It’s Definitely Hard To Accept That Your Most Valuable Asset Is Not Worth What You Paid For It
A report from 12 News in Arizona. “Michael and Danielle Tantone decided to divorce in August, but remained living in the same house for several months after. Although the couple said they felt separating was best for their relationship, the timing wasn’t financially ideal. ‘We’ve been bleeding for over a year and that’s one of the things that caused stress in our marriage,’ Danielle Tantone said. The Tantones bought their Mesa home for $582,000 in 2022. As of today, it’s worth less than what they owe. ‘The payment is really pretty high even for us both together but impossible for either one of us on our own,’ Danielle Tantone said. ‘We have to do a short sale. We have to hope that the bank will take less than what we owe and we haven’t even gotten that offer yet.'”
“After two months of living together but apart, Danielle Tantone was able to move into a rental property and Michael Tantone remained in the house. ‘I have felt a remarkable lessening of stress,’ Danielle Tantone said about moving out. However, the problem persists of finding a buyer to take their home off their hands. ‘Buyers just left the market, home prices continued to fall, they somewhat recovered, but the interest rates are so high now still that people that would want to buy this house can’t afford to buy the house.'”
The American Statesman. “There was good news for homebuyers in the latest monthly report from the Austin Board of Realtors last week. With rising inventory and lower prices, Central Texas’ cooling housing market has provided more choices and leverage for buyers, board officials and other experts say. Across the Austin Round-Rock region from Georgetown to San Marcos, the median price of the homes that sold in November fell 8.4% year-over-year to $424,450, indicating Austin’s housing supply is becoming available at lower price points, board officials said. In the city of Austin, sales year-to-date were down 15.3% (8,001 sales), and the median price was $540,000, a 9.2% drop, the board said. ‘The drop in median home prices indicates buyers can be a little more selective in the search for a home that checks all their boxes,’ said Ashley Jackson, president of the Austin Board of Realtors.”
The Mercury News in California. “Tenant advocates are pushing to put rent control measures on the ballot in at least four Bay Area cities this November, the latest effort to expand such protections across the region as tens of thousands continue struggling with sky-high housing costs. Advocacy groups this month plan to file proposed rent control ordinances with Redwood City, San Pablo, Pittsburg and Larkspur, allowing supporters to start gathering the thousands of signatures needed to bring the measures before voters. The push for rent control has been met with strong resistance from many landlords, who say adding regulations after some property owners lost tens of thousands of dollars in rental income during the moratoriums would force more struggling owners out of business. ‘For a small owner-operator, that can be devastating,’ said Derek Barnes, chief executive of the East Bay Rental Housing Association.”
The San Francisco Chronicle. “Four months since the August Lahaina and Kula wildfires on the island of Maui, Hawaii’s government has been struggling to find suitable long-term housing for the thousands of survivors who no longer have a place to call home. This month, Maui Mayor Richard Bissen proposed Bill 131, a program that incentivizes short-term rental, timeshare and non-owner-occupied property owners to house a person or family displaced by the fires. The incentive is an exemption from having to pay real property tax if they convert their vacation home to a long-term rental. That equates to tax savings of $5,850 to $14,600 annually, depending on the type of property. Bissen also suggested punishing property owners who don’t participate in the program by increasing their taxes. This would ‘make up for the loss of tax revenue’ from the owners who are participating.”
“Testimony submitted by several short-term rental property owners expressed concern about losing money. For some of them, to break even on their investment means charging visitors a few hundred dollars per day to rent their property, which makes a lot more than what a $2,000 to $3,000 per month long-term rental can bring. ‘That’s right, they will be losing money,’ Bissen said in response to the property owners’ complaints. ‘But what they will be gaining is much more, and what the whole community gains.'”
“Others were very specific about how it would affect their livelihood. ‘I cannot make up for the loss of taxes from 2200 homes!! I cannot foot the bill to build 2200 new homes!!! I cannot make up for the loss of tax revenue due to Lahaina’s destruction,’ retiree PK Opal, a full-time Maui resident, wrote in her testimony.”
Business Insider. “When Wall Street money managers fall from grace, there’s usually some kind of discernible ruckus: the wail of angry investors, the steady drone of thousands of lawyers filing cases, and the rush of doomer headlines in the financial press. But even as some of Wall Street’s elite are getting decimated, you can barely hear a sound. In the post-financial-crisis world of zero interest rates, private equity — a clubby world of investment firms that use leverage (as well as some equity) to purchase portfolio companies — was one of the few places on Wall Street that guaranteed investors yield. But after that decade of winning, the industry’s fortunes have started to turn.”
“I’m not saying that the private-equity section of the billionaire boys’ club is about to empty out — I’m saying it’s going to be a few messy years. We’re going to see companies blow up, we’re going to see balance sheets get strained, and in that chaos, we’re going to see a whole bunch of money get flushed down the drain. The more time passes, the more money PE firms need to spend to hold their portfolio companies, and the harder it gets to juggle all this. Conditions will improve for private equity when interest rates go down. Until then, and perhaps even after that, expect the internal asset churn to continue until some firms quietly shutter or turn into zombie firms, sucking up fees to hold on to stagnating companies while too-patient investors get stuck holding the bag.”
Global News in Canada. “A digital real estate company has been analyzing the data across a good portion of the province and says prices and sales have dropped, with some underbidding now taking place in many areas. Wahi analyzed the data in 10 cities outside the GTA, including Hamilton, Ottawa, London, Barrie and the three cities in Waterloo Region, with Kitchener being the only one that had not been affected on average by underbidding. St. Catharines, London, Barrie and Guelph had the most underbidding occurring, although it still remains under three per cent of asking prices. ‘We’re definitely seeing a underbidding trend in the higher-priced houses across the province,’ Wahi CEO Benjy Katchen told Global News.”
“The company said that while there is underbidding going on, it does not mean that all sellers are willing to take a cut if they are not in a hurry to sell. Katchen pointed out that while housing prices are falling in many areas, it is not always easy for those looking to sell to take a loss on their investment. ‘It’s definitely hard to accept perhaps, that your most valuable asset is not worth what you thought it was worth a year ago, or maybe what you paid for it,’ he said. Katchen said the median price of homes in Toronto has only fallen five per cent, whereas in Kitchener-Waterloo it has dropped 7.8 per cent and in Ottawa it has slipped by 10 per cent.”
The BBC in the UK. “New guidance has been released aimed at reducing the number of wall safety surveys being requested by banks and building societies on blocks of flats. Thousands of flat owners have been unable to sell or remortgage because they cannot get the checks done. NHS worker Holly Ciesielczuk bought 75% of her first-floor flat in Redbridge in March 2019, under shared ownership. But when she tried to borrow more money to increase her share of ownership a year later, she hit a stumbling block. Following their initial survey, her mortgage lender requested an EWS1 form, which can be obtained following an assessment of a building’s external walls.”
“The lender refused a mortgage without it, as did the next bank she tried. The combination of this and her partner’s cancer diagnosis took its toll. ‘I properly broke down. If I knew how much stress this was going to cause, I would never have bought my flat,’ she told the BBC.”
From Reuters. “Julius Baer’s exposure to toppled property group Signa could result in losses that far exceed the provisions taken by the Swiss wealth manager, an analyst said on Monday. ‘We have increased our expectation for credit losses to 400 million Swiss francs ($460.7 million) on the mentioned exposure,’ Zuercher Kantonalbank analyst Michael Klien wrote in a note to clients. Klien, who previously estimated the loss at 300 million francs, said the increased figure reflects that private debt often has no direct recourse to real assets. The bank’s share price has lost about 15% in the past month on fears over its ties to property and retail group Signa, which is controlled by Austrian magnate Rene Benko and recently declared insolvency.”
From Bloomberg. “Stock investments: down 30%. Salary package: down 30%. Investment property: down 20%. As Thomas Zhou reflects on 2023, his household finances are front of mind. ‘It’s just heart-breaking,’ the 40-year-old financial worker from Shanghai said. ‘The only thing that still keeps me going is the thought of keeping my job so I can support my big family.’ Zhou’s predicament will resonate with many people in China, where slumps in the real estate and stock markets are wiping away household wealth. And as the world’s second-largest economy struggles to regain momentum after years of Covid-19 lockdowns, there’s also the growing threat of unemployment.”
“Now, middle class households are being forced to rethink their money priorities, with some pulling away from investing, or selling assets to free-up liquidity. At the heart of the decline in family wealth is China’s real estate meltdown, which having a pervasive effect on a society where 70% of family assets are tied up in property. Every 5% decline in home prices will wipe out 19 trillion yuan ($2.7 trillion) in housing wealth, according to Bloomberg Economics. While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15% in prime areas in its biggest cities.”
“Media worker Echo Huang watched as the value of her investment property in Ningbo, Zhejiang province fell about 1 million yuan from its 2019 peak. Now, she considers herself lucky to have sold it in May before prices dropped further. Huang gave the majority of the proceeds from the property sale to her parents for their retirement savings, and put the rest in demand deposits and money market funds that allow real-time redemptions. She ruled out stock investments after her current holdings more than erased all gains since 2018. ‘My company is struggling to survive, so who knows if I might get paid less or even laid off one day,’ said the 39-year-old. ‘My main goal is stability in my assets, and I want to keep enough liquidity on hand.'”
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‘The Tantones bought their Mesa home for $582,000 in 2022. As of today, it’s worth less than what they owe’
You really fooked up Jerry. Mesa is a depressing sh$thole and there’s no way 582k was gonna hold. And it didn’t.
‘The payment is really pretty high even for us both together’
That’s some sound lending right there.
“Danielle Tantone said. ‘We have to do a short sale”
I never knew MAO meant short sale.
https://youtu.be/xzTKGa_Zol8?si=xinwJcmOjZ-JjsOc
I hope this time around the IRS does not allow banks to forgive the shortage. A loan default is income, and the banks are supposed to issue a 1099-C
“…A loan default is income…”
Yep, imputed income.
“There ain’t no such thing as a free lunch.” — Robert Heinlein
How about forgiven student loans!
Don’t get me started. In the case of those who walk away from homes in foreclosure (and it’s coming…in an avalanche), I also think that the IRS should go back and make discovery on whether their was cash-out refinance at any point during home ownership and if it wasn’t used for home improvement, make it all taxable. I know so many from the last crash who walked away from homes having cashed out hundreds of thousands of dollars of equity, all the while calling themselves victims of predatory lending when it all came down on them. And when they walked away from their homes they took with them cars, boats, jet skis, RVs, cash, etc., all purchased with cash-out refi. Now there was supposed to be accountability for those who did this last time, but it never happened. Just like a fraction of those who committed PPP and ERC fraud over the last few years will ever have any consequences. What a world we live in.
“…I also think that the IRS should go back and make discovery on whether their was cash-out refinance at any point during home ownership and if it wasn’t used for home improvement, make it all taxable….”
Couldn’t agree more.
Unlike times past, in which the bank closely monitored use of [their] money and sent inspectors to the job site to make sure home improvement was proceeding on-schedule.
Now, cash outs have devolved into what amounts to nothing more than a giant free money scam.
How many 10’s of billions (or even 100’s of billions) has this loophole cost US taxpayers?
“I hope this time around the IRS does not allow banks to forgive the shortage.”
+1
‘Across the Austin Round-Rock region from Georgetown to San Marcos, the median price of the homes that sold in November fell 8.4% year-over-year to $424,450’
Prices have been falling like a turd in a well in these sh$tholes for around two years now. It’s off way more than 8 or 10% from the peak.
‘That’s right, they will be losing money,’ Bissen said in response to the property owners’ complaints’
I’ll make this point: one reason for this attitude toward STR is almost everybody hates them. Look at what British Columbia just did, and nobody apologizes for the a$$ pounding guberments are handing out. This same story plays out every time.
Die, speculator scum. Just die already.
‘Every 5% decline in home prices will wipe out 19 trillion yuan ($2.7 trillion) in housing wealth, according to Bloomberg Economics. While China’s official data show just a mild drop in its existing home prices, evidence from property agents and private data providers indicate declines of at least 15% in prime areas in its biggest cities’
Three times $2.7 billion, is that a lot? And out in the real sh$tholes they are off 40-50% or more.
Good! Rassup Maraf*cka?
81 million ballots, not 81 million votes.
Cattle tax slaves, you are living under an illegitimate, occupation government.
So long as the stock market keeps rising, I guess there is no need to worry about the steep rise in bankruptcies among zombie firms?
Financial Times
Global Economy
Bankruptcies soar as high rates and end of Covid aid hit businesses hard
‘Zombie’ firms lose lifeline as increased borrowing costs compound withdrawal of pandemic-era support
A ‘store closing’ sign in the window of a fashion store in Berlin, Germany
Across the EU, corporate insolvencies rose 13% year on year in the nine months to September, according to Eurostat
Valentina Romei in London yesterday
Corporate bankruptcies are increasing at double-digit rates in most advanced economies as borrowing costs rise and governments unwind pandemic-era measures to support business worth trillions of dollars.
Following a decade of decline the number of US corporate bankruptcies rose 30 per cent in the 12 months to September compared with the year-ago period, according to courts data.
…
And the world should be applauding this.
Bankruptcies are up slightly but the we work bankruptcy had something like 140 sub filings of related entities so it really skewed the overall filing figures
‘We have to do a short sale. We have to hope that the bank will take less than what we owe and we haven’t even gotten that offer yet.’”
Hope is not a strategy, Tantones.
Across the Austin Round-Rock region from Georgetown to San Marcos, the median price of the homes that sold in November fell 8.4% year-over-year to $424,450
Is that a lot?
There is nothing “Federal” about the Federal Reserve. It is a criminal cartel that hijacked this country’s currency 110 years ago designed and intended to enslave you with debt.
hijacked
They had inside help.
‘Buyers just left the market, home prices continued to fall, they somewhat recovered, but the interest rates are so high now still that people that would want to buy this house can’t afford to buy the house.’”
So what I’m hearing is that market fundamentals are signaling that you need to start sawin’ and slashin’ like the villain in a Jamie Lee Curtis B-movie if you want to get out from under yer alligator.
Are you scared by the ‘doji’ sign in the stock market tea leaves? LOL!
Market Extra
S&P 500 sees bearish ‘doji’ pattern form, highlights raging war between stock-market bulls and bears to end 2023
Published: Dec. 18, 2023 at 8:32 a.m. ET
By Mark DeCambre
– A double ‘doji’ has materialized in the S&P 500’s candlestick charts. It suggest a powerful move may follow but the direction isn’t clear
– Will the S&P 500 continue to rally or is a doji pattern a cause for concern for the bulls on Wall Street? MarketWatch photo illustration/iStockphoto
A glimmer of bearishness is emerging within a major U.S. index after a spectacular burst higher.
The S&P 500 SPX stands less than 2% from a record high, last achieved Jan. 3, 2022, while the Dow Jones Industrial Average DJIA notched three consecutive all-time highs and was aiming for a fourth on Monday.
However, the S&P registered an ominous sign in a centuries-old charting technique, which could indicate a coming reversal of bullishness in the closely watched stock-market index.
After a powerful rally on Wednesday, in the wake of the Federal Reserve’s latest meeting, the S&P 500 saw a textbook doji chart form on Thursday, followed by a similar, but less-than-textbook, doji formation materialize on Friday (see attached chart):
Doji pattern forms in S&P 500 on Thursday, followed by a similar candlestick formation Friday.
In candlestick charts, a form of technical analysis developed in Japan more than 200 years ago, a “doji” pattern is sometimes viewed by market technicians as a sign of what’s to come based on investor psychology.
Doji’s look like crosses because its body is thin, reflecting that the opening price and closing price are close together. The “wicks” of the doji are also characterized by equal length vertical lines on either side of the thin body, showing the day’s trading range.
MarketWatch’s Tomi Kilgore has described doji patterns as ”the point where the ball freezes in midair, just before it starts falling, after being tossed upward.”
…
https://www.marketwatch.com/story/s-p-500-sees-bearish-doji-pattern-form-highlights-raging-war-between-stock-market-bulls-and-bears-to-end-2023-82334c95
CAN FLORIDA CONDO OWNERS SURVIVE THESE CHANGES?
Palm Beaches Paul
23 hours ago
SOUTH PALM BEACH
Florida condo owners are about to get hit by the perfect financial storm. With insurance rates already going up as much as 300% for some buildings along with recent changes to the Florida Condominium Act and new changes going into effect in 2025, many are going to face tough times in the coming months and year.
https://www.youtube.com/watch?v=KHEo9gqIrsI
16:42.
Some local news.
Denver Health says migrant surge causing strain on hospital, more funding needed:
“Denver Health estimates that 10% of patients walking through its emergency room doors are migrants.
While staff said a majority of cases are seasonal illnesses like the flu, the arrivals are presenting challenges for hospital staff.
Chief of Government Community Affairs and Pediatrician at Denver Health Dr. Steve Federico said many arrive sick and with unmet healthcare needs.
“The first place we normally find folks like that are in our emergency department,” said Federico.
https://www.denver7.com/news/local-news/denver-health-says-migrant-surge-causing-strain-on-hospital-more-funding-needed
125 migrants have made their way to Carbondale. The mountain town can’t handle them.
Next 9NEWS
Dec 11, 2023
The town of less than 7,000 people doesn’t have any homeless services. Now, many migrants are forced to sleep outside in the middle of winter.
https://www.youtube.com/watch?v=8shDWvu6-no
2:35.
And that number will keep growing. What happens when there are 1000 invaders in the town of 6400 (per the 2020 census)?
Per the report, the word of mouth is that Carbondale has jobs, which is why they are going there. But it doesn’t. The jobs are far away in the ski resorts. I chuckled when the Mayor of Carbondale said he asked the governor for $$$ to take care of the immigrants. Sorry pal, money is too tight to mention. Plus if you help them, the word will get out and a steady stream will come, until they outnumber you.
Of course, the Governor has asked Brandon for $$$, but nothing has come from that either. The Mayor of Dumver, who pledged to get the homeless into shelter, now has tens of thousands of illegals to deal with, and doesn’t know what to do, as there is no place to put them. And the nights keep getting colder.
They’ll get jobs in Aspen, as long as they remain invisible to their virtue signal globalist sh*tbag employers.
Aspen loves the Great Replacement.
They seem to have cars, which is odd as they allegedly arrived with just the shirts on their backs, and yet they were able to quickly save up to buy beaters (which are at all time high prices) by doing odd jobs, or maybe they stole those cars from a DIA parking lot? Maybe they stole the getaway car from that check cashing place robbery!
Blackburn: Why Are Pedophiles Who Took Jeffrey Epstein’s Private Jet Being Protected?
Senator Marsha Blackburn
11 hours ago
During a Senator Judiciary Committee hearing, Tennessee Senator Marsha Blackburn demanded to know why the unredacted flight log of Jeffrey Epstein’s plane hasn’t been released.
https://www.youtube.com/watch?v=Lkvu1Qsj6BU
11 minutes.
Globalists gonna globe.
The Perps probably thought that it would have been decriminalized and normalized by now.
It’s probably why they are erecting altars to Satan in public spaces, they are begging him for help.
👋
If Trump were on it, we’d have had it YEARS ago!
That’s exactly what I tell people who say Trump must be on the planes as well. No way otherwise his name would be hinted at along with clinton and Gate.
It’s the flights to and photos on Epstein’s island that are most damning.
Attorney Bradley Edwards Explains the Latest on Jeffrey Epstein’s Prosecution (8m24s) from July 6, 2019.
Home Appraisals Big Problem?
Angry Mortgage Podcast
3 hours ago
Lately we have seen some problems with Appraisals of New Construction Homes. Sometimes no problem at all at often a small discrepancy that is easy to fix but yesterday we had the all-time record of Appraisal disaster $710K LESS than the Purchase Price: Ron breaks down the issues.
https://www.youtube.com/watch?v=u6f-35O-41Y
6 minutes. K-da.
Could be some Crazytown.
wait, wut? an appraiser that’s actually doing their job? and not just rubber stamping the price?
Housing is still ridiculously overpriced in most of the US, but at least prices are becoming more affordable in a few locales.
Housing Market
U.S. Economy
House Prices Plummet More Than 10% in a Year in Three Cities
Dec 18, 2023 at 8:12 AM EST
By Giulia Carbonaro
US News Reporter
While national house prices have dipped only modestly during the first few months of 2023, as the housing market had what experts called a correction phase, they have dropped much more dramatically in the cities of San Francisco, Austin and New Orleans.
The Zillow Home Value Index (ZHVI), which tracks the typical home value and market changes across the U.S., shows that home prices in the Californian city, as of November, had dropped by 12 percent since reaching their peak in 2022.
Homes in San Francisco, which for decades has been one of the most overvalued and most expensive urban areas in the country, reached a peak of $1,461,529 in May 2022, according to Zillow. The average home value there is now much lower at $1,234,246; the city was hit harder than others by the affordability crisis afflicting homebuyers and by issues unique to the City by the Bay, including an exodus of major retailers from its city center and the impact of remote work.
…
https://www.newsweek.com/house-prices-plummet-more-10-year-three-cities-1853278
“While national house prices have dipped only modestly during the first few months of 2023, as the housing market had…”
The use of the past tense suggests the price dip is over almost as soon as it started, and won’t last for multiple years like past price dips did.
“…what experts called a correction phase,…”
Notice the deference to expert opinion, without even a pretense of independent investigative reporting?
“…they have dropped much more dramatically in the cities of San Francisco, Austin and New Orleans.”
Last time prices dropped in only a few places before they fell pretty much everywhere. Real estate price declines are contagious, just like COVID-19!
What’s even better is that rents are also starting to become more affordable.
Anyone who is offended by calling communists “vermin” maybe the United States is not the place for you.
Not yet, but stay tuned.
‘We have to do a short sale. We have to hope that the bank will take less than what we owe and we haven’t even gotten that offer yet’
I’m guessing that offer Dani is talking about is how big a check she and Mike have to write.
‘We have increased our expectation for credit losses to 400 million Swiss francs ($460.7 million) on the mentioned exposure,’ Zuercher Kantonalbank analyst Michael Klien wrote in a note to clients. Klien, who previously estimated the loss at 300 million francs, said the increased figure reflects that private debt often has no direct recourse to real assets’
The lawyers fooked up Mike.
‘Stock investments: down 30%. Salary package: down 30%. Investment property: down 20. As Thomas Zhou reflects on 2023, his household finances are front of mind. ‘It’s just heart-breaking,’ the 40-year-old financial worker from Shanghai said. ‘The only thing that still keeps me going is the thought of keeping my job so I can support my big family’
I understand Tom, but it’s still cheaper than renting.
Is Wall Street overestimating the prospects for near-term rate cuts?
Yahoo
Goolsbee ‘confused’ by market reaction to Fed chief’s rate-cut remarks
Reuters
Mon, December 18, 2023 at 6:05 AM PST·3 min read
The Kansas City Fed’s annual economic symposium in Jackson Hole
(Reuters) -The Federal Reserve is not precommiting to cutting interest rates soon and swiftly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions, Chicago Fed President Austan Goolsbee said on Monday.
“It’s not what you say or what the (Fed) Chair says, it’s what do they hear and what do they want to hear?” Goolsbee said in an interview with broadcaster CNBC, in reference to the response of financial markets to Fed Chair Jerome Powell’s comments last week that the time frame for when rate cuts will start was beginning to “come into view.”
“I was confused a bit … was the market just imputing ‘Here’s what we want them to be saying.’ I thought there seemed to be some confusion about how the FOMC (Federal Open Market Committee) even works. We don’t debate specific policies speculatively about the future,” he said, talking about the rate-setting committee’s method of deliberations.
…
https://finance.yahoo.com/news/feds-goolsbee-says-confused-market-140550390.html
It seems like what Jerome Powell meant to say got lost in translation by the time Mr Market heard it and the MSM reported it.
The fed should keep it simple rather than trying to put a Greenspan Spin on their press releases.
Goolsbee ‘confused’
He’s quite seriously a political hack.
On the other hand, how gloomy can a forecast be without mentioning the R word!? Yegads…
Economy
Fed rate cuts will be even more aggressive than expected in 2024 as unemployment surges past 5%, economist says
Jennifer Sor
Dec 18, 2023, 6:28 AM PST
AP Photo/Susan Walsh
– The Fed will slash rates even more aggressively than expected, Pantheon Macro forecasted.
– That’s due to a steadily weakening US economy, with unemployment likely to tread higher next year.
– Rate cuts will exceed 75 basis points as the jobless rate surpasses 5%, the firm said.
Fed rate cuts will be even steeper than central bankers are expecting in 2024, thanks to a steadily weakening economy and the unemployment rate climbing higher, according to Pantheon Macroeconomics.
The research firm pointed to the Fed’s interest rate forecast at their latest policy meeting, with central bankers suggesting three 25-basis-point cuts are coming next year.
But rate cuts will likely be even steeper than expected, Pantheon’s chief economist Ian Shepherdson predicted, as the economy will be even weaker than is forecasted.
Central bankers have raised rates 525 basis points since early 2022. But their impact likely haven’t been fully felt in the economy, experts say, as it can take around 18 months for rate hikes to have their effect.
That suggests the economy will continue to slow, despite its resilience to higher interest rates so far. Shepherdson estimated that the jobless rate would peak around 5.5% in early 2025, up from 3.7% now. Inflation and GDP are also likely to be lower than what the Fed forecasted.
“And rates will have been cut much more than the 75bp the FOMC expects next year,” he added. “In short we expect a rather different GDP, unemployment, inflation, and rates profile than the Fed. The economy probably will be weaker than policymakers expect in 2024 and the first half of 2025, driving inflation down rapidly. Later, we hope aggressive easing will trigger a rebound in activity, but inflation will stay low through the entire forecast period.”
…
https://www.businessinsider.com/fed-rate-cuts-2024-outlook-us-economy-unemployment-inflation-recession-2023-12
“Shepherdson estimated that the jobless rate would peak around 5.5% in early 2025, up from 3.7% now. Inflation and GDP are also likely to be lower than what the Fed forecasted.”
I tend to discount forecasts that make predictions without any precedent. If someone can find a historical example that I missed of US unemployment rising off a low base up to a peak level of 5.5%, then I stand corrected.
Good luck!
Finance · Analysis
National
Nearly Half of Office Loans Now Risk Default: Report
More than 1 in 10 commercial real estate loans overall are on the precipice heading into 2024, according to the National Bureau of Economic Research
By Brian Pascus December 18, 2023 4:02 pm
Minneapolis had the largest level of CRE distress of primary/gateway markets at 51.5 percent.
Photo By Raymond Boyd/Getty Images
The outlook is ugly, and the numbers are even uglier.
A new paper from four economists at the National Bureau of Economic Research argues that 14 percent of the $2.7 trillion commercial real estate loan market — and 44 percent of office loans — currently carry outstanding loan balances higher than property values and are at risk of immediate default.
The paper also calculated that a 10 percent default rate on all CRE loans could trigger up to $80 billion in bank losses and dozens of potential bank failures. On the brighter side, however, the authors argued interest rate declines engineered by the Federal Reserve could stave off further distress.
Authored by Erica Xuewei Jiang of the University of Southern California, Gregor Matvos of Northwestern University, Tomasz Piskorski of Columbia, and Amit Seru of Stanford, the economic study analyzed 35,253 outstanding loans totaling $825 billion in aggregate value from the December 2023 CMBS market using data from DRBS Morningstar.
The economists found that while the average CRE loan was underwritten at a 61 percent loan-to-value (LTV) ratio, 29 percent of outstanding CRE loans — and 56 percent of office loans — currently hold LTVs higher than 80 percent. That means the property value behind the loan has declined from the underwritten value by at least 19 percent, thus creating likely refinancing challenges in the event of further property value declines.
Even more concerning, the economists found that 14.3 percent of all loans, and 44.6 percent of office loans, presently exceed the current property value underlying the loan, meaning the LTV exceeds 100 percent and the loans are at risk of imminent default.
“We tried to assess how big the issue of CRE distress is, so we quantified how many loans are underwater, and because of the decline in property values, the outstanding debt is more than current value,” Piskorski told CO. “I’d say that 14 percent [of loans in negative equity] is a reasonable number, and that doesn’t mean all loans will necessarily default, but there will be potential workouts and it very much depends on the interest rates path.”
The economists also studied the debt service coverage ratios (DSCR) to further quantify the current health of the CRE loan universe.
The study found that lenders originated the average CRE loan at a 3.97 percent interest rate, but today an average refinancing rate would rise to 6.71 percent. (For office loans, the average rate jumps to 7.42 percent.) And while the average CRE loan was underwritten to achieve a healthy DSCR of 2.3 (2.7 for the average office loan), today approximately 6.4 percent of all CRE loans (and 6.6 percent of office loans) have DSCR less than 1, indicating that cash flow cannot support underwritten debt service.
If these same loans were asked to refinance today at the current interest rate of 6.71 percent, a whopping 17.2 percent of all CRE loans (and 24.3 percent of all office loans) would not be able to pay their obligations, as their DSCR would be less than 1.
“The DSCR situation is very important, so we look at how many loans there are where net cash flow can’t cover the loan balance, and we see what happens if they have to refinance to current rates,” explained Piskorski. “A good chunk comes to maturity in the next few years, and if rates remain elevated, of course, the cash flow situation will deteriorate.”
Commercial banks are the most at risk when it comes to impending maturity defaults.
Commercial real estate loans account for $2.7 billion in U.S. bank assets in the aggregate, according to the report. A 10 percent industry-wide default rate of CRE loans would cause roughly $80 billion in commercial bank losses; a 20 percent industry-wide default rate of CRE loans would lead to $160 billion in bank losses.
“While the above losses due to CRE distress are an order of magnitude smaller than the $2 trillion decline in bank asset values associated with higher interest rates, they would increase the insolvency risk on a substantial set of U.S. banks,” according to the report. “We find that additional 231 banks with aggregate assets of $1 trillion would have their marked-to-market value of assets below the face value of all their non-equity liabilities.”
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https://commercialobserver.com/2023/12/report-44-office-loans-14-of-all-cre-loans-risk-default/
The stories coming out of China are insane. The stories they report are similar to investors’ stories of losing it all in the 1929 crash, except it’s real estate and not stocks. China is likely in a depression at this point it seems, I wonder how bad it really is
Not to worry, as what starts in China, stays in China…just like Covid-19 did.
When all else fails, start a war
Shudder…
Is it wrong to feel fearful when the bulls are fearless?
https://www.axios.com/2023/12/18/vix-fear-volatility-lowest-pandemic