🤯 $2 Quadrillion Held By Banks in Derivatives & New Home Sales Gain!
Jordan Dove's Market Pulse for the week of November 28, 2022
HOME SALES GAIN
MORTGAGE RATES DIP + APPLICATIONS UP
BANKS HOLD OVER $2 QUADRILLION IN DERIVATIVES
“I think therefore I am.” (“Cogito, ergo sum”) — René Descartes, French philosopher.
After reading JD’s Market Pulse, you will know more about the real estate market and economy than 90% of the United States. Congratulations!
ANOTHER WINNER... Stocks scored their second weekly gain in three, as economic growth concerns took a back seat to positive economic reports and encouraging minutes from the Fed's last meet.
The minutes revealed: "a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate." This supported hopes the Fed would dial back to a half percent hike in December.
Disappointments came with higher jobless claims and lower preliminary reads on manufacturing and services. But New Home Sales, Durable Goods Orders, and University of Michigan Consumer Sentiment all beat estimates.
The week ended with the Dow UP 1.8%, to 34,347; the S&P 500 UP 1.5%, to 4,026; and the Nasdaq UP 0.7%, to 11,226.
Bonds experienced a positive week, UP 1.0% overall , the UMBS 5.5% UP 0.13, to $100.27. The national average 30-year fixed mortgage rate edged down after its big plunge the prior week in Freddie Mac's Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
New Home Sales surprised to the upside in October, increasing 7.5%, to a 0.632-million-unit annual rate. Sales are still down a bit from a year ago, but it looks like market activity might be beginning to stabilize.
The median sales price of new houses sold in October 2022 was $493,000. The average sales price was $544,000. The seasonally-adjusted estimate of new houses for sale at the end of October was 470,000. This represent a supply of 8.9 months at the current sales rate (strong buyer’s market).
The inventory of completed homes has started to rise, and this additional inventory is helping a decelerating trend in home prices. Also helping affordability, mortgage rates recently dropped about 50 basis points (0.50%).
That drop in mortgage rates is driving up demand, as mortgage applications were up 2.2% for the week ending November 18 after booking a 2.7% gain the prior week. Even refinance demand increased 1.5% for the week.
DID YOU KNOW… Realtor.com reports active inventory keeps growing and is now 45% ahead of where it was a year ago. Buyers are getting more choices as well as more time to choose, since homes spent eight more days on the market than this time last year, and that time only appears to be increasing.
READY FOR THE UPCOMING REAL ESTATE OPPORTUNITIES?
Federal Reserve Governor Christopher Waller said Wednesday he’s open to reducing the level of interest rate increases to half a percentage point in December. “But I won’t be making a judgement about that until I see more data,” he said at a speech in Phoenix, where he also vowed not to be “head-faked” by an encouraging inflation report last week.
The collapse of the crypto exchange FTX will be the subject of a hearing in Congress this week — one of what’s likely to be many public inquiries into what went wrong at the entity founded by Sam Bankman-Fried.
The Senate Agriculture Committee will hold a hearing Thursday at 10 a.m. featuring testimony from Rostin Behnam, chair of the Commodity Futures Trading Commission. The panel is headed by Sen. Debbie Stabenow, a Michigan Democrat, who has co-sponsored legislation that would give Behnam’s agency regulatory power over the crypto industry. Sen. John Boozman of Arkansas, the agriculture committee’s top Republican, is also a sponsor. It appears crypto is heading towards federal regulation.Deutsche Bank sees 2023 recession, with markets plunging about 25%. The financial institution stated in client note, “We see major stock markets plunging 25% from levels somewhat above today’s when the US recession hits, but then recovering fully by year-end 2023, assuming the recession lasts only several quarters.”
For Q1, the bank believes that the bear market rally should continue. Turning to Q2, markets should remain mostly flat to slightly lower as recession fears build.
The third quarter of 2023 is where Deutsche Bank sees recessionary factors kicking into gear. In this environment, the firm projected that markets will most likely be “down significantly,” with the S&P hitting 3250. As for Q4 of 2023, the firm sees a quick recovery, with the major averages bouncing back from the recession lows.In other banking news, banks are leveraged (over leveraged?) with $2 QUADRILLION dollars in derivatives. This is the total notional value (not market value) which is the total amount of a security’s underlying asset at its spot price. The notional value distinguishes between the amount of money invested and the amount of money associated with the whole transaction. The value is calculate by multiplying the units in one contract by the spot price.
For example, assume an investor wants to buy one gold futures contract. The futures contract costs the buyer 100 troy ounces of gold. If gold futures are trading at $1,300, then one gold futures contract has a notional value of $130,000.To plan for the future, one has to take into account all the liabilities and tally them with assets to see whether they balance and only when they do should one consider his or her position financially sound. In conclusion, debt comes due someday or the other and hence all sectors and all level of the economy must be prepared for the financial reckoning ahead. This is something we should be keeping our eyes on.
30 Year: 3.753% -15.5bps
(Last week: 3.908%)
10 Year: 3.711% -12.9bps
(Last week: 3.84%)
5 Year: 3.899% -12.7bps
(Last week: 4.026%)
2 Year: 4.473% -9.2bps
(Last week: 4.565%)
Note: The 2 year and 10 year spread (as shown below) is currently at a 76.2 basis point spread. This is abnormally large. Historically, larger 10y/2y spreads indicate a harder, longer recession. This is the largest spread since 1981.
Market activity was scarce during the Thanksgiving week as only 396 properties traded hands and we saw a massive reduction in price decreases (-54.53%) compared to one month ago. It appears that prospective home buyers and home sellers took a breather this week to take part in Thanksgiving festivities. We hope you enjoyed your Thanksgiving!
The Thanksgiving week is pretty normal to be known as a “stall week” and we will have to see how the housing market reacts in December to get a better picture. Typically, home sales pick up in December and trend down until we hit the hottest time of the real estate season - spring (April-June).
Southern Nevada Absorption Rate dips into the 17%s with slow Thanksgiving week
Current Rate:
17.39%
The current absorption rate for the Southern Nevada market the past four weeks is 17.39%, down 163 basis points (1.63%) from last week's absorption rate. This is the sixth consecutive week that the Absorption Rate Figure (ARF) has remained BELOW the 20% mark.
This marks a decrease in the ARF in 14 of the last 18 readings (downtrending).
A market with an absorption rate at or above 20% is typically called a seller’s market, whereas an absorption rate below 15% signals a buyer’s market.
Each week we will update the current median price for the current month. Keep in mind the majority of sales occur at the end of the month, so official numbers will be published on the first Monday of each month. Current median prices are calculated from 1,646 closed listings on the MLS (as of Mon. Nov. 28, 22)
Currently for the month of November 2022
Single Family
$429,900
-$10,100
Down from October of $440,000
May, 2022 ATH: $482,000 (-10.81%)
Condo
$229,500
+$3,000
Up from October of $226,500
May, 2022 ATH: $250,000 (-8.20%)
Townhomes
$315,000
-$10,000
Down from October of $325,000
May, 2022 ATH: $358,000 (-12.01%)
An expected decline in inventory as Thanksgiving week gave us a break on housing. This week marks the 7th time in 9 weeks that inventory shows a weekly decline in housing inventory (SFR, CON, TWH, MULTI, MAN & HIRI).
Inventory remains below the 11,000 support level for the third time as since the August 29, 2022 reading as the market transitions into the slower time of the year for real estate transactions.
The chart below shows total available inventory to total weekly closed sales week-by-week. (Last updated November 28, 2022)
As of November 28, 2022, there are currently active (%’s versus 1 weeks ago):
7,921 Single Family Homes (-143) -1.77%
1,029 Condos (-20) -1.91%
743 Townhouses (-9) -1.19%
319 Manufactured Homes (-7) -2.15%
409 High Rise Units (-15) -3.54%
86 Multiple Dwellings (-1) -1.15%
2,685 Parcels of Land (-2) -0.07%
3,803 Rentals On Market (+13) +0.34%
Past Seven Days Market Watch (%’s versus 4 week ago):
430 New Listings (-319) -42.59%
151 Back on Market (-53) -25.98%
35 Price Increases (-41) -53.95%
652 Price Decreases (-782) -54.95%
478 Accepted an Offer (-132) -21.64%
396 Sold (-134) -25.28%
132 Expired (-15) -10.20%
324 Taken Off Market (-156) -32.50%
29* properties are coming soon (-18) -38.30%
This week, there are 197 less active residential resale properties on the market compared to one week ago for a total of 10,507 (-197), a decrease of 1.84%.
*Properties coming soon do not indicate all of the upcoming properties. These are listing that are entered into the MLS prior to list date.
CHECKING PENDING HOME SALES, CONSTRUCTION SPENDING, INFLATION, MANUFACTURING, AND JOBS… Expect October Pending Home Sales to recede, though less than the month before. Construction Spending is forecast off, but we'll look at the residential part. The Fed's favorite PCE Prices inflation measure should still head up, but Personal Spending is predicted to show consumers are staying in the game. The ISM Manufacturing Index is expected to be in contraction territory, but Nonfarm Payrolls should post a moderate gain.
While there are many financial perks to owning a home, there are also powerful non-financial benefits to consider if you’re thinking about making a move.
Homeownership allows you to express yourself, gives you greater privacy and comfort, enhances your connection to your community and loved ones, and is an achievement to feel proud of.
Let’s connect today to discuss all that homeownership has to offer.
Forecasting Federal Reserve policy changes in coming months. Wall Street expects the Fed to hike the rate by a half percent in December and February, followed by a quarter percent bump in March. Note: In the lower chart a 100.0% probability of change is a 100.0% probability the rate will rise. Current rate is 3.75%-4.00%.
AFTER FOMC MEETING ON: CONSENSUS
Dec 14 4.25%-4.50%
Feb 1 4.75%-5.00%
Mar 22 5.00%-5.25%
Probability of change from current policy:
AFTER FOMC MEETING ON: CONSENSUS
Dec 14 100.0%
Feb 1 66.0%
Mar 22 50.6%