All Things Economic

@2much , I know you know the auto business …but do you really see cars dropping in price 50% . My son is waiting for a drop he wants to buy a new car.

"In a year or two, people still be buried in negative equity and unable to escape it. I would expect current car values to drop more than 50%."

Before the crash in 2008 I was managing a car dealership. We had a couple come in to trade in a 3 year old Escalade.

They owed $35k more than the car was worth from rolling negative equity on several deals in a row.

MAYHEM

I don’t think it’s people convincing themselves that cars are too complicated, but rather they are conditioned to believe cars are too complicated.

It starts when they first buy the car. Once you say yes to the purchase, the salesman writes up the deal, and brings it to the desk. A few minutes later, here comes the Business Manager with your deal to “Double check a few things before finalizing everything “ . And they will pick a couple lines to verify to make it look good, but that’s not why they are there at all. They are there to tell you how complicated cars are now, and sell you an extended warranty .
You also have Chris Biermann and Ice-T on TV saying the exact same thing schilling for Car Shield.

Then should you ever have a check engine light come on, any repair shop is going to charge you $80-$150 to do a 2 minute scan, because cars are so complicated that they had to buy a $30k diagnostic tool. When in reality, you can go to your friendly auto parts store and have it scanned for free.

Valid points Mayhem. While the housing bubble is in the news; I believe the car market crash will affect more people since a lot more cars are sold each year than houses and those who are paying a premium for new and used cars now are going to see a massive drop in value once new car production returns to normal.

In a year or two, people still be buried in negative equity and unable to escape it. I would expect current car values to drop more than 50%.

~Scamp

@8-Inch

While some areas experienced continued "sales increases" in recent months, some of this is due to sales volume increases (total value of sales). Looking back to the beginning of February it's clear that numbers of homes sold nationally have declined - down 7% in February. This is most likely due to reduced numbers of buyers qualifying for record high home prices (and hence mortgages) at higher rates.

I would expect that the market will lock up when people in general expect that the market has peaked. Traditionally there is a period where transactions don't happen (massively decline anyway) because buyers are waiting for better prices and sellers are unwilling to recognize that their perceptions of the value of their properties are no longer realistic.

While it's not a direct analogy it's a telling one, to consider that in commercial real estate, when expected returns (Capitalization rates) on investment rise from say 5% (where a premium property might sit now) to 7%, the price of the same property needs to decline by nearly 30% to compensate. The biggest driver of changing "CAP" rate expectations is interest rates moving (up or down).

Housing isn't the only market people are seeing these crazy prices. People are paying around $60K for new full sized 4x4 pickups these days, and from what I understand, they can't keep them on the lot. Of course with all the parts shortages, manufacturers aren't pumping out enough, which helps fuel the feeding frenzy.

My rough model of car cost per year is about $1000, not including maintenance. If I bought a used car for $4-5K I'd usually get 4-5 years out of it. If you buy one of these new pickups and sold it after 5 years, you'd take about a $20K hit, if you were lucky. That's 4x what I'm paying. These days I might be closer to $2K a year, but it's still half the hit of someone buying new. You'd have to keep that $60K pickup for 30 years to meet that model.

I'm fortunate that I have the knowledge and tools to wrench my own vehicles, so that $800 brake job that some may pay cost me closer to $200 and less than 2 hours of my time.

Most people are more willing to pay someone than to learn the skills needed to do things themselves. They convince themselves that cars are way too complicated to work on anymore, which is more of an excuse than a reality. That attitude is however more of the norm these days though.

Amazing home sales in GA and builders cannot build them fast enough.. just down the road from where we live in GA the are building 2 communities that start over 1 million.. amazing! They ARE NOT slowing down or stopping...

We have tripled our appraised value and get offers to sell weekly as we are only one of 17 homes over looking a lake... but moving is crazy as home sales soar in GA and FL where we like to be on the west coast!

Here in the Charleston area it's the same. I used to get 4 or 5 houses popping up on my search every day and now it might be 3 a week. When they do pop up, they are sold same day or next and for typically about 10% over asking and asking prices are entirely too high. It's nuts. Interest rates has to kill home buying imo. The good news is rent is up about 30+% around here. I also seem to be seeing a better bunch of people applying for rent. I imagine that's not necessarily a good thing for the economy but it is for me.

From what we have been experiencing here in eastern Tenn. is that as soon as homes come on the market they are gone. Mostly bought by people getting out of the NE and California because of crazy taxes and politics. When we sold our last house back in July, we had 15 showings the very first day and 8 over asking price offers. Sold for a cash deal to a couple from California. We lucked out on the house we bought as it hadn't hit the market yet and our realtor had us look at it first. Made an offer below asking price and they accepted. Didn't have to compete with anyone else.

Yeah, but I was referring to re-sales of already built homes, not materials and builders.

Will the ppl in the market to buy continue buying or hold back til the rates decline?

I stayed in Hostels oversees, never know who will be in the bed next to you or above you...A sexy semi nude young chick above me in Stockholm..25 to 30 bucks...back some ago...

Home sales have declined National builders are only working on the back log of sold homes.
it will be more noticeable the end of the next 1/4,

Those in the Economy, Banking or Real Estate "know"....

Do you guys believe these hikes causing home loan rates to rise will affect home sales? Not a bubble burst, but will home sales slow?

Asking for a friend.....

The fed approved a .25% bump March 16th.

The committee has discussed 7 hikes this year totaling 175 basis points.

ww w.cnbc.co m/amp/2022/03/16/federal-reserve-meeting.html

~Scamp

Holy crap! Missed that report somehow. 750,000 jobs is a huge number! Half of that is an extremely robust number.

I would agree that at least one 50 basis point bump is probably coming, and might have happened in March if it weren't for the Ukraine situation..

Lots of point/counterpoint in the media on the existence of a housing bubble after that report from the Dallas fed. I'm squarely on the "there is definitely a bubble" side. Though I think that will take probably a year or so to pop. Unlike mortgages that pretty much immediately follow bond yields, markets are sticky. People get it in their heads that their house is worth 2x or 3x what they paid for it and even though they would be "laughing" if they sold for 70-90% of that amount, they would see that as a capitulation. Their attitude as sellers becomes "step up". The attitude of buyers, expecting a correction, or at least seeing a clear peak in prices, becomes "get real". So the market locks up and transactions don't happen for a period. The "no bubble" crew points to the fact that inventories of homes for sale are still near historic lows. However, given that sales volumes have already cratered due the roughly 150 basis point jump in average mortgage rates over the last two months, I expect inventory volumes will increase over the spring listing season. There just aren't nearly as many people who can take on a massive mortgage at 4.67% (still, historically, extremely low) compared to right around 3.2% in January.

WASHINGTON, April 1 (Reuters) - U.S. job growth continued at a brisk clip in March, with the unemployment rate falling to a new two-year low of 3.6% and wages re-accelerating, positioning the Federal Reserve to raise interest rates by a hefty 50 basis points in May.

The Labor Department’s closely watched employment report’s survey of establishments showed that nonfarm payrolls increased by 431,000 jobs last month.

Data for February was revised higher to show 750,000 jobs added instead of the previously reported 678,000. Economists polled by Reuters had forecast payrolls increasing 490,000. Estimates ranged from as low as 200,000 to as high as 700,000.

The unemployment rate dropped to 3.6%, the lowest since February 2020, from 3.8% in February.

Numbers out from Europe today . 11.9% inflation with food , oil and gas leading the way . My hotel for next month is 145 .00 eu or just over 160.00 US . Still a bit of a bargain . Enjoy location and breakfast.

"I agree if it's your money."

Well, it pretty much has to be. That the difference between grifting and carpe-ing.

"TL:dr: Carpe diem is a perfectly valid way to live."

I agree if it's your money. I played golf, gamed for 24 hours straight at times, worked on my tan, and got buff on an 18-month vacation after a layoff. It only ended because the money ran out. The choice I then had to make between being homeless and getting a real job led me to the field I'm in today 22 years later. I now own my own company, work at most 8 hours a week, and enjoy a similar lifestyle as I did back then.

If it's NOT your money, then you're taking advantage of someone. If you're a parent, I think it would be hilarious to watch "Failure to Launch" with your kids, then start charging them room and board at market rates. I'd imagine they'd either move out to preserve their lifestyle, or work more. Either is a win imho.

HotLuvrs - " ...then he can go back to playing Fortnite for a few more weeks."

Yeah, because he doesn't need to worry about paying for rent, utilities, groceries, etc ;-) This has little to do with economics, but you have to wonder if at some point way down the line if the people so heavily invested in video games will look back with any sort of regret for essentially having wasted a large portion of their life on games.

MSMOLLY

You, checkered?

SAY IT AIN"T SO!

"A lot of the 20 to 30 yr olds we meet are similar. They work for a few weeks until they have what they want, then they quit, knowing that there will be a job waiting for them somewhere else."

I'm holding a party on my lawn, all ages welcome. My younger child is a performer who wants to make a living from their art without having a side gig. Not sure how realistic that is, but I'm supportive so long as the bills are paid. In answer to my ex-husband's concerns, I reminded him that I spent my time up until the year we got married working really hard for 1.5-2 years and then quitting and not getting a new job until my savings were exhausted. I've had an interesting if somewhat checkered life and have never had any difficulty finding work, no matter how tight the labor market was.

TL:dr: Carpe diem is a perfectly valid way to live.

8Inch,

The problem with my son is not that he can't find a job. The problem is that he can find work so easily. He doesn't have to plan or work hard, or even comb his hair. When he wants money, he opens up his computer, writes code for a few days, and then he can go back to playing Fortnite for a few more weeks.

The abundance of jobs is usually a good thing. Employers of entry level jobs now have to treat employees better because they risk losing (or not even getting) them if they don't. There was a time where unskilled labor had little value. The mindset was that they could always replace you on a whim if need be. At least for now, that's not the case.

Unfortunately the current situation can propagate a feeling of entitlement in employees that are already biased that way. A better balance is when employees appreciate their job because jobs aren't as plentiful and employers respect their employees, and reward them for a job well done.

My wife used to work retail and she has seen employers suffering through poorly performing workers because they can't get people to replace them. In a number of cases, a poorly performing employee is better than no employee at all.

So, to summarize, anyone under forty is likely to not remember a time of job scarcity. The smorgasbord of unskilled positions paying well above minimum wage seems unlikely to be permanent to me. If so, it will definitely be a cultural shock to a generation I already view, as a member of the "get off my lawn' generation, as possessed of an overly entitled world view.

@Meadis: I think it's too late for central bankers, particularly ours, to avoid a recession by tightening (aka a "soft landing"). They seem to now be reacting - far too late IMO - to massive inflation caused by more than a decade of stimulus. The option they are left with is "taking away the punch bowl" or inducing a recession to curb inflation. This is something that usually comes too late because both Wall Street and political policy makers universally hate to take away the punch bowl. The bubble blowers at the Fed appear to be finally waking up to the damage they've done. Or at least stirring in their sleep. While not admitting that they have created a housing bubble just yet, the following statement came from a Fed research report the other day:

"Our evidence points to abnormal US housing market behavior for the first time since the boom of the early 2000s,...Reasons for concern are clear in certain economic indicators ... which show signs that 2021 house prices appear increasingly out of step with fundamentals."

This may be just a researcher and not a Board member let alone Chairman, but the language is uncannily similar to Greenspan's "Latte" speech in 2005 where he assured us there was no housing bubble but merely local pockets of "froth". It took two years from that speech for the shit to hit the fan and a further year for the coyote to figure out there was no road under his feet anymore.