BRIEFINGS ARE BACK. NOVEMBER 15, 2023

Location Strategy is proud to announce its first forecast briefing presentation on November 15, 2023, from 7:30–10:00 AM. Click here for full details and to reserve your seat.

We have a panel of distinguished builders, developers, and lenders covering affordability across the pricing spectrum and the outlook for project and home lending in 2024. Panelists include:

• Jennifer Keller, Hamilton Thomas Homes

• Becky Ullman, Lennar/Friendswood Development

• Matthew Brodd, AmCap Home Loans

• Lawrence Dean, Veritex Community Bank, moderator

The Panel will be followed by the 2024 economic forecast to be given by Scott Davis.

Don’t delay; limited seating is available. Click here to reserve your seat.

THANK YOU

I’m sure you saw the story last week about how our file systems were breached. A quick thank you to to our clients for their support and understanding and especially to the Location Strategy staff who came off client projects to help make sure that client information was safe and to accumulate evidence of what took place. And we have a lot. I can’t say more than this now, but we know who you are, we know what you did, and we are coming for you.

LOCATION STRATEGY CHARTBOOK

Another shocker from the BLS in Washington: the August job openings report says there are 9.61 million openings, a 9% increase over July. If this data is accurate, it suggests a 35% increase in professional and business services openings since last month. This is despite quits remaining and new hires remaining roughly the same. I guess you all just love having open, unfilled jobs.

Turns out the JOLTS fantasy wasn’t even the biggest BLS folly of the week. I was going to print the Friday jobs report, but turns out Location Strategy Chartbook doesn’t have a “Funnies” section. Here’s the ADP report from Wednesday, which shows the weakest labor market since January 2021.

Federal interest interest expenses will rise from 2% of GDP in 2022 to 3% in 2024 and 4% by 2030, surpassing the early 1990s peak by 2025. Turns out we have a wave to debt to refinance, too - making interest costs even worse and potentially crowding out private investment.

Higher rates have a significant impact on USFG Net Interest Payments

One of the other consequences is that cost-of-carry for existing consumer debt (not counting mortgages) has skyrocketed. This will impact all kinds of spending.

Spending will take another hit as long as inflation persists. Nominal wage growth is 4.3%, but when inflation in other sectors is factored in, real wage growth is only about 0.6% per year.

The effects will be uneven as some states see larger than average increases in personal income. It would be interesting to see if there is some kind of pattern here.

This one chart I debated including, since it’s self-evident. But Goldman Sachs’ US housing affordability index is at new record lows.

For nearly every major category, bank loan growth has been softer since the failure of Silicon Valley Bank than it has been on a year-over-year (y/y) basis. Home loans have actually remained a stronger category.

I’m sure this is fine. Really. The US has 17 days of supply left in SPR.

Student loans restarted, and people paid about the same as what they paid before the pandemic.

There’s a lot of debt, but only 7% of borrowers are liable for almost 40% of debt - and those borrowers make more than $100K per year. I think there may be some crowding effect, but because of this distribution it will be minimal.

A bigger problem: this month, 29% of consumers indicated they do not have any savings. Excess savings are gone.

A homebuyer on a $3,000 monthly budget has lost nearly $40,000 in purchasing power over the last year, as mortgage rates have risen from around 6.5% in October 2022 to nearly 8% today.

Lewis Ranieri said mortgages are about math - and this is some pretty tough math for buyers.

Housing affordability for new buyers continues to deteriorate. This chart shows an estimate of monthly mortgage payments. Over 69% of borrowers have current LTVs under 60% (and this doesn’t include all the homes without a mortgage). And 91.9% of borrowers have LTVs under 80%. This is very different than during the housing bubble and bust, when a large percentage of borrowers had little or no equity.

The next graph shows the percentage of loans by borrowers’ credit score. The vast majority of borrowers (about 85%) have credit scores over 660.

But existing homeowner still mostly have lots of equity, and mortgage delinquencies remain exceptionally low.

Households have deleveraged their mortgage debt since the last crash.

I thought this was kind of a cool historical view of home prices and rents.

Last month, the decline in rents was greater than the typical decrease observed in September

Oversupply of apartments is contributing to lack of rent growth.

25 year old home buyers are flocking to the Midwest.

This chart shows why; inflation-adjusted earnings relative to housing costs is better in the Midwest than other geographic areas. It also shows that many areas don’t offset their high housing costs with high earnings.