[Chick Webb]

Saw a clip of Stanley Druckenmiller this morning on CNBC. Here's part of what he said:

When you have free money people do stupid things. When you have free money for 11 years people do really stupid things.

We will be paying for that for a while, I'll bet. A lot of assets have to reprice and that's not going to happen overnight. Patience and discernment will be rewarded.

CPI report is out tomorrow and concensus is 5.5%, with wages up 4.4% y/y. Doesn't look like the Fed will be in the mood to stop raising/cutting rates due to inflation any time soon. If they do stop/cut, it'll be to stave off/crush a crisis. Which may be coming.

[ASAP]

Originally Posted by Chick Webb

Saw a clip of Stanley Druckenmiller this morning on CNBC. Here's part of what he said:

We will be paying for that for a while, I'll bet. A lot of assets have to reprice and that's not going to happen overnight. Patience and discernment will be rewarded.

CPI report is out tomorrow and concensus is 5.5%, with wages up 4.4% y/y. Doesn't look like the Fed will be in the mood to stop raising/cutting rates due to inflation any time soon. If they do stop/cut, it'll be to stave off/crush a crisis. Which may be coming.

I have an feeling we will see something very interesting happen with housing... i don't know what that is exactly but if rates go up again, here is what I could see-

- Sales / Purchases completely grinding to a halt...
- realtors, loan originators will have to look for other work
- unemployment will tick up
- inventory will still be low - hence again, people that bought at low rates will be stuck forever... people that didn't buy won't find it valuable to buy
- housing starts and construction will grind to a halt

In other words, all of this will just translate into a BAD economy for everyone and housing will drop... just unclear how low but I am already seeing houses sit for 4-5 months that LY would have sold in days w 10 people making offers. This is FL btw... the most competitive market. People are still hesistant to adjust pricing which is completely unrealistic given the market... i just saw a new build $100K off from a year ago and still no one wants it.

[tgrundke]

Originally Posted by ASAP

I have an feeling we will see something very interesting happen with housing... i don't know what that is exactly but if rates go up again, here is what I could see-

- Sales / Purchases completely grinding to a halt...
- realtors, loan originators will have to look for other work
- unemployment will tick up
- inventory will still be low - hence again, people that bought at low rates will be stuck forever... people that didn't buy won't find it valuable to buy
- housing starts and construction will grind to a halt

There will be an adjustment. We've had 40 years of declining interest rates combined with effective (crisis induced) 0% interest rates for significant periods of time over the last 15 years. As noted earlier - asset values will need to be re-priced as a result, which means pain, and a slog.

Between 1995- 2008 mortgage rates ranged between 6.6% - 9.25%.
They dropped to sub 5% in 2009 and dropped to 2.6% during COVID.

I think rates will stay higher for longer and this is going to cause some cascading pain for multiple industries - CRE and residential being primary beneficiaries of this pain.

Issue right now is that there's no inventory: 2/3rds of mortgages right now are with sub-4% mortgages. Getting these owners to trade up to a near 7% rate is going to be hard, especially if prices haven't re-aligned.

Over the last 2 years, over $300 billion in cash out re-fis occurred in the residential market. Arguably, this has helped consumers keep up spending. If home values begin to re-price down, this hoovering up of liquidity is going to be felt broadly.

Sadly, I think we're just in store for a slow motion economic beating that's got legs to run for a solid 10+ years, unless we hit a Minsky moment and the rug gets pulled out suddenly. If that happens, all bets are off.

[BMW F22]

I’m starting to have doubts that the housing market will crash. I’m hoping in order to jump in. It’s simply unaffordable right now. Don’t know how much faith I should place on articles saying housing is rebounding, but homes around here are still going fast and prices haven’t come down that much. Could also be the Spring and Summer thing where there’s simply more sales.

[Chick Webb]

Originally Posted by BMW F22

I’m starting to have doubts that the housing market will crash. I’m hoping in order to jump in. It’s simply unaffordable right now. Don’t know how much faith I should place on articles saying housing is rebounding, but homes around here are still going fast and prices haven’t come down that much. Could also be the Spring and Summer thing where there’s simply more sales.

In many places, and the Bay Area where we live is perhaps one of the best (or worst, depending on how you look at it) examples, the primary issue is supply. Building in CA is so difficult on so many levels (lack of land, restrictive zoning, NIMBYs, outlandish permitting processes and costs, etc.) that there simply isn't enough to go around, which props up the prices.

Until we get much higher unemployment, which will force people to sell because they're moving for a new job, or they can't pay the note, or they're retiring, or some other factor, we won't see inventories change much. Because who with a 3% loan is going to give that up willingly, especially if prices haven't adjusted to the new cost of money? Personally, I've got a 2.125% note and I guarantee you I'm going nowhere. Well, at least not until the people that run this place screw it up even worse.

We have had quite a few layoffs in the Bay Area, but I suspect that at least some of those people have found alternative employment, perhaps even working remotely (which of course compounds the inventory problem). Others are likely hanging on and burning up savings, selling stock, etc., in order to stave off what might become the inevitable. Adjustment takes time (unless we have a Black Swan event), so be patient if you can.

[chassis]

Folks housing supply is fundamentally tight now because of 10 years of under building after the GFC.

Stimulus, inflation, unemployment and sunspots have nothing whatever to do with actual physical lack of supply.

This is where the residential real estate market is in this country. The details are different on a neighborhood-by-neighborhood basis, but the overall story is lack of supply.

More dwelling units need to be constructed. That's all.

[BMW F22]

Originally Posted by Chick Webb

We have had quite a few layoffs in the Bay Area, but I suspect that at least some of those people have found alternative employment, perhaps even working remotely (which of course compounds the inventory problem). Others are likely hanging on and burning up savings, selling stock, etc., in order to stave off what might become the inevitable. Adjustment takes time (unless we have a Black Swan event), so be patient if you can.

Yeah, I’ve been waiting. Don’t really have a choice other than to wait. Even with a good salary, I am single and can’t stomach paying $10K a month mortgage. That would put me in the house poor category and can’t do anything else.

[Tyga11]

People have been predicting doom & gloom the past 20 years. It's always funny reading these posts.

[dradernh]

Originally Posted by Tyga11

People have been predicting doom & gloom the past 20 years. It's always funny reading these posts.

That's been going on forever.

You should've heard the doom and gloom guys in the early 1980s. The end of the world was always just around the corner, and they were ready to sell you "seminars" and books so you could know just what was going to happen and when.

Many of those alarmists were focused on the nation's debt. Their perspective wasn't necessarily incorrect – they were just a few decades early.

[BMW F22]

Originally Posted by Tyga11

People have been predicting doom & gloom the past 20 years. It's always funny reading these posts.

Not sure if you’re referring to the housing or stock market. To be fair the housing market CRATERED between 2008-2011. People argue that this time it’s different because of no subprime loans, but while the causes might be different, the results will likely be the same. If housing is simply unaffordable to the masses, they will move elsewhere and then all that’s left are folks with money and homes in an area with no people to collect rent from. Something’s gotta give. It simply isn’t sustainable.

[ASAP]

Originally Posted by chassis

Folks housing supply is fundamentally tight now because of 10 years of under building after the GFC.

Stimulus, inflation, unemployment and sunspots have nothing whatever to do with actual physical lack of supply.

This is where the residential real estate market is in this country. The details are different on a neighborhood-by-neighborhood basis, but the overall story is lack of supply.

More dwelling units need to be constructed. That's all.

umm mate... increased demand directly correlates with lack of supply due to a falsely created artificial demand

5 years ago before we went haywire with demand... there was 0 shortage of supply, houses took months to half a year to sell... now suddenly 3 years later, we switch to very cheap money policy, COVID which was very poorly managed, stimulus, a 2% fed funds rate and demand skyrocketed... this was compounded by FOMO... all of this pushed demand 5 years forward

it is true we didn't have that great of a supply to start but none of that would have caused the headaches that we have now that are multiplied by cheap money policy

if the govt cared about the people... all tax stimulus should now be going towards construction of new homes and balancing supply... its not happenning because they are more concerned with propping prices and making wealthy folks wealthier

[ASAP]

Originally Posted by dradernh

That's been going on forever.

You should've heard the doom and gloom guys in the early 1980s. The end of the world was always just around the corner, and they were ready to sell you "seminars" and books so you could know just what was going to happen and when.

Many of those alarmists were focused on the nation's debt. Their perspective wasn't necessarily incorrect – they were just a few decades early.

30 years ago, there was a time when a person working at a grocery store could afford a home...

today, that is tough for two folks making 150K a year... if you think this is sustainable or in any way realistic to keep going, then good luck because you won't even have renters soon as prices continue to climb... the end of 20 years of cheap money will entirely shift dynamics... wage growth over the past 10 years has been a joke vs the cost of living... houses in my area in FL are double 3 years ago... double...

[chassis]

Added to 5 existing equity positions. Scraped out a gain for the day.

[chassis]

Originally Posted by ASAP

30 years ago, there was a time when a person working at a grocery store could afford a home...

today, that is tough for two folks making 150K a year... if you think this is sustainable or in any way realistic to keep going, then good luck because you won't even have renters soon as prices continue to climb... the end of 20 years of cheap money will entirely shift dynamics... wage growth over the past 10 years has been a joke vs the cost of living... houses in my area in FL are double 3 years ago... double...

Can you please flesh this out a bit more. Home price? I take you to mean a single earner, not dual or more income household.

30 years ago was 1993 so data is available.

Which types of positions in the grocery store paid well enough to support homeownership?

[ASAP]

Originally Posted by chassis

Can you please flesh this out a bit more. Home price? I take you to mean a single earner, not dual or more income household.

30 years ago was 1993 so data is available.

Which types of positions in the grocery store paid well enough to support homeownership?

absolutely, median house price in 1993 was 125K... median salary was 28k.

today median house price is 430k and median salary is 69k

you can see the ratio changing drastically there... median publix store manager salary is 75k... they aren't getting approved for a 430k loan

a grocery store manager in 1993 could buy a home easily... in fact, I know quite a few that did

[antzcrashing]

Originally Posted by chassis

$100b in First Republic deposits and $17T in total US bank deposits. This is a story?

Everyone making it out to be the canary in the coal mine

Its not

Its an excuse for stocks to go down when in truth, banks are fucked by higher interest rates for a multitude of reasons

Meanwhile home prices continue to climb

Great job having affordable housing in America

Even SP500 is basically at its trend line. (Excluding covid BS years)

[antzcrashing]

Originally Posted by NickyC

Massive story, it’s the beginning of a collapse of the regional banking system. Powell raising rates another 25bps as expected tomorrow will only hasten the damage.

The impending CRE catastrophe hasn’t even begun yet and banks are already on the ropes. We’re going to see a banking consolidation over the coming years into a handful of mega banks.

Peak FUD

[antzcrashing]

Originally Posted by Luxury

Does anyone here use irony as a component in the development of their investment thesis?

This is my spirit animal post 🦓

Thank you

And to answer your question: Yes

Also, I buy stocks of some companies I hate, as a hedge against them actually doing well: Uber, Google

[chassis]

Originally Posted by ASAP

absolutely, median house price in 1993 was 125K... median salary was 28k.

today median house price is 430k and median salary is 69k

you can see the ratio changing drastically there... median publix store manager salary is 75k... they aren't getting approved for a 430k loan

a grocery store manager in 1993 could buy a home easily... in fact, I know quite a few that did

Thanks. You mean that one person, the highest manager, working in a grocery store could afford to be a single-income homeowner in 1993? Is this the correct understanding?

[DrFerry]

Originally Posted by ASAP

30 years ago, there was a time when a person working at a grocery store could afford a home...

today, that is tough for two folks making 150K a year... if you think this is sustainable or in any way realistic to keep going, then good luck because you won't even have renters soon as prices continue to climb... the end of 20 years of cheap money will entirely shift dynamics... wage growth over the past 10 years has been a joke vs the cost of living... houses in my area in FL are double 3 years ago... double...

Agreed.
.

.
Visualizing The Decline Of Affordable Housing In The US
https://www.zerohedge.com/personal-f...ble-housing-us

[Chick Webb]

Originally Posted by DrFerry

Agreed.

Absolutely predictable given COVID, near-zero interest rates, and a 40% increase in the money supply over '19-22. If/when the forced selling begins, that affordability ratio will come down a bit.

[XKxRome0ox]

So ... SPX all time high coming next week?