The EMG Blog

DECISION DIFFERENCES – 3/14/22

The Fed will raise rates a quarter point this week, the European Central Bank will move much slower. The EU economy was already meaningfully weaker than the US before Russia’s invasion. The US is the world’s #1 oil producer, EU nations produce little oil, and EU banks have exposure to Russia, while US banks have almost none. Also, EU inflation is largely energy-based, US inflation primarily demand-based. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

SPENDING SUSTAINABILITY – 3/7/22

In 2/20, pre-Covid-19, real per capita personal income was $45,453. It then bounced wildly due to repeated stimulus checks and other expansionary fiscal policies peaking at $57,597 in 3/21. It’s since declined every month but one and is now $46,018, $565 above the 2/20 level. The pre-Covid-19 trend would now have it at $47,000. Absent the substantial savings accumulated during Covid-19, the rate of personal spending growth would be anemic. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

PRICE PERFORMANCE – 2/28/22

Over the past year, house prices have risen a whopping 18.8%, due largely to Covid-19 and the WFH phenomenon. To wit, over the past 12 months the largest house price gains have been in warm weather cities like Phoenix, Tampa, Miami, Dallas, San Diego, and Las Vegas which all saw Y-o-Y gains exceeding 25%. Conversely, Washington, Minneapolis, Chicago, Cleveland, Boston, New York, and Detroit all saw gains below 15%. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

INTERCONNECTED INVERSION – 2/21/22

The 2-yr Treasury rate is 1.60%, the 10-yr, 2.00%, a difference of just 40bps. Due to high inflation, the Fed is planning to raise short-term rates by at least one percentage point and maybe 1.75 percentage points by 12/31/22. Raising rates this much with just a 40bp spread risks pushing the 2-yr rate above the 10-yr, inverting the yield curve. Troublingly, markets now expect an inversion within six months. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

RATE REVERSAL – 2/14/22

The only other time the Fed shrank its balance sheet was in 2018, and rates declined, the opposite of what should have happened. Here is maybe why. As the Fed shrinks its balance sheet it sells bonds and acquires cash and importantly, destroys it. That reduced liquidity increases risk, which causes investors to seek low-risk assets like Treasuries, and that reduces interest rates. Liquidity and risk trump increased Treasury supply. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

GOOD GROWTH – 2/7/22

The US economy picked up steam in 21Q4, growing at a strong 6.9% annualized rate, up from a 2.3% annualized rate in 21Q3, GDP’s best quarterly showing since 2000Q2. While consumer spending grew 3.3% in the quarter, inventory growth was the key GDP driver, contributing 4.9 percentage points to growth. Unlike in the past, inventory investment should continue well into CY22, and in the process hopefully reduce inflationary pressures. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

MULTIFAMILY MOVES – 1/31/22

In 2020, single-family housing starts totaled 1,004,000 and multifamily starts were 392,800, for a total of 1,396,800. During 2021, rents and home prices skyrocketed. One would thus expect huge increases in both sectors. Multifamily activity increased to 471,500, a Y-o-Y rise of 20%, and their best level since 1987. Conversely, single-family activity was 1,127,000, a Y-o-Y rise of only 12%, and just 9% above their 60-year average level of activity. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

DOMICILE DOINGS – 1/24/22

Before Covid-19, 5% of work was conducted at home, and on websites like GlassDoor, 1 job in 66 offered the potential to partially work-from-home. Now, almost two years into pandemic living, 15% of workers want to WFH exclusively, 30% want a hybrid arrangement. On job websites, 1 in 6 jobs now offers the ability WFH or a hybrid solution. Going forward, 20%-25% of work could be performed at home. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

SOLE SIZE – 1/17/22

In 1980, sole-person households totaled 18.2 million, 22.5% of all US households. By 2020, the number was 36.1 million and made up 28% of all households. Moreover, between 2010 and 2020, 44% of household growth was contributed by sole-person households. Between 2020 and 2030, 42% of household growth will be generated by sole-person households and they will number 41.2 million, or 29.3% of all households. Yet, house size increases! (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.

DWELLING DEFICIT – 1/10/22

The US is about 5 million houses underbuilt. Here are some of the reasons why: Covid-19 has increased the desirability of homeownership. Millennials are entering peak homebuying age so demand will remain elevated for years. Anti-development attitudes make it very tough to build. Supply-chain problems and the high prices they create prevent entry level homes from being built. Households have ample wealth to spend on housing, and rates remain low. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

*The views, articles, postings and other information listed on this website are personal and do not necessarily represent the opinion or the position of American Pacific Mortgage Corporation.