thehousingbubble@gmail.com
Blog

Prices Rose Too Drastically, So Now They’re Dropping, But They Still Haven’t Fallen Enough

A report from the Telegraph. “Almost half of America’s 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under US accounting rules but that does not make them solvent. Somebody will take those losses. ‘It’s spooky. Thousands of banks are underwater,’ said Professor Amit Seru, a banking expert at Stanford University. ‘Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.'”

From CBS News. “The stock prices of Comerica, PacWest Bancorp, Western Alliance Bank and Zions Bank shares fell sharply Tuesday. ‘Wall Street is quickly hitting the sell button as banking turmoil appears it is not going away anytime soon and is ready to focus on the next weakest link — potentially distressed lenders with tremendous exposure to commercial real estate,’ said Edward Moya, a senior market analyst at Oanda. Investors aren’t withdrawing from PacWest and Western Alliance for the same reasons they ditched Silicon Valley Bank, said Adam Crisafulli, an analyst at Vital Knowledge. In March, customers pulled their money out because of concerns the banks could be on the hook for hefty losses, Crisafulli said in a research note.”

“‘That is not spurring the selling now,’ he said. ‘Instead, the anxiety today is more philosophical, with people asking ‘Why do you exist?’ with regards to many regionals.”

Senior Housing News. “The industry has billions worth of loans coming due in 2023 and 2024 amid a tough capital markets environment where the cost of capital is higher and — thanks to recent bank uncertainties — there are fewer willing lenders. For senior living operators, this cross-current of operational difficulty and tougher capital markets will likely amount to rising distress and falling valuations in the year ahead, according to NIC Chief Economist Beth Mace. The industry’s near-term pain may affect valuations to the point that they lead to new opportunities. ‘I think we’re going to see so-called creative destruction,’ Mace said.”

Multi-Housing News. “One month later and it seems the industry is experiencing déjà vu. Multifamily is again racked with uncertainty over the Federal Reserve Bank’s upcoming meeting. ‘As interest rates rise, cap rates rise, and given the inverse relationship of cap rates to values, higher cap rates translate into lower values and pricing,’ said Karlin Conklin, Principal, COO, Investors Management Group, told MHN.. ‘Sellers are reeling at the loss in values right now, particularly if they purchased in the last several years when deals traded at cap rates in the low 4s for desirable, top-tier markets.'”

“These higher cap rates result in a 12 percent to 18 percent loss of value causing sellers to hold onto their assets until value recovers, she continued. ‘I estimate that it [the difficulty of acquiring financing] has impacted about 75 percent of projects around the country,’ said Morris Kaplan, president of Kaplan Residential. ‘The lending landscape is so restrictive that it has pretty much slowed down multifamily to a standstill.'”

The Real Deal on California. “Sales and prices of Los Angeles County apartments have fallen off a cliff. The number of units sold in L.A. County fell nearly 11 percent in the first quarter from the final quarter last year, while the year-over-year drop was 37.5 percent, the Commercial Observer reported, citing a report from NAI Capital. At the same time, the average sales price per unit dropped 18.4 percent.”

“For investors, the San Fernando Valley and Santa Clarita Valley had the largest drop in average multifamily sale price per unit, down 35.9 percent year over year, while the number of vacant units rose 22 percent. The San Gabriel Valley had the largest rise in vacant units, up 32.2 percent as the average sale price per unit sold dropped 20.3 percent year over year. The average price per unit sold on L.A.’s Westside fell 9.5 percent, while the number of vacant units rose 10.7 percent.”

The Gazette. “The Colorado Springs-area housing market remained in a funk last month as home sales, prices and construction fell again, two industry reports show. In April, sales of Springs-area single-family and patio homes totaled 1,090, a nearly 27% drop from the same month last year, according to a Pikes Peak Association of Realtors’ market trends report. Home sales now have declined for 11 straight months. The median price of homes that sold in April declined 5.3% to $459,000 from $484,450 in April 2022, the association’s report showed. Year-over-year prices now have fallen four of the last five months, which followed an eight-year streak in which prices increased every month during that span.”

“The supply of homes listed for sale totaled 1,590 at the end of April, which was almost two-thirds higher than during the same month last year, according to the Realtors Association’s report. Sellers need to accept that higher mortgage rates have led to softer demand, said Bruce Betts, a real estate agent with Re/Max Advantage in Colorado Springs. ‘We have 1,500 homes on the market and 1,000 or 1,100 sold in a month,’ Betts aid. ‘That’s not a cratering market. That’s not a buyer’s market at all. That’s a really strong, healthy market for sellers. But they have to be realistic about their price. It’s not cratered, it’s not crashed or any other words like that at all,’ Betts added. ‘It’s slowed from what it was. It’s not as crazy as what it was.'”

A press release. “Home prices are falling fastest in pandemic boomtowns like Austin and expensive coastal markets like Seattle and San Francisco because prices in those places skyrocketed to unsustainable levels in recent years. Prices are now making their way back down to earth after many homebuyers were priced out. In Boise, ID, the median sale price fell 15.4% year over year in March—more than anywhere else in the U.S. ‘Home prices in Boise jumped during the pandemic because people were flooding in from high-income states like California and Washington. Now locals can’t afford to buy homes,’ said local Redfin agent Shauna Pendleton. ‘Prices rose too drastically, so now they’re dropping, but they still haven’t fallen enough to bring a ton of buyers back to the market.'”

“In Austin, home prices decreased 13.6% year over year in March—the second biggest decline in the country. In many parts of the country, home sellers who bought during the pandemic are in an especially tricky situation because there’s a chance they’ll sell at a loss, Pendleton said. One seller Pendleton is working with bought their newly built home for $390,000 less than a year ago and now needs to relocate to care for family. While their house received four offers in under a week and sold at the $370,000 asking price, the seller still ended up losing about $37,000 when accounting for agent commissions.”

“‘When I meet with prospective sellers who purchased their homes recently, I’m suggesting they stay put for a while longer if they can. If you bought in 2021 or early 2022, you may sell for what you paid or less,’ Pendleton said.”

The Vancouver Sun. “Just over half of people in the housing market who are paying variable-rate mortgages are having a tough time financially, according to the latest poll from Angus Reid Institute. The survey found that three in 10 Canadian homeowners report difficulty paying their mortgage, rising to 51 per cent among those paying variable rates. Over three-quarters (77 per cent) of those surveyed said they’re worried about added costs the next time they have to renew their mortgage, regardless of what type they have, fixed, variable or other. That’s true of nearly all (91 per cent) of those who are in the early days of their mortgage, those with 25 or more years left in their amortization schedule.”

“Nearly one in five homeowners (18 per cent) say they would lose money if they had to sell, rising to 24 per cent among those whose mortgage is for 25 years or more. The overall real estate situation has seen a major correction in recent months. By February, prices had fallen 15 per cent nationwide from a peak in February 2022. Prices are still above pre-pandemic levels. But 24 per cent of those with longer terms remaining on their mortgage, or who may have bought around the peak of the price spike in 2022, say they are likely to lose money if forced to sell.”

The Grocer in the UK. “As if inflation and the march of the discounters wasn’t enough to contend with, supermarkets have something else weighing on their profits: the plummeting value of their estates. Sainsbury’s this week became the latest to reveal the impact, with its results noting a £141m writedown on property, plant and equipment included in its adjusted underlying profit before tax in the year to 4 March. That followed this month’s announcement of a walloping £982m writedown in Tesco’s statutory profit before tax in the year to 26 February, to £1bn – primarily on property. And Waitrose parent John Lewis made a loss before tax of £234m in the year to 28 January, ballooning from a £27m loss the previous year, largely due to property writedowns, its results showed last month.”

“The losses can be enormous. ‘Much of the market relates to debt-driven investors, so when their borrowing costs increase, the values of the properties they are buying fall’ since the return relative to the investment lowers, says Matthew Hobbs, head of retail lease advisory at Colliers. ‘The last time there was a major writedown in supermarket property values was in 2015,’ says Hobbs, driven at the time by an excess of land acquired by the retailers in the preceding ‘race for space’. ‘As a result, in their 2015 accounts, Tesco reported a pre-tax loss of £6.4 bn – its worst loss in its then 97-year history,’ says Hobbs.”

From ABC News. “As the head of credit risk at the Australian Prudential Regulation Authority (APRA), Glenn Homan oversaw the introduction of a serviceability ‘floor’ in 2014, as part of the regulator’s attempt to rein in risky lending that was fuelling a runaway housing market. However, the interest rate floor was scrapped by APRA in 2019, after lobbying from the banking sector. It was a move that, Mr Homan said, with some benefit of hindsight, had led to a ‘bad outcome’ for many Australians who had cashed in on the COVID-19 property boom and were now facing financial hardship as interest rates returned to historically average levels.”

“‘It was designed to not have people over-gear themselves too much,’ he said. ‘I think it’s been almost frightening that people, in their own mind, don’t have a sense of what the maximum mortgage is that they want or they’re comfortable with. They have had a tendency to rely on the lending shop to tell them, ‘Why borrow $500,000, when you can afford, you know, $1 million?'”

“Across his four decades in the financial sector, Mr Homan observed lending institutions pushing borrowers to their absolute limit if the prudential regulations permitted it. Lenders directly dealing with customers also often had commissions and bonuses tied to the volume of loans they gave out. ‘I think people have been encouraged [by lenders] to really try borrow the supposed maximum they can afford against the serviceability model that any particular organisation uses,’ he said.”

Related Posts
This Post Has 61 Comments

  1. ‘For investors, the San Fernando Valley and Santa Clarita Valley had the largest drop in average multifamily sale price per unit, down 35.9 percent year over year, while the number of vacant units rose 22 percent. The San Gabriel Valley had the largest rise in vacant units, up 32.2 percent as the average sale price per unit sold dropped 20.3 percent year over year. The average price per unit sold on L.A.’s Westside fell 9.5 percent’

    How do those 5% cap rates look now investors?

    1. I’m drooling over numbers like this. I sold last year and am renting and am patiently waiting for the correction to play out so that I can buy again (say 5 years). Even though those areas are pure shitsville for the greater LA area we need them to roll over so that the wave of price reductions moves westward towards the ocean. News like this warms my heart!

      1. Same here. I sold for $450K last year after buying in 2008 for $175K. I am waiting to build on 18 acres I have away from the shithole cities.

  2. ‘I think it’s been almost frightening that people, in their own mind, don’t have a sense of what the maximum mortgage is that they want or they’re comfortable with. They have had a tendency to rely on the lending shop to tell them, ‘Why borrow $500,000, when you can afford, you know, $1 million?’

    That’s some sound lending right there.

    1. ‘Why borrow $500,000, when you can afford, you know, $1 million?’

      The bank was willing to do that to me, the last time I was looking for a debt donkey cage over 20 years ago. It included the house I hadn’t sold yet and the down payment was a HELOC written at closing.

      That was my first clue that things were crazy.

  3. ‘When I meet with prospective sellers who purchased their homes recently, I’m suggesting they stay put for a while longer if they can. If you bought in 2021 or early 2022, you may sell for what you paid or less’

    Shauna is right sellers. Hold the line, don’t give it away!

    1. Yeah just a little longer to see a profit… say 20 years or so.

      “You got to be in to win it!”

  4. Re: “The median price of homes that sold in April declined 5.3% . . . which followed an eight-year streak in which prices increased every month during that span.”

    And they are howling in pain. Looks like these days nobody buys a house to live in but to invest for a profit but, unlike every other investment, they are unwilling to take a loss . . .

    1. Will we be allowed to gather our own bugs or will be have to buy the bugs from Bill Gates?

    2. Will we be allowed to gather our own bugs or will we have to buy the bugs from Bill Gates?

  6. A reader sent these in:

    The average American consumer is a reckless gambler and takes a long time to respond to Fed policy. Things take a while in a reckless consumer driven debt bubble.

    https://twitter.com/DonMiami3/status/1653244924119203843

    “Interest rates are like gravity in valuations. If interest rates are nothing, values can be almost infinite. If interest rates are extremely high, that’s a huge gravitational pull on values” — Warren Buffett

    https://twitter.com/CharlieMunger00/status/1653261219682463744

    Manhattan’s office-vacancy rate is at a record high, per Bloomberg

    https://twitter.com/unusual_whales/status/1653067001424748546

    RBA surprises the market and the vast majority of economists with a 0.25% rise in the cash rate. I’m sure all the folks who did their victory laps on the rate rise cycle being over are going to put their hand up and admit they got it wrong.

    https://twitter.com/AvidCommentator/status/1653256259058176003

    New York’s income sinks nearly $16B compared to pre-COVID as residents flee at alarming rate

    https://twitter.com/nypost/status/1653144210445402112

    Just spoke with one of my clients in Surrey. House beside them was bought last year. 2 suites were immediately put into the basement. 11 cars parked now all over the place.Neighbours called Bylaw Bylaw shows up and says “we won’t shut it down. Tenants need homes right now”

    https://twitter.com/jesse_kleine/status/1653104110558908416

    Congresswoman Lois Frankel sold First Republic Bank in March before the stock dropped 80%. After she sold First Republic, she bought JP Morgan Chase which just bought First Republic. She clearly had inside information. If me or you did this then we would be in prison.

    https://twitter.com/investmattallen/status/1653142981451341825

    Australia

    https://twitter.com/INArteCarloDoss/status/1653300342220636164

    Heard on the Street: The cost of interest-rate hedges, which are mandatory for most floating-rate commercial real-estate loans, is soaring ⁦@WSJ #CMBS

    https://twitter.com/danjmcnamara/status/1653501539015708682

    Real estate … this time is different? Wages are quickly catching up, right? Right?

    https://twitter.com/WallStreetSilv/status/1653605689263288321

    Today:
    PacWest Bancorp: -27%
    Western Alliance: -15%
    Comerica Incorporated: -12%
    Zions Bancorp: -11%
    “Regional banks are strong & resilient” – Jerome Powell

    https://twitter.com/Ben__Rickert/status/1653574878124195840

    “all this focus on the debt ceiling instead of the future fiscal issue is like sitting on the beach at Santa Monica worrying about whether a 30-foot wave will damage the pier when you know there’s a 200-foot tsunami just 10 miles out.” — Stanley Druckenmiller

    https://twitter.com/WallStreetSilv/status/1653512109848756225

    Spending on seniors will reach 100% of federal tax revenues by 2040 he said, including interest expense. What’s more, the current $31 trillion US debt load doesn’t account for future entitlement payments.

    https://twitter.com/WallStreetSilv/status/1653512490527891456

    Hold up. You’re telling me a sh$t ton of commercial real estate is going to need to be refinanced at much higher interest rates during a time of historically high vacancy. What could go wrong?

    https://twitter.com/dougboneparth/status/1653384003502632969

    As soon as SPX down 1%, Bill “ Bail me out” Ackman whining again. Remember this slimy PoS bought regional banks after the initial rout in late March. He wants FED to cut rates now but he never questions why banks still offer low rates for customer deposits which is the main reason for withdrawals.

    https://twitter.com/xtrends/status/1653461225114685444

    PacWest reported a $1.2 billion loss in Q1 & a $5.7 billion decline in deposits ($33.9 billion to $28.2 billion). At quarter end, there were $8.1 billion in uninsured deposits. Why would anyone keep deposits there above the FDIC insurance limit? Expecting another bailout?

    https://twitter.com/charliebilello/status/1653414462597070848

    “Rising interest rates are good for banks.”

    https://twitter.com/charliebilello/status/1653400327436005379

    1. Spending on seniors will reach 100% of federal tax revenues by 2040 he said, including interest expense. What’s more, the current $31 trillion US debt load doesn’t account for future entitlement payments.

      This is far and away the biggest macroeconomic problem in this country today. The combined total of $96 Trillion in unfunded liabilities of Social Security and Medicare dwarfs even CRE troubles, amounts spent on wars, etc.

      But what I find fascinating is why these amounts are called “entitlements” or “liabilities”. What do these numbers really mean? There is actually no legal obligation on the part of anyone to pay these amounts, nor any right of anyone to receive them. The law only specifies current year’s benefits and tax rates, it doesn’t lock in future projections. There is nothing in the Constitution about these amounts, nor any private contract requiring them to be paid.

      The WWII types will say that they paid a lot of money into “the system” so it’s only fair that they get it back with interest. There are two obvious responses: first, the input/output math heavily favors the older generations at the expense of the younger ones. But more importantly, people have to understand that SS taxes paid in the past were used to pay extremely generous pensions for the generations before those taxpayers. IOW, that money is GONE. It did not go into an account with your name on it, or even into a general fund. It was simply spent on prior generations’ pensions. And past taxpayers are no more “entitled” to a refund of their contributions (much less to receive interest on them) than shareholders in First Republic Bank are entitled to be made whole on their investments.

      If people could understand that these “entitlements” or “liabilities” are in reality just “projections” or “non-guaranteed illustrations” (more accurately “pipe dreams”) then we could start to make some progress on solving the problem.

      1. One of my daughters was several years older than her little brother and naturally much taller. She teased him brutally. I suggested that she reflect on the fact that he would probably grow to be much larger and stronger than her. After some thought, she asked me:

        “How much time do I have?”

        1. The response should be: 24 hours each day, to start being nice to your brother.

      2. Karl Denninger (market-ticker.com) talks about this regularly, with all the numbers and such. In less than 3 years medicare/medicaid takes the entire budget. all of it. Until you fix the sick care industry there’s no way out.

        don’t get sick.

      3. “If people could understand that these “entitlements” or “liabilities” are in reality just “projections” or “non-guaranteed illustrations” (more accurately “pipe dreams”) then we could start to make some progress on solving the problem.”

        Which politician wants to tell tens of millions of people, who all vote, that their promised “entitlements” aren’t going to be paid?

        Don’t hold back, step right up and commit political suicide!

    1. I always wanted to share my kitchen, living room, and bathroom with dozens of random strangers. What could go wrong?

    2. Nice to see them cannibalizing their core clients STR inventory. I guess things aren’t as rosy as they profess.

        1. “…..Globalist politicians.. ”
          The New World Orders plan was similar to a termite. Infiltration of the foundation of a house by eating it until it can no longer stand.

        2. They neglected to remove their Globalist politicians.

          Exactly, and if anything, it’s gotten worse there. For all practical purposes I see no differences, based on policies, between the Tories and Labor. Both are Warmist, pro Open Borders, pro Jab, pro Rainbow, etc. They have become so Uniparty that they make our guys look like amateurs.

  11. “‘It’s spooky. Thousands of banks are underwater,’ said Professor Amit Seru, a banking expert at Stanford University. ‘Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.’”

    So much for BS claims from high muckamucks that ‘all is well’ in the US banking system, now that First Republic is contained…

    https://m.youtube.com/watch?v=wWBiLeVy45k

    1. The headlines ought to say something like ‘The top 3 bubble banks in the US just collapsed.’ We’re talking half a trillion of bubble bucks and comp setting that is now seriously impaired. These three banks were the top tickers and boundary pushers for two significant bubble regions. Who will do it now? Where do all the bay area and NYC hipsters go now for the next cash infusion? Some of these people have been going back to the well for decades but now the well has a new gatekeeper.

      I’m sure it will be fine, after all they were just taking interest only jumbos so they could keep their cash in better paying investments. They’re all loaded, right? The noose is tightening.

  12. 1). Banks are In trouble.

    A report from the Telegraph. “Almost half of America’s 4,800 banks are already burning through their capital buffers. They may not have to mark all losses to market under US accounting rules [FASB rule 157 suspended, hold to maturity, etc.] but that does not make them solvent. Somebody [read: taxpayers] will take those losses. ‘It’s spooky. Thousands of banks are underwater,’ said Professor Amit Seru, a banking expert at Stanford University. ‘Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the US banking system is potentially insolvent.’”

    2). CRE is in trouble.

    Senior Housing News. “The industry has billions worth of loans coming due in 2023 and 2024 amid a tough capital markets environment where the cost of capital is higher and — thanks to recent bank uncertainties — there are fewer willing lenders. For senior living operators, this cross-current of operational difficulty and tougher capital markets will likely amount to rising distress and falling valuations in the year ahead, according to NIC Chief Economist Beth Mace. The industry’s near-term pain may affect valuations to the point that they lead to new opportunities. ‘I think we’re going to see so-called creative destruction,’ Mace said.”

    – High CRE vacancies. Dangerous, third world sh*thole Socialist cities. WFH. Banks heavily tied into CRE.

    3). RRE is In trouble.

    A press release. “Home prices are falling fastest in pandemic boomtowns like Austin and expensive coastal markets like Seattle and San Francisco because prices in those places skyrocketed to unsustainable levels in recent years. Now locals can’t afford to buy homes,’ said local Redfin agent Shauna Pendleton. ‘Prices rose too drastically, so now they’re dropping, but they still haven’t fallen enough to bring a ton of buyers back to the market.’”

    4). Inflation is high and entrenched in the economy.

    5). Stock markets are still way over valued. The bear market grinds on.

    6). Low end consumer is running on fumes.

    7). The Fed must continue to raise rates (0.25% today) to fight the inflation that they caused. Meanwhile something is breaking (the banks).

    – I could go on…

    – Your gooberment and their propaganda arm, the MSM: This is fine. Soft landing dead ahead.

    1. 8) Crypto advocates still living in la-la land.

      Banks or crypto, which to fall into the abyss first?

  13. There isn’t anything about rigged economic systems that is sustainable. It’s the social engineering of systems doomed to fail or crash or collaspe by design.
    Had people only refused to pay a million for a shack, or get captured by the debt prison, which in the end spins to financial loss and ruin, than the vultures pick your bones..

  14. Writers strike in second day of strike.
    In summary, one of the pickers in essence expressed that they plan to replace Writers with artificial intelligence. Than writers would just be editors to the programs scripts.
    I hate to inform you but Doctors and operations can be replaced by AI, perhaps military troops and police forces, news media, retail services, on and on its not just truck drivers.
    Somebody claimed a 50% reduction of jobs will result from artificial intelligence with no replacement jobs to compensate..
    Why do you think they are talking Universal Incomes. And who is to pay for the Universal Incomes while Private Party Big Corporations benefit by having a workforce of AI and robots ?Industry don’t have to pay wages or benefits, they work longer hours , , no vacation time, on and on…

    .. Of course Corporations expect that Gov. pay Universal income to the displaced useless eaters of the Gods of industry…

    What is the social, financial and human costs of AI/ robots replacement…..?
    Shouldn’t Industry be charged a one billion
    dollar tax for every life destroyed by replacement by AI., instead of humans being taxed on carbon they emit?
    Actually I think part of lockdowns was to test

  15. Actually I think part of Covid lockdowns was to test how much compliance they were going to get to making people useless, scared in home prisons.
    How much can they assert climate change lockdowns and everything One World Order dictorship.
    They were testing what areas they had to tighten up, like free speech, and what demographics were the least compliant to the manufactured narratives with the fake news.
    They no doubt were trying to get fake vaccines into as many arms as possible, for what purpose will be revealed.

    1. fake vaccines

      Speaking of which, the FDA has approved a new mRNA based “vaccine” for RSV. At first it will only be available to those over 60, but I expect that will change soon. FDA of course says it is “safe and effective”.

      I suppose the dead don’t collect Social Security or file Medicare claims. Roll up your sleeves, seniors, everything will be fine, and if you do die, well, you’re old, who says you weren’t gonna have a heart attack?

      1. I have taken my last shot of ANY KIND. They have thrown away all trust in the system and there is none left. If someone does forcibly inject me, well the fallout will not be pretty.

        1. I’m sure that plenty of seniors are going to stampede to clinics and pharmacies to get this new jab.

          1. The New World Order has it all figured out how to solve all the problems.
            Genocide a bunch of people, enslave the rest and let them eat bugs , own nothing, with Banks monitoring their carbon purchases, energy deprived, hacked and injected, living in 15 min City prisons.
            Aren’t they nice. . Course they will own or control all resources as the great Stakeholders and Government will do what they dictate.

      2. …well, you’re old, who says you weren’t gonna have a heart attack?

        Heck, you’re 28 and run 15 miles per week. Who says you weren’t gonna have a heart attack?

          1. Kidding aside, everytime I see a story about some young athlete who keels over, there is already an excuse. The latest one I saw was that the girl had an undetected heart issue.

        2. 1 million old people drop dead of strokes and heart attacks and nobody wll notice

          1 million young people drop dead of strokes and heart attacks and anybody with a functioning brain notices

  16. Is it safe to conclude that the banking crisis is over and the Fed will soon pivot to reduce interest rates?

    1. LIVE UPDATES
      Updated Wed, May 3 2023 7:01 PM EDT
      Stock futures fall after the Federal Reserve hikes rates and bank contagion fears return: Live updates
      Darla Mercado, CFP

      Stock futures fell after the Federal Reserve hiked rates by another 25 basis points and investors’ fears of contagion in the regional bank space returned.

      S&P 500 futures shed 0.46%. Nasdaq 100 futures declined 0.12%, and futures linked to the Dow Jones Industrial Average dropped 158 points, or 0.47%.

      Shares of PacWest tanked by more than 50% in after-hours trading. The decline came after Bloomberg, citing people familiar, reported that the California bank has been assessing strategic options, including a break up or a possible sale. Regional bank shares sold off hard, with Western Alliance tumbling nearly 30% and Zions Bancorporation dropping nearly 12%. Valley National Bancorp shed 12.5%.

      There likely won’t be a respite for the embattled regional banking sector until the Fed cuts interest rates, said Jeffrey Gundlach, CEO of DoubleLine. Since the closure of Silicon Valley Bank in March, First Republic has joined the ranks of failed institutions and was recently taken over by JPMorgan Chase.

      “Leaving rates this high is going to continue this stress,” Gundlach said on CNBC’s “Closing Bell” Wednesday. “I believe with a very high degree of probability there’s going to be further regional bank failures.”

      Indeed, as the Fed pushed through its 10th rate hike in this cycle and the central bank seemed to soften its language on future increases, Chair Jerome Powell said that it may be too soon to cut.

      “We on the committee have a view that inflation is going to come down not so quickly,” he said in his post-meeting press conference. “It will take some time, and in that world, if that forecast is broadly right, it would not be appropriate to cut rates and we won’t cut rates.”
      …
      https://www.cnbc.com/2023/05/03/stock-market-today-live-updates.html

    2. The Financial Times
      PacWest Bancorp
      PacWest shares plummet 50% as it explores potential sale
      California lender is latest to seek financial lifeline amid worst industry crisis since 2008
      A PacWest branch in Encino, California
      PacWest reported late last month that it had lost more than $5bn in deposits during the first quarter but says it has stemmed the outflows and received more than $1bn in inflows since March
      Joshua Franklin, James Fontanella-Khan, Brooke Masters, Stephen Gandel and Nicholas Megaw in New York 2 hours ago

      PacWest shares plummeted 50 per cent in after-market trading on Wednesday as the teetering California lender became the latest US midsized bank to seek a financial life line amid the worst industry turmoil since 2008.

      The bank has instructed boutique investment bank Piper Sandler to help it explore strategic options including a sale, two people briefed on the matter said. No formal sale process has been initiated yet and the bank was also considering raising fresh capital, the people said.

      PacWest’s decision to seek a buyer or fresh capital, which was first reported by Bloomberg, comes days after the Federal Deposit Insurance Corporation seized First Republic and sold its deposits and assets to JPMorgan Chase.
      …

    3. Coindesk Logo
      Opinion
      Bitcoin Set New Record of Daily Transactions the Same Day the U.S. Government Quietly Engineered a Bank Buyout
      The events are unconnected, but crypto has a role to play in the wider political realignment questioning the sanctity of central banks and established powers.
      CDCROP: JP Morgan building
      By Daniel Kuhn
      AccessTimeIcon
      May 1, 2023 at 5:17 p.m. UTC
      Updated May 1, 2023 at 6:09 p.m. UTC
      Daniel Kuhn
      Daniel Kuhn is a deputy managing editor for Consensus Magazine. He owns minor amounts of BTC and ETH.

      On Sunday, as the U.S. government worked behind the scenes with two major banks to engineer the latest financial rescue plan, the Bitcoin network hit a new all-time high for the number of daily transactions processed. There were more confirmed transactions than it ever had in its 14-year history, beating the previous record set during the 2017 bull run. Today, JPMorgan Chase has acquired First Republic after the distressed bank’s assets were seized by regulators, becoming the second-largest bank failure in U.S. history.
      …
      https://www.coindesk.com/consensus-magazine/2023/05/01/bitcoin-set-new-record-of-daily-transactions-the-same-day-the-us-government-quietly-engineered-a-bank-buyout/?outputType=amp

    4. Industries Banking
      Mark Hulbert
      SVB and First Republic are just the first of many U.S. banks that will fail — if you believe 800 years of history
      Published: May 3, 2023 at 8:55 p.m. ET
      By Mark Hulbert
      Stocks and real estate are vulnerable to a systemic banking crisis that could last months, if not years
      Customers outside of a Silicon Valley Bank office in Santa Clara, Calif. days after the bank failed in March 2023. Getty Images
      The beginning stages of a ‘systemic bank-distress episode.’

      The banking crisis that began with the collapse of Silicon Valley Bank and now the failure of First Republic Bank is far more serious than it initially appeared.

      Two finance professors were warning of this six weeks ago: Andrew Metrick of Yale’s School of Management, and Paul Schmelzing of Boston College and Stanford’s Hoover Institution. In a study circulated in late March by the National Bureau of Economic Research, they argued that the FDIC bailout of Silicon Valley Bank was almost certainly not an isolated event and was instead symptomatic of a much bigger problem.

      The professors reached their conclusions by comparing regulators’ behavior in the current crisis with how they reacted during almost 2,000 historical banking-sector interventions in 138 countries dating back to the 13th century.
      …
      https://www.marketwatch.com/story/svb-and-first-republic-are-just-the-first-of-many-u-s-banks-that-will-fail-if-you-believe-800-years-of-history-a8902918

        1. Powell himself uttered the phrase “this time is different” yesterday during his Q&A.

    5. The Financial Times
      Markets Briefing
      Markets
      Asian stocks mixed after Federal Reserve chair pushes back on hopes for interest rate cut
      US oil futures briefly drop on concerns over possible recession
      A montage of a globe and a chart
      The US Federal Reserve on Wednesday raised its benchmark interest rate by 0.25 percentage points to a range of 5% to 5.25%
      Hudson Lockett in Hong Kong 3 hours ago

      Asian equities were mixed after Federal Reserve chair Jay Powell pushed back against the suggestion that the US central bank might begin cutting interest rates to cushion the blow from banking sector tumult.

      China’s CSI 300 stock index shed 0.1 per cent on return from an extended holiday on Thursday, while South Korea’s Kospi fell 0.2 per cent and Australia’s S&P/ASX 200 fell 0.2 per cent. Hong Kong’s Hang Seng index was the only major benchmark to notch any gains, up 1 per cent, while markets in Japan were closed for a holiday.

      The falls in Asia came after US shares closed lower in response to comments from Powell, with the S&P 500 shedding 0.7 per cent and the tech-focused Nasdaq Composite dropping 0.5 per cent.

      The Fed on Wednesday raised its benchmark interest rate by 0.25 percentage points to a range of 5 to 5.25 per cent, matching analyst expectations and marking the 10th consecutive rise since early 2022.

      The central bank’s latest statement removed previous guidance stating additional monetary tightening “may be appropriate” and emphasised its policy approach would depend substantially on economic data.

      But speaking to journalists after the rate rise, Powell said the central bank still expected inflation would take time to reach its target range. “We on the committee have a view that inflation is going to come down not so quickly . . . if that forecast is broadly right, it would not be appropriate to cut rates,” he said.
      …

    6. It seems that long period waves of panic are washing through the international financial system.

      At least they aren’t violently disruptive so far, like the ones following the Lehman Brothers collapse were.

    1. Finance ·carl icahn
      Carl Icahn’s net worth plunges $10 billion in a day after a short seller alleged that his financial operations are ‘ponzi-like’
      BYTom Maloney and Bloomberg
      May 2, 2023 at 3:38 PM PDT

      Corporate activist Carl Icahn’s fortune tumbled more than $10 billion Tuesday after short-seller Hindenburg Research accused him of using a “ponzi-like” economic structure at his investment company.

      Icahn Enterprises, his publicly traded limited partnership that operates as a holding company, fell by 20% — the most on record — erasing $3.1 billion from his fortune. Hindenburg also detailed the investor’s margin loan collateralized by his stake in the company, which was not previously accounted for by the Bloomberg Billionaires Index. That lopped off another $7.3 billion from the net worth calculation.
      …
      https://fortune.com/2023/05/02/carl-icahn-net-worth-billionaire-plunges-hindenburg-research-short-seller/

    1. The Financial Times
      AP Møller-Maersk AS
      Maersk warns of ‘radically changed’ world as profits tumble
      Shipping group signals industry’s pandemic-driven boom is over as demand and freight rates fall
      A Maersk shipping container
      Maersk cautioned that earnings for the rest of the year would be weaker even as it forecast demand to improve in the second half
      Richard Milne, Nordic and Baltic Correspondent 21 minutes ago

      AP Møller-Maersk warned of a “radically changed business environment” as profits plunged at the world’s second-largest container shipping line and worries grew about a wave of new ships soon to add to pressure on the industry.

      The Danish shipping and logistics group beat analyst expectations in the first quarter but cautioned that earnings for the rest of the year would be weaker even as it forecast improved demand in the second half.

      Chief executive Vincent Clerc told the Financial Times there was a possibility that a bad situation could be made worse by the large number of ships ordered by rivals in the boom years and due to be delivered this year and into 2024.
      …

      1. “Shipping group signals industry’s pandemic-driven boom is over…”

        The collapse in globalism isn’t going to help either.

Comments are closed.