annualized rate in the first quarter following a 6.9% pace at the end of last year, the Commerce Department?s preliminary estimate showed Thursday. The median projection in a Bloomberg survey of economists called for a 1% increase.
https://www.bloomberg.com/news/arti...racted-in-first-quarter-on-surge-in-trade-gap

 

[Liar Loan]

More Retailers Say They Can?t Pay Rent, Even As Shoppers Keep Shopping

Consumer spending is expected to rise this year, but retailers aren't out of the woods yet. Many are still struggling with rents, which have been rising with inflation.

Thirty-four percent of small retail businesses couldn?t make rent in April, up 6 percentage points from February, Retail Dive reports, citing survey data from Alignable. Retailers pointed to inflation, gas prices, supply chain issues, labor shortages and reduced revenues as compounding their financial woes.
https://www.bisnow.com/national/new...tpace-inflation-this-year-nrf-predicts-112902

 

[Liar Loan]

This is the canary in the coal mine.  Get ready for a spike in FHA mortgage defaults.

More Subprime Borrowers Are Missing Loan Payments
Borrowers with limited or troubled credit histories are defaulting on credit cards, car loans and personal loans

The share of subprime credit cards and personal loans that are at least 60 days late is rising faster than normal, according to credit-reporting firm Equifax Inc. In March, those delinquencies rose month over month for the eighth time in a row, nearing their prepandemic levels.
https://www.wsj.com/articles/more-subprime-borrowers-are-missing-loan-payments-11652952602

 

[OCtoSV]

today's $1.6M detached Irvine condos will be $1M in a year

 

[Liar Loan]

today's $1.6M detached Irvine condos will be $1M in a year

It will be interesting to see how this plays out.  The house two doors down from mine is listed at 60% higher than we paid in March 2020, even though our house is 800 sq ft bigger, but not as updated.  Assuming the same down payment amount we used, their monthly P&I payment would be 150% higher than ours based on current rates.  I just can't imagine somebody paying that much for a house given what they were going for only a couple years ago.  I think many people still don't acknowledge how distorted this current housing market is because they are either blinded by greed or by fear of missing out.

 

[sleepy5136]

today's $1.6M detached Irvine condos will be $1M in a year

It will be interesting to see how this plays out.  The house two doors down from mine is listed at 60% higher than we paid in March 2020, even though our house is 800 sq ft bigger, but not as updated.  Assuming the same down payment amount we used, their monthly P&I payment would be 150% higher than ours based on current rates.  I just can't imagine somebody paying that much for a house given what they were going for only a couple years ago.  I think many people still don't acknowledge how distorted this current housing market is because they are either blinded by greed or by fear of missing out.

the numbers and graphs that you posted recently are saying otherwise.

 

[OCtoSV]

today's $1.6M detached Irvine condos will be $1M in a year

It will be interesting to see how this plays out.  The house two doors down from mine is listed at 60% higher than we paid in March 2020, even though our house is 800 sq ft bigger, but not as updated.  Assuming the same down payment amount we used, their monthly P&I payment would be 150% higher than ours based on current rates.  I just can't imagine somebody paying that much for a house given what they were going for only a couple years ago.  I think many people still don't acknowledge how distorted this current housing market is because they are either blinded by greed or by fear of missing out.

the numbers and graphs that you posted recently are saying otherwise.

I've put a stake in the ground with my prediction. Oh and 7% 30 yr mortgage rate then too. USC, CalBruin, IHO - anyone care to put your prediction on the record?

 

[CalBears96]

today's $1.6M detached Irvine condos will be $1M in a year

Since you asked for my prediction, I'll say today's $1.6M detached Irvine condo will be $1.3M-$1.4M in a year. I think we're reaching the peak soon, then flatten out and will probably drop 20%. It could take a year or two for the 20% to happen.

 

[irvinehomeowner]

I predict Liar Loan will say he predicted whatever will happen.

 

[irvinebullhousing]

today's $1.6M detached Irvine condos will be $1M in a year

I will take a wager on this with you, since you are very confident of the out come?

You can layout the details and the amount and I could add to your proprositions.

What do you say?

 

[usctrojancpa]

If the Fed funds rate reaches 6%, how high would mortgage rates end up going?  Job losses + the highest mortgage rates in a generation will not end well for the housing market.

Deutsche Bank Sees 5%-6% Fed Target Rate and Deep U.S. Recession

The Federal Reserve is likely to need to engage in the most aggressive monetary tightening since the 1980s to tamp down an inflation rate at a four-decade high, which will lead to a deep U.S. recession next year, Deutsche Bank AG economists warned.

?We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time,? the authors including David Folkerts-Landau, group chief economist and head of research, wrote in a report Tuesday. ?This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction, which our U.S. economics team estimates will be equivalent to a couple additional 25 basis-point rate hikes.?

This monetary tightening and the financial upheaval that accompanies it ?will push the economy into a significant recession by late next year,? Folkerts-Landau said, adding Deutsche sees the unemployment ultimately rising ?several percentage points.?
https://www.bloomberg.com/news/arti...es-5-6-fed-target-rate-and-deep-u-s-recession

They'd be below 6% and the 10/30 bond rates would be lower than the Fed Funds Rate because the yield curve would be inverted because we'd be in a recession at that point.

 

[usctrojancpa]

today's $1.6M detached Irvine condos will be $1M in a year

Since you asked for my prediction, I'll say today's $1.6M detached Irvine condo will be $1.3M-$1.4M in a year. I think we're reaching the peak soon, then flatten out and will probably drop 20%. It could take a year or two for the 20% to happen.

We'll need to see inventory levels go materially above 3 months on inventory to see those kind of price declines and we are still right around 1 month of inventory as we speak in Irvine.  I think we'll see more like what we saw in late 2018 with single digit price declines.  That being said, 10/30 bond yield have rolled and are down by 30+ bps from the peak. 

 

[someguy]

If the Fed funds rate reaches 6%, how high would mortgage rates end up going?  Job losses + the highest mortgage rates in a generation will not end well for the housing market.

Deutsche Bank Sees 5%-6% Fed Target Rate and Deep U.S. Recession

The Federal Reserve is likely to need to engage in the most aggressive monetary tightening since the 1980s to tamp down an inflation rate at a four-decade high, which will lead to a deep U.S. recession next year, Deutsche Bank AG economists warned.

?We assume conservatively that a Fed funds rate moving well into the 5% to 6% range will be sufficient to do the job this time,? the authors including David Folkerts-Landau, group chief economist and head of research, wrote in a report Tuesday. ?This is partly because the monetary-tightening process will be bolstered by Fed balance-sheet reduction, which our U.S. economics team estimates will be equivalent to a couple additional 25 basis-point rate hikes.?

This monetary tightening and the financial upheaval that accompanies it ?will push the economy into a significant recession by late next year,? Folkerts-Landau said, adding Deutsche sees the unemployment ultimately rising ?several percentage points.?
https://www.bloomberg.com/news/arti...es-5-6-fed-target-rate-and-deep-u-s-recession

They'd be below 6% and the 10/30 bond rates would be lower than the Fed Funds Rate because the yield curve would be inverted because we'd be in a recession at that point.

The Fed plans to begin Quantitative Tightening on 6/1/22 (though they've been saying QT since Oct 2021) allowing up to $95B of treasuries and MBSs to roll off the balance sheet monthly.  Of the approximately $9T on their balance sheet roughly $3.5T is MBS.  That should have an impact on the longer end of the yield curve.

They stopped growing their balance sheet in recent months (https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm)

The Fed has made it clear they want asset prices lower, inflation under control, and are wiling to tolerate an increase in unemployment from today's levels. The only tool they have is to manipulate demand via yield curve control.  The Fed will get their way imho, unless there's an external shock (i.e. expanded war, financial crisis).  They're essentially going to manufacture a recession.  It's just a matter of how "soft-ish" of a recession we get and when + how quickly they reverse course.

 

[OCtoSV]

I feel for real estate this will be similar to the late 80s/early 90s crash in SoCal given the dy/dx of the unemployment rate and mortgage rates. Remote workers are already starting to whine on LinkedIn about pressure to come to the office. How do you get to Cupertino weekly if you're living in OC? That gets expensive quick.

June 1 2023 is the date for my $1M/7% prediction. Happy to buy a round at Houstons for anyone that wants to show up if I lose - always looking for an excuse to come home.

 

[morekaos]

I'm on your side OC...we hit 5.5% just a little while back and 7% is just a hop skip and a jump from there. With the Fed rhetoric like this...its not out of the question.

Powell says the Fed will not hesitate to keep raising rates until inflation comes down

Fed Chair Jerome Powell said he will back interest rate increases until prices start falling back toward a healthy level.
?If that involves moving past broadly understood levels of neutral we won?t hesitate to do that,? the central bank leader told the Wall Street Journal
https://www.cnbc.com/2022/05/17/pow...raising-rates-until-inflation-comes-down.html

 

[irvinebullhousing]

I feel for real estate this will be similar to the late 80s/early 90s crash in SoCal given the dy/dx of the unemployment rate and mortgage rates. Remote workers are already starting to whine on LinkedIn about pressure to come to the office. How do you get to Cupertino weekly if you're living in OC? That gets expensive quick.

June 1 2023 is the date for my $1M/7% prediction. Happy to buy a round at Houstons for anyone that wants to show up if I lose - always looking for an excuse to come home.

Quote from: OCtoSV on May 24, 2022, 01:01:22 PM
today's $1.6M detached Irvine condos will be $1M in a year

So I want to make sure that I have this correct. In Irvine Condo with 1.6 will drop to 1 million at about 1 year from now with 7% mortgage rate correct?