All Forum Posts by: Michael P. Lindekugel

Previously, the Federal Reserve indicated it would raise the federal funds rate four times this year. On March 16th the Federal Open Market Committee said it expects to raise the federal funds rate six times this year targeting increases between .25 and .5. The Fed announced it will raise interest rates .25 the first round. Federal Reserve Chairman Jerome Powell is study of past Federal Reserve Chairman Paul Volker. Inducing a recession is the only way to slow hyperinflation. Volker induced two recessions in 1981 and 1982 to stop 1970s hyperinflation. I think the Fed could induce a recession by summer.

Housing on a national level is overvalued relative to inflation by about 35%, relative to wages about 27%, relative to rents about 25%. The home price to income ratio is very close to 2007 just before the Great Recession. But, there are few high leverage purchases compared to the 2000s. All cash homeowner purchases account for 25% of sales. Most purchases include a significant down payment compared to many low down payment purchase in the 2000s. We are due for a price correction. Price corrections are 10% to 12%.

The 10 year treasury and 30-year fixed mortgage loan market reacted to the March 16th FOMC spiking. By raising or lowering short-term interest rates, monetary policy affects the housing market, and in turn the overall economy, directly or indirectly through the effects of interest rates on 1) the user cost of capital, 2) expectations of future house-price movements, 3) housing supply, 4) standard wealth effects from house prices, 5) balance sheet, credit-channel effects on consumer spending, and 6) balance sheet, credit-channel effects on housing demand.

If a bear market emerges, then we should expect home devaluation nationally of 20% to 30% or more in markets overvalued relative to wages and rents.

Define "recession".

Recession and housing market collapse are not the same thing. If you said "recession AND housing market collapse" then you are defending two different positions that may or may not overlap. One doesn't cause the other nor are they necessarily connected. Rain causes the river to swell but just because the river is swelling doesn't mean it is raining. Maybe the snow pack is melting or maybe the dam burst or maybe a giant alien is peeing in the river. I don't know. I can't see up river to see all that is happening in the river.

Maybe a recession later this summer, but housing collapse is rather remote. Unless some alien gets involved.

first, i never said collapse. those are your words. i said devaluation. housing collapse with massive defaults, foreclosures, bank failures, investment bank failures, etc. (Great Recession) is highly unlikely. we dont have high leverage, mislabeled MBS tranches, derivatives of derivatives or derivatives, deregulation, etc. collapse is not the same as a correction or devaluation in home prices. a recession does not equal housing devaluation or always cause devaluation. house price devaluation (except for the Great Recession) can be a symptom of a recession. during some recessions, housing value was not impacted. today, the Federal Reserve is directly targeting house price inflation selling of QE assets prior to maturity and letting them roll off to increase supply and yields to increase home mortgage interest rates to slow house price inflation which is a large of of GDP and a large part of the hyper inflation.

2 Votes

Quote from @Jim Spatzenfeld:

In 2005/2006 the only reason why we had a housing shortage was because every man and his dog qualified for many mortgages and therefore everyone wanted to buy a few homes to rent and/or flip, but not to live in.

This time around there is a real shortage because way too few new homes have been built since 2007 to keep up with population growth. Vacancy rates for both owner-occupied housing as well as rentals is at a record low and for the first time in 100 years the average US household size grew because young folks can’t find a home to move out and start a new household.

that is not correct. The US began under building housing of all types around 2000 creating the housing supply shortage.

0 Votes

Quote from @Randy Gutierrez:

I don't know why people insist on comparing 2007 to 2022. Between lender requirements, money supply, size of the population, and new workplace environments (remote work) just to name a few, there are so many different variables. The fed is just increasing rates to pre-pandemic rates for now, 2019 was a solid year compared to 2018.

we didn't have hyperinflation in the 2000s. peak inflation prior to the Great Recession was 4% floating between 2.5% and the high 3s averaging low 3s before 2007. the Fed target for economic growth of 2%.

0 Votes

Quote from @James Hamling:

Aaaand it's the "THE SKY IS FALLING" post of the week, yet again.......

I get it, fancy people with grand titles speaking of all there superior command of the numbers and math and what not, that they have there crystal ball upon "The Hill" and we simple-simple people just need to turn off our brains and follow.

Let me ask you this, just how often in the last years has government correctly projected really anything? The 08 collapse, how well did these persons and researchers see that coming, which by the way MANY did see because it WAS inevitable, it was a ticking time-bomb, fully created and fully anticipated, and many did and made fortunes from it.

Notice what they are saying, to stop hyper inflation. How about any statements on how they let hyperinflation even become a risk int he first place? Any mention on that? Was the Crystal Ball at the cleaners that week?

Here is the simple crayola version of things:

We are in a serious housing SHORTAGE. Builders are averaging a mark around 10% profit mark. Your calling 20%+ drop, HOW???? Sooooo all new unit building stops, for another decade? Or maybe you'd like to tell builders where they are wasting a 20% profit margin? Or going to LOWER labor costs? Which means lowering not just wages but taxes on labor also? Maybe lowering cost of goods 30%?

I have zero doubt taxes will go UP!. I have 0 doubt cost of goods will go up! How, because it's what's ACTUALLY being done, here, now, the ACTUAL actions. They can call it whatever, there words mean nothing, ONLY actions matter. And those actions are many in our political influence LIKE the higher taxes and higher costs, and they just can't get off the throne of printing and distributing more, THATS INFLATION, our very government ethos today is to INFLATE there way out of inflation. Check out the history on that approach and let me know how many times that resulted in lower prices for high demand shortage supply items? It rhymes with hero.

There are 3 fundamental human NEEDS, and people will seek to fulfill these needs REQUARDLESS of all other things, including economics, war, any of it. Those are Water, Food and SHELTER. People will not care how expensive things are it will only adjust HOW they gain shelter.

So, for a 20% reduction in housing costs, it's gotta come from somewhere, so where? Yapping on some Fed adjustment does NOT reduce the cost of construction 30%, it does not make 40k homes grow out of the ground of make those turning 21 evaporate or no longer need a shelter.

the risk of inflation of known and talked about early last year when the Fed engaged in fastest and biggest QE in US history. pretty much all non Fed economic research released last year warned of the risk of inflation. The Fed waited too long to move from declaring transitory inflation to non transitory inflation.

the US started under building in the early 2000s. there was a housing supply shortage of all types in 2007 right before the Great Recession. housing corrections can happen when there is a supply shortage.

printing money is not the only thing creating inflation. printing money causes inflation when there is no increase in output. there are more dollars for the same demand chasing the same supply. Inflation is mostly a demand driven problem. consumer expectations of demand cause inflation as consumers consume more now in anticipation of higher prices. as long as consumers are willing to pay higher prices that cycle continues which is what happened.

1 Vote

Quote from @David Dachtera:

Purely my opinion ...

The housing shortage is nowhere near resolution. We're probably looking at another 3 to 4 years - or more - before new construction begins to catch up with both the latent and future demand. This is based on what economists were saying some 12 years ago. Experience since then in the housing market has supported their conclusions. I see prices for both SFRs and rental properties continue to remain high and probably rise even more going forward. Likewise rents.

In the broader economy, what we are seeing is -NOT- inflation. Corporations are not hurting - they're showing record profits which continue to rise. Yet, they continue to raise prices and restrict supply even beyond the impact of the pandemic. It's -NOT- inflation - it's price gouging, pure and simple.

I can hear the comments now in boardrooms across the Country: "The government is going to force us to pay you more? Fine. We'll help you spend it!"

My $0.02 ...

it would take tens years for new construction to catch up to the supply shortage of all types of housing units assuming the rate of production increases. a housing supply shortage existed just prior to the Great Recession.

not sure how you think we don't have inflation. The CPI is screaming inflation. the PPI is screaming inflation. The BLS indexes for retail sales, new and used autos, food and beverage stores, restaurants and bars, building materials, clothing are screaming inflation. this is the highest inflation since the 1970s. the current bout of inflation was demand driven before there were supply shortages.

1 Vote

Quote from @Curtis Mears:

@Michael P. Lindekugel

I would rather own property than have dollars when the downturn comes.

agreed. real property income producing assets tend to be a better hedge against inflation compared to other investment grade assets.

0 Votes

Quote from @John Morgan:

The 4-5 million houses short nationwide combined with millennials just starting to buy homes will fuel massive demand for rentals and homes for sale. Especially in growing states like AZ, NV, TX, NC, SC, AL, GA and FL. I’m betting millennials will eventually want to move out of mom n dad’s house and get a place of their own some day. And 7-8% interest rates won’t keep them from buying. I’m bullish on RE and don’t see a housing price drop for another decade or two. Or whenever home builders start building again like previous decades in the past to meet the demand.

the economic research I am reading indicates millennials are less likely to live with parents after graduation from university compared to prior generations and they are choosing to rent for now to remain mobile. they are not buying homes in significant numbers. that demand is creating all the rent price inflation. recessions do not equal home price deflation. recessions in 1981, 1982, 1991, and 2001 saw very little to no impact on home prices. the Great Recession was only recession caused by housing/lending. prior recessions home price was a symptom not a cause. just before the Great Recession there was a housing shortage. today, the Fed is specifically targeting house price inflation. rather than let all the QE mature and roll off the Fed is selling those assets prior to maturity increasing supply and increasing yields which will push up mortgage interest rates. that could impact buyer demand in some markets. when interest mortgage interest rates hit 5% buyer purchasing power is cut 17% to 21%, but that may not deter buyers with lots of cash reserves. we are seeing all cash sales 25% nationally. we are seeing sales with financing and buyers paying cash for low appraisal differential.

0 Votes

the case shiller index national top to bottom during the Great Recession went from 184 to 133 that is 27%. Phoenix dropped from 227 to 100 or 55%. some MSAs experienced as little 19%. the FHFA index and NAR reflect similar devaluation data as case shiller. we had a housing shortage right before the Great Recession.

5 Votes

2018 was not the first time the yield curve inverted. the yield curve has inverted five times in 50 years. each time it preceded a recession. over the last ten years i think an inverted yield curve is less useful as tool for predicting a recession.

2 Votes

The Fed information is factual. House price over valuation is national from economic research firm Rosenberg Research & Associates.

I provide my economic and financial opinions based on my education and experience to all clients – residential, commercial, investment. A prospective home buyer with a large down payment, significant cash reserves, and long-term employment has very little financial risk when there is home price deflation. If they should or shouldn’t buy a home is complex analysis. Home price deflation is a risk for someone at risk of default. Those are not my clients.

real estate markets are mostly local. Seattle is not boom or bust as is historically Las Vegas, Phoenix, and Miami.

I don’t know what experts you are referring to in your statement “I know the experts that screamed about the 20-30% decline in 2020 and again in 2021”. I don’t know any economic research or credible financial research that was claiming those declines in 2020 and 2021. I told my clients our hot market was going to get hotter. Nationally, the US is short 4 million units of housing of all types. Seattle has had a supply problem since the early 2000s. There is the supply constraint. There is the demand outstripping supply which not the same as the supply constraint. Those two economic problems persisted over the last two years causing home price inflation (not appreciation. Not the same) and rent price inflation.

Each ¼ point increase in 30 year fixed mortgage rates decreases home buyer purchasing power by 2.5% to 3%. When mortgage rates hit 5% the cumulative decrease in purchasing power is 17% to 20%.

The Federal Reserve definitely does not want continued hyperinflation. home price inflation makes up a large part of US GDP.

13 Votes

All Forum Posts by: Michael P. Lindekugel

Michael P. Lindekugel has started 2 posts and replied 32 times.

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer

Post: A recession is coming and maybe as early as summer