November 28th, 2022 - Market Update
Current position: Continue floating
Stocks are lower and Mortgage Bonds are higher to start an action-packed week. St. Louis Fed President, James "Raging" Bullard, is speaking at 10:00am ET. He could shake up the markets, as he did the last time, when he spoke about needing to potentially raise the Fed Funds Rate to 7%. The markets recovered following that comment, as he is typically an outlier, but be on guard for some volatility. It's also important to note that he will only be a voting member at one more meeting, December 14, and then he is not a voting member for another four years.
There was an article on Business Insider titled Buckle in for a brutal free-fall in home prices and US housing is in a massive bubble, experts say. Let's dissect this - The article is citing 7 "housing experts" and while they are certainly names you may recognize as economists, I would not call them housing experts. Additionally, some are calling for a 10% decline, while others are calling for a 20% decline. A 20% decline would be a doomsday like scenario, and something similar to what we saw during the housing bubble.
From the peak in home prices in 2007 to the trough in 2009, home prices declined by 20%. And while some experts are predicting a similar type crash, but the dynamics are very different.
Back in 2007, there were 4M homes for sale vs 1.22M today. And back then, builders were putting up record numbers of homes while demand was falling. Today, demand is waning, but builders learned their lesson and single family starts are down 22%, while permits are down 21%. Additionally, in 2008, the average equity in homes was 19% vs 58% today.
As we covered last week, Case Shiller is reporting that home values nationwide have only come down 1.5% from their peak, but the data is lagging 2 months. We anticipate further softness, but nothing close to a 20% decline. And when rates come down to 5% in the first half of next year, as we project we think that all of the buyers in hibernation due to high rates will come back and with the low supply environment, it sets up for a reacceleration in home prices.
Source: MBS Highway
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