| TICKER | COMPANY | YIELD | CHANGE | %CHANGE |
|---|
| U.S. 1 Month Treasury | 5.394 | -0.006 | 0 |
| U.S. 3 Month Treasury | 5.498 | 0 | 0 |
| U.S. 6 Month Treasury | 5.564 | 0.006 | 0 |
| U.S. 1 Year Treasury | 5.473 | -0.003 | 0 |
| U.S. 2 Year Treasury | 5.087 | 0.01 | 0 |
| U.S. 10 Year Treasury | 4.542 | -0.016 | 0 |
| U.S. 30 Year Treasury | 4.669 | -0.027 | 0 |
The data is from earlier dated CNBC.com Bond section. It is a on going measurement of where each U. S. bond maturity was trading on a Daily basis. This Yield Curve is "inverted". This means that the yields are higher near term than they are long term. The general belief among Economists and Traders is than when an Inverted Yield Curve occurs, Recession is in the forecasted future.
When you look at a normal yield curve what you would see is each maturity is higher than the other. The increasing differential in yield is a recognition of interim inflation and possible future risk of rate changes by the FED or economic risk. The 30-year bond will have the highest yield. An inversion occurs when the FED raises interest rates to stop near term inflation. Then money flows to the higher yielding short term maturities; rather than, Real Estate, Stocks or Risky Assets; as well as, consumer goods. Long term bonds decline as the need for money in an expected recession limits any interest in taikng on new debt.
This present cycle is different from past cycles. Too much money in Money Supply from the increase of the FED from the Pandemic and a strong population savings rate.
What we have is a large FED Balance Sheet the reflects Money in Supply of some $8 trillion or so. Per a recent Wall Street Journal article of this past week, the US population has some $17.5 trillion in assets. The assets are cash in savings, money markets, stock bonds, retirement funds, insurance policies to name a few. Yesterday's WSJ noted that the past quarter the savings increased at some $1.4 trillion. In total the liquidity of the US Government as measured by the Federal Reserve Balance sheet of some $8 trillion plus US population of some $18 trillion creates asset liquidity of $26 trillion. To me, that means we have excess liquidity in our system to take on any crisis that can be thrown at us. Including a recession.
Baby Boomers own the majority of homes in the US are generally thought of as retired, have paid off their mortgage, only to see grandchildren from time to time. They stay close to home and medical facilities and the organizations they have belonged to for the past 20-30 years. They are not risk takers. The result is higher interest rates are a benefit to them. 5.5% rates are wonderful from the past where they had to survive on savings and less that 1% returns. To those Baby Boomers who have a mortgage they are thought to be at the 3% level. They are not selling their homes.
The result for the housing industry, no inventory of resale homes. For those with cash, a job and credit rating that will qualify them for a home, no home exists or they must rent, or stay where they are, or extend their budgets to buy what is available.
The major beneficiaries of the present situation are the Corporate Developers. The negative here is that the Developers are developing land that once were farms or ranches. This will require commuting to work. The virtual worker has changed the normal housing process. This has resulted in growth in areas outside the Bay Area. New communities are established. The decision is to move to get a newer and larger home at affordable prices. The other choice is wait and buy something that is not just perfect or if it is perfect stretch the budget to affordability limits.
There are many signs that have begun to show the possibility of a new trend.
1. Affordability in the Sacramento area has created new towns or expanded on older established town to form newer communities. In recognition of this trend a group of Silicon Valley Entrepreneurs are putting their resources together to build a new town east of the Bay Area.
2. The office buildings in San Francisco and the Peninsula are empty and owners are facing default on their loans. The low occupancy and lack of sufficient rental income to cover debt payments is known to all to be the result of virtual jobs and the work from home movement. For example, Facebook just took a $181 million hit for terminating their leases.
3. One of the other important signs is Rent. For the first time in years we are seeing rent decreases in active rental listings. The cuts are small, but they are cuts. The competition of existing newly constructed open rentals are taking their toll.
The rental market is seeing other pressure, beyond rental income cuts. The abuses of landlords regarding habitability have forced municipalities, counties and the State of California to take an aggressive stance against landlords. From those landlords who give up from income and regulatory pressure will come new inventory to open up the light inventory. Unfortunately, the inventory will come from a delayed process of updating and remodeling homes to bring to market.
There will be little respite for the buyer. Light inventory, affordability and location will be their major decision.
The current market, wherever you live, it is in the end of the year process of clearing inventory for those who are moving on with their lives. Home prices will be lowered to move and buyers will wonder IF they wait until next year will prices be lower and of course, WILL MORTGAGE RATES be lower.
If the buyer is waiting for lower rates, DON'T WAIT!. Historically, the FED does not lower rates back to where they came from until 10 years after they rose. Then the decline will take another 10-years. The FED has a history of a 20 year Bell Curve of interest rates. (A Bell Curve being an upside down U.) We are only in the first few years of the cycle. Expect rates to hold, then move up again and finally at some point in the future when inflation cannot be controlled a rise to historically high rates. So somewheres in the next 7-8 years those who bought today will look back at what they have in a home and a mortgage and be extremely happy!
Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks | |
1. Factors Affecting Reserve Balances of Depository Institutions
Millions of dollars
Reserve Bank credit, related items, and
reserve balances of depository institutions at
Federal Reserve Banks | Averages of daily figures | Wednesday
Sep 20, 2023 |
Week ended
Sep 20, 2023 | Change from week ended |
Sep 13, 2023 | Sep 21, 2022 |
Reserve Bank credit | 8,002,983 | - 59,221 | - 780,786 | 7,988,106 |
Securities held outright1 | 7,464,613 | - 19,973 | - 928,490 | 7,457,541 |
U.S. Treasury securities | 4,964,010 | - 19,359 | - 710,848 | 4,960,735 |
Bills2 | 247,882 | - 5,082 | - 67,844 | 246,946 |
Notes and bonds, nominal2 | 4,240,315 | - 14,489 | - 642,973 | 4,237,898 |
Notes and bonds, inflation-indexed2 | 365,380 | 0 | - 10,381 | 365,380 |
Inflation compensation3 | 110,433 | + 212 | + 10,350 | 110,510 |
Federal agency debt securities2 | 2,347 | 0 | 0 | 2,347 |
Mortgage-backed securities4 | 2,498,256 | - 614 | - 217,642 | 2,494,460 |
Unamortized premiums on securities held outright5 | 288,721 | - 622 | - 36,803 | 288,150 |
Unamortized discounts on securities held outright5 | -27,164 | + 267 | - 399 | -26,821 |
Repurchase agreements6 | 2 | - 4 | + 2 | 0 |
Foreign official | 0 | - 4 | 0 | 0 |
Others | 2 | 0 | + 2 | 0 |
Loans | 208,802 | - 40,517 | + 187,825 | 201,102 |
Primary credit | 3,183 | + 1,004 | - 3,475 | 3,078 |
Secondary credit | 0 | 0 | 0 | 0 |
Seasonal credit | 78 | + 1 | + 36 | 81 |
Paycheck Protection Program Liquidity Facility | 5,412 | - 79 | - 8,865 | 5,339 |
Bank Term Funding Program | 107,758 | - 108 | + 107,758 | 107,599 |
Other credit extensions7 | 92,371 | - 41,335 | + 92,371 | 85,005 |
Net portfolio holdings of MS Facilities LLC (Main Street Lending Program)8 | 19,349 | - 211 | - 6,326 | 19,326 |
Net portfolio holdings of Municipal Liquidity Facility LLC8 | 5,624 | + 3 | + 64 | 5,626 |
Net portfolio holdings of TALF II LLC8 | 1,218 | + 1 | - 929 | 1,219 |
Float | -203 | - 29 | - 51 | -205 |
Central bank liquidity swaps9 | 247 | + 17 | - 26 | 247 |
Other Federal Reserve assets10 | 41,774 | + 1,847 | + 4,345 | 41,920 |
Foreign currency denominated assets11 | 17,988 | - 53 | + 733 | 18,024 |
Gold stock | 11,041 | 0 | 0 | 11,041 |
Special drawing rights certificate account | 5,200 | 0 | 0 | 5,200 |
Treasury currency outstanding12 | 52,406 | + 14 | + 847 | 52,406 |
| | | | |
Total factors supplying reserve funds | 8,089,618 | - 59,260 | - 779,207 | 8,074,777
|
As before, call or write for any question you may have and think of me of your "in the know real estate agent".
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