Rates Finally Fell – A Lot – But Not For Long

Rates finally fell today in response to jobs report revisions and negative economic news out of Europe.
On the jobs front, it turns out that the Bureau of Labor Statistics has been OVERSTATING job gains by as many as 25,000 per month! The market always reacts to strong job numbers when they are initially released – no matter how suspect they are – and today’s revisions clearly show they were inaccurate, like Barry Habib has been speculating for months now.
Unfortunately, today’s lower rates may not last, as Fed Chair Powell will speak on Friday and his current obsession is on our very tight labor market (and not just inflation anymore). Mr. Powell, once again, seems to ignore the fact that job losses shoot up AFTER we enter into a recession, that our ostensibly strong job numbers consistently get revised, and that we are already seeing many cracks in our current labor market.  Analysts expect Mr. Powell to continue with his “hawkish” (high rates/inflation fighting) rhetoric and that will likely push rates higher.

Housing Shortage Is Acute – But Not A Wall Street Conspiracy

The National Real Estate Post (NREP) published this short video today: Deliberate Housing Crisis. They make the case that our massive housing shortage is a purposeful conspiracy caused by Wall Street and multi-family apartment builders lobbying governments for favorable zoning and other goodies. And, in response, I thought … good gravy, here we go again…
THERE REALLY IS A MASSIVE SHORTAGE! “The gap between single-family home constructions and household formations grew to 6.5 million homes between 2012 and 2022.” Barry Habib also hit this topic last week, pointing out that we will see over 2 million household formations over the next year, but only about 1.35 million new homes come on the market (1.45 million new construction minus about 100,000 homes that need to be replaced). (NOTE: This is a major reason why we will not see a housing crash).
These gaps are getting filled somewhat by multi-family construction, but it still does not meet America’s current needs. The NREP’s point, however, is that single-family construction is being deliberately suppressed to force people into rentals, and that large builders collude to make sure that they don’t overbuild or create too much supply. 
Builders clamored for multi-family rental projects in recent years to meet demand and to take advantage of very cheap money. There was no conspiracy though.
Here are two reasons why:
  1. Multi-family construction is already falling off a cliff in the face of higher rates; and
  2. If large builders colluded to suppress supply, the thousands of small builders in America would immediately jump into the market to take advantage of the artificially higher prices. Collusion is impossible when there are too many players involved; someone will always cheat or take advantage of the circumstances (just ask OPEC – the large oil cartel in which members almost always cheat when they can).
The actual causes of our housing shortage include (1) cautious builders making sure they don’t over-build and over-extend to avoid getting burned in a recession – like we saw in 2008; (2) excessive zoning restrictions in many markets pushed through by the local residents and not “evil” multi-family builders; and (3) excessive green building requirements and soft costs (permitting, environmental reviews, etc.) imposed by governments.
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