As mortgage rates continue to rise and home sales continue to slow, the next leg down of a slowing real estate market has begun—contract cancellations. The National Association of Home Builders (NAHB) has reported large drops in the traffic of prospective buyers in each of the last eight months.
One of the hallmarks of a recession is a rise in consumer credit defaults, inevitably resulting in a rise in 3rd-party collection activity. That has not happened yet – in fact, quite the opposite. 3rd-party collection activity is at a record low of 5.7% of consumers – well less than half the 14.6% level seen in 2008’s recession.
Real estate flipper OpenDoor made quite a splash when it went public via a SPAC merger in December, 2020. And why not? It was going to upend the real estate “flipping” market via its revolutionary AI-driven algorithms which it employed to buy and sell homes around the country. It has piled up losses totaling an astounding $2.2 billion through Q3, $923 million in Q3 alone.
The U.S. economy gained a surprisingly strong number of new jobs last month, a sign the nation’s labor market remains strong. The Bureau of Labor Statistics reported 261,000 new jobs were created, exceeding the consensus of 205,000. Although the increase was the smallest since April of 2021, it was still strong by historical standards.
The historic pace of Fed interest rate hikes this year continue to dampen markets. While there is room for a reflexive rally in the short-term, we believe this bear market has longer to play out. Over the next 6-9 months the effects of the spike in interest rates should begin to weigh on the economy. Higher borrowing costs and prices will ultimately start to force consumers to choose to spend less thereby slowing economic growth.
If you are more comfortable discussing a Single Malt Scotch or French Bordeaux than some obscure tech stock or cryptocurrency, you are not alone. Billionaire investing legend Warren Buffet says investors should stick to areas they know when they are deciding what to invest in.