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Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here. |
In today's supplementary analysis, we're examining the housing market. The chart in question showcases mortgage transactions valued in trillions of dollars. The data reveals a 64% decline in mortgage demand from the 2021 peak, reaching levels last observed in 1994 – sitting 85% below the historical peak. Mortgage transactions rose to $1.28 trillion in 2021 but have since decreased to under half a trillion dollars. The data is updated quarterly.
The current landscape shows that with 90% of mortgage holders locked into fixed rates below 5%, there's little incentive for them to relocate. This has resulted in a shortage of available housing inventory, contributing to persistently high property prices. Despite this, home prices are 2% higher than the previous year, with the median home price now at $420,000. A potential catalyst for change will be a rise in unemployment, which will disrupt the current stalemate by way of foreclosures.
On the last occasion mortgage rates hit the 8%-mark, house prices were nearly half of what they are now. To achieve affordability levels akin to those before the pandemic, housing prices would need to be reduced by 38%, or alternatively, incomes would need to inflate by over 60%.
Forgive the length of today’s bonus section, but these items are related. This notice from DTCC (Depository Trust & Clearing Corporation) to its clearing members was interesting and a sign of what’s to come. They have effectively doubled the margin requirements for MBS. Also, the MBS VaR (Value at Risk) stress testing lookback is changing by 50% for U.S. banks. This is happening on two weeks’ notice. We assume Secretary Yellen will answer the phone if the government shuts down in a couple of weeks. Things are simmering under the surface.
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Learn more about the Market Situation Report written by Tier 1 Alpha. |
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