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Biggest Housing Affordability Shock In History Incoming

Biggest Housing Affordability Shock In History Incoming

30 Year fixed mortgage rates have jumped 160bp this year, reaching the highest since…

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Biggest Housing Affordability Shock In History Incoming

30 Year fixed mortgage rates have jumped 160bp this year, reaching the highest since November 2018, with the latest Freddie Mac data showing an acceleration in mortgage rates which jumped a quarter point in just the past week, from 4.42% to 4.67%. This is an even bigger increase than we discussed in our recent Housing comment.

And while the benchmark 10y Treasury yield has also risen, the increase is "only" 94bp. In other words, there has also been a significant widening in mortgage spreads, by 66bp to 243bp. This could be explained by the Fed’s accelerated pivot from QE to QT, the latter of which we expect will be announced at the next FOMC meeting in May.

As discussed one week ago in "Housing Affordability Is About To Crash The Most On Record", the move higher in rates means that an already record affordability shock will be even worse! As a reminder, we looked at the NAR affordability index and found that the 4.22% on average rate through mid-March, would lead to a record affordability decline of more than -25% yoy. Refreshing the data, Bank of America finds that the decline now looks closer to -30% yoy.

Unfortunately, that's only the beginning: according to BofA economist Alex Lin, it will probably be even worse than that given the considerable momentum behind home prices, which actually picked up to begin this year with Case-Shiller national home prices accelerating 1.6% mom and 19.2% yoy in January. This move would bring the level of affordability to the lowest since 2007, when the housing bubble was bursting. In other words, not only is housing affordability about to plunge at the fastest rate in history, it will also drop to the lowest rate on record, making housing an asset class which just a select group of US households can afford.

What does this shock mean for actual home prices, sales and - ultimately - the coming recession?

According to Lin, housing affordability tends to lead the trajectory of existing home sales by about half a year. For illustrative purposes, we can draw up a scenario where the existing home sales trajectory matches affordability. This would suggest existing home sales falls below a 4.4mn SAAR pace by September, averaging 5.26mn SAAR over the first 9 months of 2022. That said, the relationship between affordability and existing home sales is imprecise. As a result, this is probably more of a bear case than the base case.

The hit to affordability will likely be only one part of the picture. Another major reason for existing home sales to pullback will be because of the mortgage rate “lock-in” effect. Remember that existing home sales is a measure of housing turnover and will partially reflect owner-occupied households trading up, down, or moving regions. It is likely that the overwhelming majority of these households are paying a much lower mortgage rate than the current market rate, which provides a huge disincentive to move. As a result, demand and supply would head lower.

There are signs of this buyer/seller base already withdrawing: according to the NAR existing home sales data, the share of buyers that were previous homeowners slid to 35% in February from 42% in January. Meanwhile, current existing home inventories are already at record lows with months supply SA at 1.9 and actual levels at 966k units.

That said, there will be positive offsets for the existing home sales trajectory. The move higher in rates could lead to a pull forward in demand, which could underpin near-term sales. The pandemic has also led to a shift towards remote-work, which could help facilitate migration from high-cost areas to low-cost areas where homeownership is more affordable.

In addition, and this is debatable, BofA notes that household balance sheets are the strongest they’ve ever been with net worth surging to 809% of disposable income, and debt service ratios running near historically low levels (we would counter that applies predominantly to the top 5% who have uniquely benefited from the surge in asset prices; the rest of US households - not so much).  Labor markets are booming as well, with job growth averaging nearly 600k over the last 6 months alongside accelerating wage growth. Finally, there are demographic tailwinds with Millennials now in their prime home-buying years.

Tyler Durden Thu, 03/31/2022 - 13:45

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Canon’s new technology competes with ASML in chip manufacturing

The new system, FPA-1200NZ2C, can produce semiconductors matching a 5nm process and scale down to 2nm, surpassing the capabilities of the A17 Pro chip…

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The new system, FPA-1200NZ2C, can produce semiconductors matching a 5nm process and scale down to 2nm, surpassing the capabilities of the A17 Pro chip found in Apple's iPhone 15 Pro and Pro Max.

Canon, the Japanese company recognized for its printers and cameras, unveiled a pivotal solution on Friday, Oct. 13, designed to aid in the production of cutting-edge semiconductor components.

According to a report from CNBC, Canon's recently introduced "nanoimprint lithography" system represents the company's competitive response to Dutch firm ASML, a dominant force in the extreme ultraviolet (EUV) lithography machine sector. ASML's machinery is essential for producing cutting-edge chips, including those used in the latest Apple iPhones.

The utilization of these machines has been drawn into the technological conflict between the United States and China. The United States, employing export restrictions and diverse sanctions, has aimed to obstruct China's access to crucial chips and manufacturing machinery, hampering the progress of the world's second-largest economy in a field where it is already perceived as lagging.

ASML's EUV technology has gained significant traction among leading chip manufacturers due to its crucial role in enabling the production of semiconductors at 5 nanometers and below. This nanometer measurement pertains to the size of chip features, with smaller values accommodating more features on a chip, consequently enhancing semiconductor performance.

Canon reportedly announced that its new system, the FPA-1200NZ2C, can produce semiconductors matching a 5nm process and scale down to 2nm, surpassing the capabilities of the A17 Pro chip found in Apple's iPhone 15 Pro and Pro Max, which is a 3nm semiconductor.

The Dutch government has imposed restrictions on ASML, preventing the export of its EUV lithography machines to China, where no units have been shipped. This limitation exists due to the critical role of these machines in the production of cutting-edge semiconductor chips.

With Canon's assertion that their new machine can facilitate the production of semiconductors equivalent to 2nm, it is likely to face increased scrutiny.

Related: Google to protect users in AI copyright accusations

Cointelegraph reported earlier that the Biden administration is targeting a loophole that has allowed developers in China to purchase chips from the infamous Huaqiangbei electronics area in Shenzhen, a city in southern China.

However, China has released draft security regulations for companies providing generative artificial intelligence (AI) services, encompassing restrictions on data sources used for AI model training.

Magazine: ‘AI has killed the industry’: EasyTranslate boss on adapting to change

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International

It’s All About Provoking Your Reaction

It’s All About Provoking Your Reaction

Authored by Scott Horton via The Libertarian Institute,

…so wise up!

With terrorism, as with all…

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It's All About Provoking Your Reaction

Authored by Scott Horton via The Libertarian Institute,

...so wise up!

With terrorism, as with all asymmetric political action, “the action is in the reaction of the opposition,” as Saul Alinsky, the leftist activist, put it in his book Rules for Radicals.

This isn’t conspiracy stuff, nor impossible “4th dimensional chess”—it’s just plain, old 2-dimentional chess. That’s all.

Hamas, al Qaeda, and similar groups slaughter civilians—beheaded babies or not, they certainly murdered hundreds and hundreds of innocent, civilian Israeli non-combatants in this one (including an extended family member of mine) just as they slaughtered thousands on September 11—for a reason, not simply because they are angry or devils. It’s a tactic. They are trying to provoke a reaction.

They are trying to make you angry, to make you hate, even drive you crazy. Yes—yes—for the purpose of making the more powerful force (i.e. the United States, Israel) do even worse to their own people, such as getting the U.S. to invade Afghanistan and getting Israel to bomb the Gaza strip. Not that al Qaeda was from Afghanistan, but that’s where they were and that’s who they knew were gonna get it. (Also, by the way, U.S. support for Israel’s crimes in Palestine and Lebanon was a huge part of the motive for al Qaeda’s war against the United States in the first place, including for some of the most important pilot hijackers and organizers of the plot.)

This is then meant to provoke still further counter-reactions. It “heightens the contradictions” as the commies used to say. It forces leaders of Muslim states and armed groups everywhere to take a stand. It destroys stability and negotiations and progress, radicalizes new groups and forces everyone back into the fight on one side or the other. It makes every sock-puppet princeling of the Gulf take a stand in support like the Ayatollah or sell out in silence in the most embarrassing way, like Crown Prince bin Salman, etc.

It’s the same reason Bosnian Muslim forces butchered Serbs and Chechen Muslim forces butchered Russians and ISIS slaughtered Shi’ites: to provoke a worse crisis for everyone in the hopes that the overall situation changes to their advantage.

I would note that terrorism is usually as stupid as it is evil; see Bosnia, where they got less and less; Chechnya, Syria and Iraq Wars II and III where they lost outright. Osama’s nemesis, the Saudi monarchy, still stands, and with as degenerate a self-worshiper in the Crown Prince position as he could have ever feared. Hamas may very well not survive this.

But for Israel to completely destroy them would require a level of violence that the civilian population of the Gaza strip, one half of them under 18 years old—all of them trapped with no where to go—simply cannot withstand. Hundreds have already been killed.

Ramzy Baroud argues that a land invasion of the strip will be a catastrophe for Israel too.

The longer this goes on, the greater the danger to the Israeli hostages as well.

By widening the war into a full-scale invasion of Gaza, the Israelis risk spreading the war to a full-scale uprising on the West Bank, a fight with Hezbollah in Lebanon or even northern Israel, which could then lead to things going sideways in Iraq—where George W. Bush installed a very Iran- and Hezbollah-friendly Shi’ite theocracy in power—and who-knows what.

Powerful Muslim states who are friendly to Israel, such as Turkey and Egypt, must be allowed to step in and play a negotiating role here.

Stop reacting. And stop posturing like a bunch of little girls on TikTok. Pull the brakes before it’s too late.

I know calling your congressmen feels like pissing in the wind. But do what you can to make your voice heard and call for cease-fire and talks as soon as possible.

Ultimately the Palestinians must have independence or citizenship. Otherwise, as Ariel Sharon’s man, former Prime Minister Ehud Olmert said, they’re left with an untenable apartheid state.

And the United States should stop sharing in the responsibility for this shame immediately by ending all aid and military support for the occupation - and for that matter in all cases, everywhere.

Also, USS Gerald Fordwatch your six.

Tyler Durden Sun, 10/15/2023 - 08:10

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Switching Jobs No Longer Pays Off Like It Used To

Switching Jobs No Longer Pays Off Like It Used To

One of the main drivers of the “Great Resignation” that saw more than 50 million Americans…

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Switching Jobs No Longer Pays Off Like It Used To

One of the main drivers of the “Great Resignation” that saw more than 50 million Americans quit their job in 2022 was the fact that labor was in short supply, resulting in higher wages being offered by employers who struggled to fill open positions.

Switching jobs quite simply paid off, as workers were able to land significantly higher salaries by putting themselves back on the market instead of sticking with their old employer.

According to ADP Pay Insights, which is based on payroll transaction data from almost 10 million employees in the United States, the median year-over-year increase in annual pay for job switchers was between 15 and 16.5 percent for large parts of 2022. For people staying in their current jobs, the average pay increase was significantly lower, between 7 and 8 percent, or half of what job switchers were getting.

However, as Statista's Felix Richter reports, over the past few months, the labor market has shown some tentative signs of cooling, with job openings coming down from historically high levels and fewer positions remaining unfilled across industries.

As the imbalance between labor supply and demand gradually eases, wage growth naturally slows down. According to ADP, that slowdown has been much more pronounced for job changers, though, resulting in a smaller gap between pay increases of job switchers and job stayers. While there was an 8.8 percentage point chasm between the two in April of last year, the difference in median pay increases has narrowed to 3.1 percentage points by September 2023.

You will find more infographics at Statista

As a result, the number of Americans quitting their jobs has come down notably as well, putting an end to the “Great Resignation”, one of the more surprising post-pandemic labor market trends.

Infographic: The 'Great Resignation' Is Winding Down | Statista

You will find more infographics at Statista

Further, as the chart illustrates, the number of quits typically declines sharply in times of recession, as it can be very tough to find a new job during an economic downturn.

Tyler Durden Sun, 10/15/2023 - 07:35

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