Happy Market Update!
Fall is one of my favorite times of the year. No, it’s not because I crave Starbucks Pumpkin anything. I like sweater weather (even though here in Denver it’s usually 75-80 all fall). I like cool breezes and cold rain (when it does rain). Not the hail mind you…just the cold rain. I like the changing of the leaves and football. Honestly, it’s been less about football recently, and yes, it IS because my teams have sucked.
This miss kind of reminds me of our Fed and the idea that inflation was transitory. Remember that? Me too. MISS! Too early for this in this newsletter. We’ll get back to that. Anyway, the good news is that I have a kiddo in his 3rd season (this year alone) of football. They are already 2-0. I think it’s because Jax is the new Tom Brady. While I am at it, I’ll be a goo parent and add that he is probably the best looking and smartest kid. I’m sure you had one of those too…or will. But what I like about this 2-0 team is that he is actually trying with what he learned the past 2 seasons! First practice…he was diving at pulling flags. His first touch on offense, he went the distance for a score, and he did actually turn on some afterburners at the 50! I know it has a lot to do with how I’m coaching him. Sure, that’s it. OR, it could be that he is closer to 5 (just weeks away) than closer to turning 4. That might have something to do with it. Here’s a recent video of me with Jax in the car…
He has scored in both games, both times going the distance from the first play of the series. He’s almost more obsessed with football than I am…and that is saying a lot. I’ve created a monster. Speaking of creating a monster, let’s get back to complaining about our government.
Did you see that we lost a jet? I don’t mean it went down…I mean, the F-35 continued to fly without the pilot in the sky before coming down, allegedly, 80 miles from where he bailed out. That wasn’t the half of it. They asked us to help locate it while it was still flying! This is a stealth fighter. You cannot see them on radar. I have direct confirmation from a close friend of mine who pilots locally. He saw a squadron of these flying that did not appear on his Cessna’s radar. Cool, so just look up then? This reminds me of the ending of The Hunt for Red October where the Soviets lose a 2nd submarine.
That reminds me, I did, in fact, recently put a Don’t Tread On Me flag outside my house. I’m a patriot and not afraid to admit it. That’s why I think we need to talk about how awful this government is being run by all of them…and no, I will not be discussing Lauren Boebert in this financial newsletter. But I’m all ears! Tell me your thoughts. Anyway, back to the Federal Ridiculous, I mean Reserve. Wanna miss another football, Powell? They still think we will get a soft landing. Once again, I am here to say, “Not a chance in hell.”
Today we will start with something near and dear to my heart, real estate. Even the homebuilders are correcting their previous thoughts of housing from earlier this year. For most of 2023, while it was down (below 50 on the index), it was rising off the lowest levels since early covid in 2020. But it has, this summer, abruptly reversed course and is headed back down. Home starts are down this month too. Building permits increased, but those will take a year or more to come to fruition and that assumes they get them started. Rates continue to move up, and even builders don’t like it. Why single them out? Because if there is no inventory, builders are set to make a lot of money…unless people can’t actually afford the homes. Real estate is a huge contributor to our GDP and local economies. Uh-oh.
Okay, Tim, so what if rates can move down? Well, this chart shows standards are tightening for commercial and industrial loans. That could impact the money that those builders will seek out, right? That causes pain for the builders which they need to pass on to consumers. I can assure you, living in the mortgage world for 2 decades, this is tight in residential lending too. So things are tight and rates are up…people are starting to give up home searches. I see it firsthand.
I know we’ve gone over this before, but it continues to worsen…savings depletion. We had a record amount of savings during the pandemic…I mean, you couldn’t spend it (unless you ordered wine over the internet, a friend told me). But that is now gone and remember, student loan payments are due this month. Oh boy. If you do the math, we went from $2.1T to $190B as of June. I would argue, that with the speed that money was spent, it’s probably already gone as I write this newsletter.
And I believe this chart helps show the reality of the situation. We are seeing the highest defaults since 2009, and we still have at least this month and the 4th quarter to add to it. 2009 comes after the 2008 chaos. This allows you to see that it takes some time for the bad things to reach us. I’m scared to see 2024.
In case I didn’t mention it before, the Fed meeting started today…and runs until 12pm MT tomorrow (Wednesday). We will find out if the pause or raise 25…again. When a drain moves this slow, I use Green Gobbler. No, I did not take on sponsors (yet). I’m just saying that I give it some help. Holy crap is this taking FOREVER. Here is the consensus: a pause. That’s 5.5% previously, and 5.5 forecasted. I think they should raise and get it over with because this same consensus thinks we will see at least one more raise. If that’s the case, for the love of God, get it over with. There are some who think we are done, and I hope they are right. But that press conference at 1230pm MT will give us more light into their dark dungeon that is The Federal Reserve.
Is it too late to start over? Maybe I would be a autoworker…wait, what? Ugh! Strikes…right. Okay, how about a pilot? Same thing, right…hhmmm. Weather man. That’s what I would do! I would be really good at it. Or at least crappy like the rest of them. But I love maps. And I like videos of hurricanes. I think I’d do really well at that job. Although I was once told by a photographer that my side profile was not good for tv. I think it’s the tiny nose.
10yr: Well even I am getting sick of this chart. My love for charts is being tested by this continuous move higher and testing higher. Here we are, again, this week retesting that high from earlier this year…and last month. This time, we closed above it. That is not a good sign. Perhaps a pause will help us and we can move back down like last month…you know, but much lower this time. The real estate and mortgage world are headed into the slow months with high rates. Sorry, fellow LOs. Buckle up. There are sunnier skies on the other side…but we are still in the storm, and it’s getting choppier.
MBS: So boring. We are in the same place as early July, basically. There is some movement, but I think this country could use some good news. Maybe a fresh move up above that purple 200 DMA would be a good start (up means lower rates). Keep praying out there.
One of the best things I learned in my mortgage coaching (8+ years of it), was that we are either in a storm, coming out of a storm, or heading into a storm. We must hold on during the storm knowing that the next step is coming out of it. Those are when things get better. Can I see sunny skies in the distant? Or is it just more clouds? I worry a lot of you are just heading into the storm. Keep your head up, batten down the hatches, and for the love of God sail under a storm jib. You didn’t know I knew that, did you? This storm has been rough on us, I pray it is not for you. But as I have repeated a lot in this newsletter, “Be Prepared”.
What doesn’t kill us, only makes us stronger.