The Crisis Offered Life-Saving Lessons, Including That Arrogance Always Kills

A weekend topic starting with the Globe and Mail. “Jerome Powell and his colleagues at the U.S. Federal Reserve placed their bets this week with an oversized half-point cut to interest rates. Amid considerable uncertainty about the direction of the economy, they put their faith in a Goldilocks scenario of continued growth but tame inflation. The Fed’s stated position is that inflation is under control and it now wants to ensure the economy doesn’t slide into recession. Yet while the economy is clearly slowing and inflation has come down, it’s still not clear either that inflation is definitively beaten or that a recession is imminent. On the face of it, a half-point cut suggested it judged the risks to the economy greater than those to inflation. Yet in his remarks at the news conference that followed the meeting, Mr. Powell insisted the labour market was looking pretty healthy and the economy was ‘in a good place.’ Which raised the question of why they cut so aggressively. After all, other central banks are moving with caution. For now, with U.S. asset classes in full-on rally mode, investors seem to have concluded that the Fed is back on their side and sees its role as keeping them happy.”

Consumer Affairs. “A study by Lane Surety Bonds asked over 1,000 homeowners about their perspectives about homeownership and found many say they have to make sacrifices each month so they can pay their mortgage. The survey found that: Nearly one in three homeowners consider themselves ‘house poor.’ One in eight homeowners pays over 50% of their income toward their mortgage. 27% of homeowners live paycheck to paycheck, due to housing expenses, and 40% rely on side jobs to make ends meet. 22% of homeowners have skipped paying other bills to cover home expenses, and more than one in eight (14%) have had to forgo medical care. 46% of homeowners can’t afford necessary home repairs and upgrades. Nearly one in five homeowners (18%) can’t afford groceries after covering home expenses.”

North Dakota Monitor. “There were 21 states where a majority of tenant households spent 30% or more of their incomes on rent and utilities last year, compared with just seven states in 2019. ‘You’ve got people across the state kind of pulling their hair out, saying ‘I thought Arizona was supposed to be the affordable state,’ Alison Cook-Davis, associate director for research at Arizona State University’s Morrison Institute for Public Policy. Rents in Arizona have shot up 40% to 60% in the last two years, she said. The Las Vegas area had the highest percentage of cost-burdened renters in the state, at 58.3%, more even than the New York City metro area (52.6%) or San Francisco metro area (48.9%).”

“The states with the highest jumps in the share of cost-burdened renters were Florida, which increased to 61.7% from 55.9%, and Maine, at 49.1% from 44%. That jump left Florida as the state with the highest rate of cost-burdened renters. It was followed by Nevada (57.4%), Hawaii (56.7%), Louisiana (56.2%) and California (56.1%). ‘Florida isn’t the deal it used to be,’ said Christopher McCarty, director of the University of Florida’s Bureau of Economic and Business Research. ‘Florida still has disproportionately lower-paying jobs compared to other states, and rents are increasing compared to other states as well.'”

Committee For The Abolition of Illegitimate Debt. “Federal Reserve Chairman Jerome Powell started to give clear signals that the central bank will cut its interest rate at its September meeting. Powell then went on to claim that inflation had come down without a recession in the US economy because of the Fed’s monetary policy. Powell continued to push the narrative that it was the central banks’ ‘restrictive monetary policy’ that did the trick by ‘moderating aggregate demand.’ Powell also reiterated the myth that central bank monetary policy helps to ‘anchor inflation expectations’ which, it is claimed is key to controlling inflation. But again this is nonsense, as recent studies have clearly shown that ‘expectations’ have little or no effect on inflation.”

“As Federal Reserve economist Rudd recently concluded: ‘Economists and economic policymakers believe that households’ and firms’ expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case can be made that adhering to it uncritically could easily lead to serious policy errors.'”

From Mises.org. “Can you understand how it can be that the Federal Reserve, the world’s greatest and by far most important central bank, has now lost the astounding sum of $193 billion?1 If not, you are surely not alone. Since September 2022, the Fed has lost money every month. These unprecedented losses continue, and this fall they will in the aggregate pass $200 billion. We can accurately say that the Fed prints power by printing money. The Fed does not want little things like $200 billion in losses to shake your belief—like the Wizard of Oz, it tells you, ‘Pay no attention to that man, or those losses, behind the curtain!’ It puts its losses behind an accounting curtain that pretends that losses are an asset.”

The New York Times. “The nearly 800 beds at Atlanta Mission’s network of homeless shelters have long been filled to capacity. Since the pandemic, Tensley Almand, the organization’s CEO, has noticed a clear shift in who is using them. Instead of going to chronically homeless individuals, the spots are increasingly being taken up by people who have lost their housing for the first time. Many have jobs but are simply failing to make ends meet. ‘The stories that we hear from our clients: ‘Rent went up. I couldn’t make it,’ he said . ‘The number of people underemployed right now, we hear that over and over. They’re just not employed at a level that keeps up with their costs. We’re seeing people who, there’s more month than there is money.'”

“In Houston, Edison Lamsal, 32, has been waiting for years to buy. But he and his wife held off as rates and prices marched up. Now, it feels like the time. Lamsal, an engineer by training, has been doing well financially. He and his wife are under contract to buy a new construction house for $455,000. That’s far more than the $290,000 that the same house was selling for at the end of 2020, Lamsal said, but more moderate borrowing costs made him willing to stomach the amount. ‘It’s slightly coming down, so I decided it was time to buy,’ he said.”

The Wall Street Journal. “In Florida, lower rates already have benefited homeowners such as Curtis Sponsler, 61, who has hit a rough patch in his work as a freelance animator. With rising costs for property insurance and groceries pressuring his finances, Sponsler and his wife, whose children recently left for college, have been looking to leave Miami and downsize to a smaller home. ‘We just can’t afford it,’ he said of his current house, which the couple bought with a 3.25% mortgage. ‘Every month we look at our spreadsheet and ask: ‘Where does all the money go?’”

“In recent weeks, however, they entered a contract to sell for almost double the price they paid in 2017. The couple are using the profit to put 80% down on a less expensive house in Orlando. They plan to finance the rest through a mortgage with 5.5% interest—far lower than the market rate just months ago. ‘We’re really lucky,’ said Sponsler, who added that his monthly payment should fall by more than half. ‘But I do know so many people for whom the interest rates are killing them.'”

From CBS News. “Evelyn Lueker, sales associate at Auker Group in San Diego, California, told us she recently helped a family save $150,000 on a home purchase. In this instance, she found the perfect home for her buyer — but it was overpriced. So, she built a strong relationship with the listing agent by conveying the value of working with her. After establishing the relationship, Lueker learned about a pending price drop before anyone else. As a result, she was able to get her client’s offer accepted within 24 hours of the price reduction — beating out other potential buyers.”

“Many homebuyers are waiting for lower interest rates because they think that’s the right move. But this waiting game could backfire. ‘As rates come down, so will supply. Prices and demand will inevitably go up,’ says Lueker. That’s why she advises against counting on a rate drop — it’s better to buy a home you love now, even if the interest rate isn’t ideal. Remember: You can refinance later if rates drop, but you can’t go back in time to buy a home you missed out on.”

The New York Post on California. “Jim Carrey’s Los Angeles home has just taken another punch in the gut. The Hollywood funnyman, 62, slashed the price of his property there for the fifth time, now seeking $19.75 million as of this week — down from its original $28.9 million, The Post has learned. That’s a $9.15 million cut over the course of nearly two years. So what’s holding buyers back? Many point to LA’s new mansion tax — a 5.5% levy on homes over $10 million. ‘The market’s tanked ever since that tax went into effect,’ one broker told The Post. ‘These multimillion-dollar homes are just sitting there, and sellers are scrambling to cut their losses.'”

From Vail Daily. “A stagnant Colorado housing market could benefit from what is expected to be a series of ongoing cuts to the federal interest rate. In mountain resort communities that see high demand for vacation homes, the average number of days on market for a listing has increased from last year, according to county-level reports from the Realtors association. Listed properties in the state’s 2nd Congressional District — home to resort communities like Summit and Eagle counties — have seen an average increase of nearly 19%, for example. ‘In some neighborhoods we have homes that have been on the market for 10 months,’ said Dana Cottrell, a mountain area Realtor and president-elect for the Colorado Association of Realtors.”

The Washington Post. “In August, Jonathan and Shannon P. became homeowners for the first time, closing on an updated Colonial with a spacious backyard and finished basement in Fredericksburg, Va., an hour from D.C. without traffic. The couple, who had been renting in Woodbridge, about 40 minutes closer to the District, had been saving and waiting for a promising window to enter the housing market. And while they perceived many buyers were waiting for interest rates to fall in September, as is widely anticipated, they wanted to avoid bidding wars that might drive prices up. As it happened, the dream home they bought was the second one they looked at. It had spent 12 days on the market without an offer, and they were able to negotiate down from the list price, securing a house they loved on their own terms. ‘I’m willing to make the commute,’ Jonathan said. ‘I didn’t want to sacrifice having a home that we absolutely love for a job.'”

“There are actually more condos on the market now than there were in 2019,’ Lisa Sturtevant, chief economist for Bright MLS, said. ‘Buyers should really make sure they are making the right choice for them and not jumping in because they think they have to get in,’ said. ‘Rates are going to come down next year, and inventory is going to increase. There’s always going to be homes for sale out there. So don’t feel like, ‘the market’s finally changing, I have to get in now.'”

“David Howell, executive vice president at McEnearne cautioned that while a number of regions around D.C. were building new condos to meet housing demand, the District itself was an outlier, with a large proportion of aging and less desirable condo inventory. While the supply of condos in D.C. appeared healthy, at around five months of inventory compared with four months for all homes, those numbers are misleading, he said. ‘Some things age like wine; condos in D.C. age like milk,’ Howell said. ‘Those values are not going to increase.’ In the real estate ‘frenzy’ of the pandemic-recovery era, he said, listed homes in the region would sometimes get 30 or 40 offers. ‘We’re not seeing that today,’ Howell said. ‘And so there’s opportunities for buyers with some patience to look at some of that aging inventory that has been sitting on the market.'”

The Dallas Morning News. “Home prices in Dallas-Fort Worth were flat last month, and sales fell slightly compared to last August despite big supply increases. However, recent mortgage rate drops and projected future interest rate cuts could make 2025 an exciting year for the housing market. Active listings hit 29,865 in North Texas, up 45% year over year. Months of housing inventory hit 4 months, the most since October 2012. The median price of a D-FW home did not move. It was almost $400,000. This figure includes existing single-family homes, condos, townhomes and other similar properties sold on the MLS last month.”

“Todd Luong, an agent with RE/MAX DFW Associates, said lower sales numbers in August could be the result of buyers waiting for interest rates to drop further. Affordability remains a concern. While buyers are staying on the sidelines, those who have decided to purchase are starting to see some friendlier terms. ‘I helped my buyer secure a property in Bent Tree, a popular neighborhood off the tollway. They’re offering $15,000 below asking price, and the seller has no choice but to take it. Buyers have a lot more bargaining power,’ he said.”

Insauga in Canada. “A detached house in Mississauga’s Port Credit neighbourhood that sold for $2 million in November 2021 just sold for significantly less than its pandemic-era purchase price. According to a listing on HouseSigma, a detached house with five bedrooms (two below-grade), two bathrooms, and a garage sold for $1,650,000 this month after initially being listed for $1,799,900. While the 97 Wanita Rd. house sold for quite a bit under asking–almost $150,000–the difference in sale price in just three years is significant. The house sold for $350,000 less than what it sold for about three years ago.”

Sydney Morning Herald. “The cost of home ownership took off – that is, began rising faster than household incomes – about the time I became a journo 50 years ago, and is still going. Even the (unlikely) achievement of Anthony Albanese’s target of building 1.2 million new homes by 2029 probably wouldn’t do more than slow the rate of worsening affordability for a while. Small problem: we end up with a country divided between those born into the wealthy, home-owning class and those born into the class where generation after generation has never been able to afford to own the home they live in. Is that the Australia we want to live in? How on earth did we allow housing prices to rise faster than household incomes for the past five decades, with little reason to hope this gap won’t get ever wider?”

From Morningstar. “Basic economics taught at school and revisited in first year economics at university, is overlooked when explaining the failure of Australia’s housing market to work effectively for Australians. The current difficulties confronting both monetary and housing policy partially stem from the explosion of mortgage debt. Therefore, what follows is my view on one of the least discussed but fundamental causes of the housing price bubble in Australia – and it flows from an understanding the basics of market price theory. Supply and demand obviously dictate the price of housing, but housing policy aimed at addressing affordability, needs to consider the perverse impact of debt. In particular, the availability and the cost of debt (mortgages) has fuelled a house price bubble.”

“Low interest rates, low deposit requirements and therefore the provision of excessive levels of mortgage debt have, over time, added to driving housing prices higher. Today, Australia has the most expensive houses in the world when measured against income. House prices have become unaffordable for many—particularly young families. I am not suggesting that debt and its cost is the sole cause of our great housing price bubble, but there is a lack of acknowledgement of their role. The lack of regulatory intervention in the mortgage market exposes the failures of the RBA, APRA, and Treasury.”

“Indeed, have any of these bodies acknowledged that our housing price bubble poses a serious risk to long term financial stability, social cohesion and if unchecked condemns future generations to a declining standard of living?”

From Fortune. “Sixteen years after Lehman Brothers’ collapse, Jefferies CEO Richard Handler has shared the email he sent to the bank’s former CEO, Richard ‘Dick’ Fuld, on the day the firm filed for the largest bankruptcy in U.S. history. In a series of Instagram posts over the weekend, Handler revealed the exchange with Fuld, which occurred just before Lehman’s fall sent the global economy into a tailspin. On September 15, 2008, when Lehman Brothers filed for bankruptcy with more than $600 billion in debt, Handler sent a final email to Fuld: ‘I am so very sorry for you and the special company that you built.’ Lehman Brothers, the 158-year-old bank that had survived the 1929 Wall Street crash, was deemed ‘too big to fail.’ At the time, Jefferies Group was a rising investment bank, with Handler having recently taken the helm. Reflecting on the collapse, Handler said the crisis offered ‘life-saving lessons,’ including that ‘arrogance always kills’ and ‘life will go on.'”