Morning Report: Home prices continue to rise.

Vital Statistics:

S&P futures4,64357.2
Oil (WTI)71.221.78
10 year government bond yield 1.46%
30 year fixed rate mortgage 3.31%

Stocks are higher this morning as Omicron fears subside. Bonds and MBS are down.

Home Prices rose 20% in November, according to the Clear Capital Home Data Index. The Western region rose 24%, while the Midwest increased 16%. Note that the Clear Capital Index is one month ahead of CoreLogic / Case-Shiller and 2 months ahead of FHFA.

Home prices rose 18% in October, according to CoreLogic. Prices are expected to rise only 2.5% next year, however. New household formation, investor purchases and pandemic-related factors driving demand for the limited supply of available for-sale homes continues to propel the upward spiral of U.S. home prices. However, we expect home price growth to moderate over the near term as many buyers take a break for the holidays.”

Overall, the consensus seems to be that as mortgage rates rise next year, home price appreciation should slow. The MBA forecasts that rates will rise to 4%, and if you think that buyers focus on the monthly payment versus the price, then increased rates should dampen price growth. Ultimately what will lower prices will be increased supply, and so far housing starts remain around long-term averages.

Apartment vacancy rates hit a high of 97.5%, and asking rents are rising at almost 14%. “The demand from renters is really strong, especially for the luxury product. As the economy has recovered we’ve done a better job in high- paying employment than we have in the lower paying jobs,” said Greg Willett, chief economist at RealPage.

It looks like Chinese real estate developer will default on its dollar debt after missing a payment yesterday. I suspect that foreign investors will be in the first-loss category, however the losses will spiral past that. So far, experts seem to be sanguine about this, as they assume that the Chinese government will be able to contain it. I am skeptical. Residential real estate bubbles throw off all sorts of shrapnel when they explode, and often hit innocent bystanders. Remember 2008? What got everyone’s attention was the collapse of the money market funds and the commercial paper market. Retailers were unable to fund inventory for the holiday shopping season. That is a long way from CDO squareds.


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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