We’re not just getting another rate hike from the Fed this week. We’ll also get them from the ECB (50 bps expected), BoE (50bps), SNB (50 bps), the Norges Bank (25 bps) and central banks in Taiwan (.125%), Philippines (50 bps), Mexico (50 bps)and Columbia (100 bps).
At the same time we debate where private real estate entities should mark their portfolios each month, I read in Barron’s over the weekend data from Forge Global “which runs a marketplace for secondary trading of shares in pre-public venture backed companies.” According to the Forge CEO Kelly Rodriques, “in the first two months of the fourth quarter, the average transaction on the platform has been done at about a 50% discount to the last fund-raising round.” Being private doesn’t insulate one’s portfolio from reality.
What to do with all those new homes you’re building and your potential customer base of families that would live there are now challenged by affordability? Sell them to investors who are in the single family rental business. On Friday Bloomberg reported that “Lennar is offering to sell thousands of homes to rental landlords at a time when sales to everyday buyers have slumped.” The article went on to say, “Lennar is circulating lists of properties to potential acquirers, according to people familiar with the matter, who asked not to be named because the process is private. Many of the properties are located in the Southwest and Southeast, the people said, with the builder giving landlords the chance to acquire entire subdivisions in some cases.” I guess that’s a way to clear out excess inventory.
As of Q3, the US homeownership rate was 66%. It hovered around 64% in the ten years leading into 1995 and then took off, reaching a peak of 69.2% in June 2004 as the housing bubble really start to inflate. It bottomed at 62.9% in the implosion aftermath in 2016. The average going back to 1965 is 65.3%. I have to assume we might be on the cusp of heading back to that 64% level in coming quarters.
Homeownership Rate
If you’re in the market for a new car, Cox Automotive said your choices continue to improve. They said US inventory rose by another 150k vehicles in November to hit 1.61mm which is the most of 2022. That is up almost 80% from November last year but still remains under the pre Covid level.
The problem though for some is that prices are really expensive for cars/trucks and credit is getting tougher to come by. Cox also said on Friday that “Access to auto credit tightened sharply in November, according to the Dealertrack Credit Availability Index for all types of auto loans…The decline in access reflected conditions that were tightest since October 2021…All credit availability factors moved against consumers in November as the approval rate declined, yield spreads widened, the subprime share declined, terms shortened, and the share of loans with negative equity declined.”
With the high sensitivity to the cost of money, first it was a slowdown in the pace of housing transactions and now we’re seeing it in auto’s, the bright spot for many industrial companies in Q3 as those inventories were being rebuilt.
Dealertrack Credit Availability Index
While longer term bond yields in the US, Europe and parts of Asia have backed off their highs, the Japanese 10 yr JGB yield still remains stuck at .25% which tells us that the artificial suppression of YCC still really matters. It matters in terms of keeping it no higher than .25% and implies that if the policy changes, it’s going higher when it does. Japan is seeing north of 3% consumer price inflation and today they reported October PPI which rose by 9.3% y/o/y, 5 tenths more than expected. The weak yen just makes it that much more expensive to import goods, particularly their energy needs. This said, hopes that it is peaking has the 10 yr inflation breakeven unchanged today.
Japanese PPI y/o/y
China reported its November loan data which at 1.99T yuan was a touch below the estimate but M2 accelerated to 12.4% vs the forecast of 11.7%. Lending to home builders have picked up sharply over the past month in order to buy them time and the impact from a broader reopening is of course ahead of us. It wasn’t until this reopening that the opening of the credit spigots, AGAIN, would actually have an impact as you can bring a horse to water but… After the massive run of late, Chinese stocks took a breather overnight. Again, I believe the best way to play the China reopening is via travel, leisure and energy (we mostly like the European oils and US natural gas stocks).
The only thing of note in Europe was the October UK GDP data which was a bit better than expected, rising .5% m/o/m after the .6% decline in September. The September data was depressed in part due to the Queen’s funeral and the days of mourning surrounding it. Manufacturing and production also helped to lift GDP. Either way, the UK economy is in a recession and the BoE this week will be hiking again into that. The Chancellor of the Exchequer Jeremy Hunt acknowledged that today by saying “While today’s figures show some growth, I want to be honest that there is a tough road ahead.” His tax hikes are only making that road more slippery. Gilt yields are lower as are stocks but the pound is up. UK assets remain cheap but cheap for a reason.