News

Landmark Links October 12th – Running out of Room

 

Must Read: A 5% mortgage isn’t high by historical standards but it will certainly feel that way to buyers who have become accustomed to borrowing at rates below 4%.  This is a big part of the reason why home price growth has slowed as have sale transactions, despite still-low inventory levels. This is a recipe for stagnation in the housing market as price gains will continue to slow, leading to less starts and fewer construction jobs – which will eventually become a drag on GDP.

I’ve been bearish on the mortgage industry going back to early this year as absolutely none of this bodes well for lenders as a huge portion of their business – refinances – are going away and a slower market will mean less purchase mortgage volume as well.  Christina Rexrode and Laura Kusisto at the WSJ spelled out just how ugly things are getting in the space:

And higher rates will likely kill off any lingering possibility of a refinancing boom, which bailed out the mortgage industry in the years right after the 2008 financial crisis. If rates hit 5%, the pool of homeowners who would qualify for and benefit from a refinance will shrink to 1.55 million, according to mortgage-data and technology firm Black Knight Inc.That would be down about 64% since the start of the year, and the smallest pool since 2008.

Higher rates will be hardest on first-time buyers, who tend to make smaller down payments than older buyers who have built up equity in their previous homes, and middle-income buyers, who can least afford the extra cost. Mr. Khater said that about 45% of the loans that Freddie Mac is backing are to first-time buyers, up from about 30% normally, which also means that rising rates could have an even bigger impact on the market than usual.

Economy

Contrarian Call: Blackrock’s bond king Rick Rieder thinks that the recent spike in Treasury yields is almost finished and that the Fed is nearing the end of its rate increase cycle.  But See: The Fed seems intent on raising rates, even if the economy sours a bit.

Dual Track: The US economy is either incredibly strong or on precarious footing depending on where you live, your level of education and what you do for a living.

When, Not If: Human psychology indicates that another financial crisis somewhere down the road is a near certainty.

Commercial

Doubling Down: Softbank is in talks to make an investment of $15-20 billion in WeWork, giving it a majority stake in the co-working space company.

Stick A Fork In It: Sears is hiring advisors to prepare for a bankruptcy filing that could come as early as this weekend as Eddie Lampert’s restructuring proposal falls flat.

Outsourced: Silicon Valley investors are making big bets that the restaurant chains of the future won’t have their own kitchens but will rather use networks of shared spaces similar to what has been occurring in the transportation, media, retail and logistics industries.

Residential

Over the Falls: Housing stocks are now in bear market territory as rising interest rates take their toll on aggressive absorption assumptions.

Where Supply Meets Demand: A construction boom in Seattle has led to substantially more apartment vacancy and even falling rents – albeit after a huge run up.

Profiles

A Sucker Born Every Minute: 145-year old tobacco supplier Alliance One International, Inc changed it’s name to Pyxus International and announced a foray into the marijuana business a month ago.  Its stock has now nearly doubled.  Fun fact: the same fools that are buying into this were buying into companies changing their names to incorporate the word blockchain just last year.

Running on Empty: Snap’s stock is plunging after a media analyst issued a report saying that the social media company is running out of cash as Facebook and it’s stable of apps continue to take share.

Stick to What You’re Good At: This great Forbes interview with billionaire In N Out owner and CEO Lynsi Snyder is a perfect example of why California’s favorite burger chain retains such a strong following decades after it’s founding.

Chart of the Day

I suppose that you could say that Walmart is a bit of an outlier when it comes to revenue generation.

WTF

Can’t Fix Crazy: A flight was delayed after a crazy woman brought an ’emotional support squirrel’ on a plane and refused to deplane because Florida.  Also because Frontier Airlines.

A Lot to Unpack Here: A pregnant hooker who was allegedly hired by a cop to perform a threesome was arrested when she stole the officer’s vehicle.

Gotta Hear Both Sides:  A meth head stripped naked and climbed into a church’s holy water before walking down the aisle masturbating in North Dakota.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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