A weekend topic starting with Arizona Family. "The Phoenix area housing market has presented a number of challenges for people looking to buy a home. Guardian Mortgage loan officer Dean Wegner said he’s starting to see more banks and credit unions tighten their lending standards, which means home buyers will have to provide more documentation to get their loans approved. 'You might see, instead of a program asking say 20% down, it might be 25% down,' said Wegner. 'Adjustable rate mortgages are almost non existent right now because of what we are seeing in lending. You’ll see instead of 1 year tax returns, 2 year tax returns. Instead of 30 day scrutiny, you’ll see 60 day scrutiny. If you are starting a job they want first paycheck, where before, they would actually take an offer letter.'"

The Payson Roundup in Arizona. "The crazy rise in home prices has leveled off -but the surge has left Rim Country with a crisis in affordable housing. The median sales price for a single family home in Payson was $455,000 in the past year – basically unchanged from a year ago when interest rates started rising, according to Rocket Homes. Compare that to the results of the 2020 census. At that time, the median price of a single family home stood at $272,000 in Payson. The census reports that the median household income in Payson comes to $58,000. So even before the big surge in prices, you couldn’t buy the average Payson house on the average Payson household income."

"Let’s say you bought that $455,000, average-priced Payson home in the last year. And let’s say you had a $15,000 down payment, an interest rate of 5% and wanted to stay under 30% of your income. Now you need an income of $95,000. That’s a little less than double the average Payson household income. Of course, it isn’t just Payson. In fast-growing markets like Flagstaff, only 16% of people could afford the average house."

Flagstaff Business News in Arizona. "Thus far in 2023, there have been 50% fewer homes sold versus 2022. Furthermore, in the history of the Flagstaff MLS dating back to 2000, there has only been only one year with a more anemic absorption rate, and that was 2009 with 129 single-family homes sold between January and April 2009. In April 2023, the average price of a single-family home in Flagstaff was $848,223. Last year, the historical high for an average single-family home peaked just shy of a million dollars at $982,134 in February 2022. There is still a lot of movement in the vacation home market; however, with Airbnb and VRBO beginning to reach the over-saturation point, we could potentially see a few more of those investment properties come on the market this year, which might have a positive impact on overall number of homes sold."

From Business Insider. "2023 is the year for homebuyers with millions to act, according to the 'Million Dollar Listing Los Angeles' star Tracy Tudor. Luxury-home sales — those in the top 5% of their area based on market value — declined by a record 44.6% year-over-year to the second-lowest level on record during a three-month period that ended on January 31, according to Redfin. Tutor said the current market may be tough for sellers to wrap their heads around because they may not get what they want for their homes. 'What their homes might've been worth last year might be down anywhere from 10% to 20%. That's scary for sellers out there,' Tutor said."

"Tutor said she's seen 'quite a few deals where people were promised potentially 20% down on a pre-qualification letter.' However, things would shift, and 'about 10 days into the escrow, that 20% went to 30% or 35%. That really shifts a buyer's perspective on what they can afford,' she said."

The Globe and Mail in Canada. "I remember exactly what I told my wife after the offer we made on our first house was accepted in 1992. 'I feel like someone is standing on my chest,' I said. All generations have their obstacles when it comes to buying a first home. But I have no trouble saying that for my wife and I, affording a house in Toronto was easy compared with what young people today experience. As first-time homeowners, we carried two car loans, started a family, saved for retirement and quickly added central air and a bunch of IKEA furniture to our house. All without undue financial stress."

"As a young journalist with The Canadian Press back in the early 1990s, I made roughly the median income for my age group. My wife was in that zone as well with her communications job at an insurance company. I’d estimate our household income back then at around $70,000. Toronto in the early 1990s was a buyer’s market, with lots of properties for sale and prices meandering through a down period. We took our time, looked at dozens of houses in our price range and finally picked one that suited us. The cost was slightly less than $200,000, or roughly three times our combined income."

"The Toronto market has been in a slump in the past 12 months, so there is some similarity to our situation as buyers. But overall affordability is shockingly bad. The average home price in Toronto last month was $1.1-million, or 8.5 times the $130,000 our 1992 salaries would be worth today if adjusted for inflation. Also, with an average price above $1-million, buyers must come up with a down payment of 20 per cent at least. That’s $220,000 for the average home in Toronto, compared with the $20,000 we needed for our 10-per-cent down payment."

"I can’t remember the mortgage rate we had on our first house, but five-year fixed rates were in the 8 to 9 per cent range around the time we bought. We did get a small discount by getting our mortgage from my wife’s employer, so let’s use 7.5 per cent as our rate. I’d estimate our mortgage payments at roughly $1,300 back in 1992, which was a handful but manageable."

"Today, young buyers face higher prices, lower mortgage rates and staggering levels of unaffordability. The monthly mortgage cost on the average-priced Toronto home bought with a 20-per-cent down payment and a 4.6-per-cent five-year fixed rate mortgage would be around $4,900. That’s more than double the $2,400 cost of our mortgage payments adjusted for inflation since 1992."

From Philip Pilkington. "Every three months, the Federal Reserve issues the Senior Loan Officer Opinion Survey on Bank Lending Practices, known in markets as the SLOOS report. Most of the time, the survey does not get much attention, but the most recent edition caught headlines—it showed credit standards tightening, a trend very reminiscent of what happened just prior to the 2008 financial crisis. With banks blowing up left and right this has many worried that we might be in for another credit crunch."

"Credit crunches are the terminal phase of the credit cycle. While not popular topics in the teaching of mainstream economists, most practical financial analysts know that credit cycles exist and are important. The credit cycle is an approximately 10-to-15-year life cycle that the credit markets go through. In the initial phase banks are flush with cash and interest rates are low, so lending starts kicking into gear. Small businesses pop up like mushrooms after rain, larger corporations invest, and housing markets start to rise."

"In the next phase, excesses start to creep in. Borrowers that banks were previously wary of start to get access to credit and companies with little prospects of success get access to debt and equity financing. The third phase is when interest rates start tightening and banks pull back on lending. The financial system starts to sway and creak—maybe a few banks fail. In the final phase—the crunch—the whole thing falls apart. Lending dries up, companies fail, investment retreats and, as the economy sinks into a recession, defaults rise and the financial system goes into meltdown."

"The most recent SLOOS survey suggests that we are currently deep into the third phase and about to tip into the fourth. The survey data show credit standards tightening dramatically on everything from mortgage loans to consumer credit to loans to small firms to commercial property loans. The demand for credit is contracting too. With high interest rates and anxieties over future economic prospects, borrowers are pulling back. A perfect storm is developing, and a credit crunch looks like it's almost certainly on the horizon."

"This raises questions about Federal Reserve policy more generally. Fed economists make out like they use monetary policy to calibrate the economy much in the same way we use a thermostat to calibrate the temperature in our homes. If the economy is running a little too hot, the Fed economists tell us, they dial up interest rates a little and cool it off. If it is running too cold, they lower rates and the economy warms up."

"Will these economists be able to maintain this fiction after yet another credit crunch? It seems unlikely. The reality is that Fed policy is not like a thermostat at all. It is much more aggressive than that, especially in its more experimental methods, like quantitative easing, that have come into fashion since the 2008-09 crisis. What the Fed actually does is stuff the banking system full of newly printed cash when the economy is sluggish and raise interest rates to punishing levels when the economy is overheated."

"The fact of the matter is that the Fed steers the credit cycle. In doing so it exacerbates the credit cycle. In its attempts to steer the economy it makes the economy much more volatile and prone to credit cycles. Its loose money policies pump up asset markets—from equity markets to housing markets to debt markets—and then when it pulls back some of that loose money these asset markets collapse. Doing this has ramifications for both economic and financial stability; ironic, since central banks' primary function is to stabilize the banking system. Today the Fed's actions seem to completely destabilize the banking system."

"Hopefully, after the smoke clears on the coming credit crunch we can raise questions about how the Fed and other central banks behave. Are their experimental monetary policies actually helpful? Or do they just encourage wasteful capital allocation and economic instability? Should the Fed even be attempting to steer the economy at all? Or should it just concern itself with the stability of the banking system and providing the economy with a fair rate of interest? It is time people started asking these questions. The Fed has very little oversight and has become increasingly a playground for pie-in-the-sky abstract academic theories. Someone needs to bring the institution back down to earth."

From Bloomberg. "A recurring pattern in financial crises: Regulators hesitate to act pre-emptively to deal with stresses before they become dangerous, because identifying an issue and acting early to address it risks causing the very alarm they hope to prevent. So signs of trouble ahead are quietly set aside. Complacency is institutionalized. And, most strikingly, banks are spared the embarrassment of conforming to accounting principles such as marking assets to market — in part because such candor might scare people."

"Silicon Valley Bank and First Republic were special cases, but not as special as one might wish. Both were brought down by a combination of surprisingly runnable deposits and unrealized losses on long-term assets. There was nothing mysterious about either vulnerability. Managers and regulators had the data. But believing that banks are stable induces one to think deposits are sticky and that falling asset values due to higher interest rates cause 'paper losses,' not real losses. This is reassuring until, at a certain point, such beliefs become not just false but untenable. Then the system is suddenly not so stable."

"It's all but impossible to break the cycle of wishful thinking, forbearance and occasional panic. The best approach, no doubt, would be to accept that banking is unavoidably risky and learn to live with it. In that world, nobody would be unduly alarmed by the asset-value volatility laid bare by mark-to-market accounting, or by prudent early action to reduce leverage — such as selling equity in what might be a falling market or deploying bond-conversion triggers that draw attention when they replenish diminishing capital."

"Yet the need to see banking as fundamentally stable is hard to dislodge. Regulators are again insisting that small tweaks to the rules will make banking safe, finally, without eliminating it entirely. At the simplest level, this ignores the trade-off between risk and return: A bank with more capital, say, or assets and liabilities with more closely matched maturities, is indeed safer — but also less profitable, and to some degree impaired in its purpose of allocating resources."

"Worst of all, many ideas for making banks safer really do the opposite. Insuring all deposits, as in the response to the SVB collapse, is the perfect example: It makes runs less likely but encourages banks to take bigger risks. 'Too big to fail' — the JPMorgan remedy for First Republic — creates essentially the same moral hazard. As long as there are banks, there’ll be banking crises. The slower we are to see the risks, the bigger the eventual damage."