The Economy

Yup. Inventory remains really low. Especially in the mountain towns of the Rockies where affordable housing is all but gone.

Even Leadville -- at 10,000 feet and not a resort town -- is facing a housing problem.

https://coloradosun.com/2022/08/18/leadville-tourism-growth/

 

Severe supply shortage because of the mess they made by keeping rates negative in real terms for more than a decade. That kept a massive supply to demand imbalance -- they basically juiced demand artificially, putting people into way more home they could afford without interest rates being kept artificially negative in real terms. It also is why housing prices have run away on people -- they blew a bubble by keeping the cost of money too low.

On top of it, with all signs showing an economic slowdown to go with inflation that has made it difficult to build (not knowing if you will make back your costs), housing starts declined dramatically in the last reading a few days ago: Housing Starts Fall 9% From Previous Month

That link from someone about mortgage rates dropping, is a relative thing -- it's off of a dramtic run up in rates over a very short period of time. You need to look at the bigger picture. Rates have risen a lot, so the leveling off didn't create more demand for mortgages. Even with the slight drop, mortgage demand fell to a 22 year low recently: https://www.cnbc.com/2022/07/20/mortgage-demand-drops-to-lowest-level-in-22-years.html

To sort of sum it up: Rates are much higher right now than they have been in the last decade or so. House prices have risen so much because of the bubble their low-rate policy created. And those prices have really taken off as they flooded the economy with new money in 2020 / 2021 creating an inflationary problem.

So right now, you still have very high home prices and it costs way more to finance a home, which is cratering demand. That is a necessary ingredient if prices are going to come down and the bubble is going to deflate. But because of those inflationary pressures, there are two factors keeping supply from doing its part: 1) Builders are seeing a recession (people losing jobs, not being able to buy homes) and at the same time, the cost of materials has run away from them making it unpredictable to build new homes when prices may be coming down because of the demand-side dynamics. 2) On the existing homes side, you now have this bifucated world in which anyone who could have bought a home anytime over the last 20 or 30 years is sitting pretty at a much lower mortgage rate than they can get now (everyone did their refinancing). Those people are essentially stuck in their homes. Just to trade houses, the jump in monthly payment on an originated mortgage today would mean they can afford significantly less home they are already in for. As a result, none of those people are selling their homes (they are stuck in them) and that means no supply hitting the market.

Thank the Federal Reserve for all of this.

 

I get what you're saying about people being stuck. I for sure got lucky when I sold my previous condo with lots of equity 16 months ago, found a new condo in a much more desirable area for roughly the same price and got a 30-year fixed at just under 3%.

 

Euro (futures market, cash markets) closed below parity to the U.S. dollar today for the first time I believe since 2000. I don't think it is indictative of much of anything except what the Fed has done relative to the ECB, plus the tea leaves people are reading.

But the ECB has no control. ... Inflation is raging in Europe. Signs of recession are also everywhere, particularly in their most important economy, Germany. Their discount rate is at just 50 basis points, way negative in real terms because if they were to actually try to deal with the inflation they have caused they are going to spur the mother of all credit crises. They are so aggresively trying to manage widening bond yield spreads between the countries (because they have different levels of debt mess) that there is no way out for them. It's sad.