Market Conditions: What Will Happen to the Housing Market Now that the Fed is Raising Rates?
I’ve been running this blog for 8 years and in that time there has only been one Federal Reserve policy: cutting rates and keeping them near zero.
For the first time in 9 years, the Federal Reserve has raised the Fed Fund rate. Yes, it was just a quarter point to 0.50%.
But most analysts believe the Fed will be raising several more times next year.
That will almost certainly put pressure on 10-year treasuries, which are what determine mortgage rates.
This change in Federal Reserve policy could be a big deal because:
- Mortgage rates may rise
- This is the first time that many of today’s buyers have ever experienced a rising rate environment (and not a declining one)- what will they do?
Will we see a rush of sellers listing in the new year to sell before mortgage rates rise further (if they rise at all)?
Will we see a rush of buyers attempting to lock in low mortgage rates so they will be buying in the first few months of the year, pushing up prices even more?
Will we see a dramatically slowing housing market by the second half of the year, if the Fed raises rates once or twice more by that time?
Or will it not matter at all if rates rise because the job market is so strong that another half a percent or 1% on a mortgage isn’t that big of a deal?
Normally I wouldn’t do a separate post on this topic but for 9 years the policy has been one way and now it has changed. There has been much economic discussion on this blog over the years, a lot of it really good.
Now’s your chance to state your case.
Where will the Chicago housing market go in 2016 now that we’re in a rising rate environment?
The recession in 2016 will bring lower housing prices. This .25 raise is mostly meaningless in the scheme of things.
Mortgage rates IMO aren’t going anywhere, but there is a small chance they will trend up in 2016 but If they do I don’t see them going more than 5% on a 30yr fixed that would be a huge move in one year.
This is too small of an increase to have an effect IMHO. As long as the Feds are going slow (and we know slow is pro), I’d say it won’t have much effect on prices. I think low inventory has a much bigger impact on the market and if the inventory remains so low, the nicer houses in good hoods will warrant a premium.
“Mortgage rates IMO aren’t going anywhere”
If anything, I think they may tick down over the next few months. The fed raising was already priced in. And it may have priced in more aggressive tightening than we may actually see.
“Dot plot” for Sep vs Dec:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/12/dot%20plot%20dec%202015.jpg
You can see that they lowered 2016 projections a bit. So, if anything, this most recent fed meeting was a “cut”.
Much ado about nothing. Fed funds rates are only loosely correlated with mortgage rates and over a very long time period: http://themortgagereports.com/17724/how-mortgage-rates-move-when-the-federal-reserve-meets
And a quarter point is nothing anyway. You can see what the futures market is predicting for the fed funds rate in 2016 here: http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html I would summarize it here except the tool is broken at this time.
A couple points of clarity:
1) The fed rate is not at 0.5%. It is now targeted ‘between 0.25% and 0.5%’
2) The fed rate has very little impact on 10 year yields. The yield curve is flattening substantially already.
Predictions:
1) The 10-year yield will continue to fall, potentially below 2% once again
2) The fed will reverse their decision and we will be back at 0% before the next election
“he 10-year yield will continue to fall, potentially below 2% once again”
You realize that has NEVER happened, right? The Fed raising rates and the yield falling.
Never say never. No one predicted that housing would crash either since it hadn’t happened in the United States in 75 years. And we have never had basically zero rates before either. So no one knows what will happen when there is normalization.
Why would the Fed reverse course in just a few months? What would that do?
You do know that during prior recessions, rates were actually quite “normal” and everything was just fine.
Although, I’m predicting the housing market is going to get hit really hard in the bubble cities like Chicago. Already, California existing home sales plunged in November for no apparent reason (as mortgage rates weren’t rising). Could it be affordability is finally catching up out there?
What does that mean for the $550,000 2/2s they are building all over Lakeview? Will anyone be buying one of those when rates are higher?
“You can see that they lowered 2016 projections a bit. So, if anything, this most recent fed meeting was a “cut”.”
They anticipate raising 3 to 4 times in 2016. But, of course, it’s data dependent.
The make-up of the Fed will also change next year and will be more hawkish.
“The recession in 2016 will bring lower housing prices.”
When will we have it? Second half of 2016? It would have to slow very dramatically to be in the first quarter of 2016 which is beginning in less than 2 weeks.
Could begin in the second quarter if Texas sees a depression from the energy job cuts like in the 1980s and drags down the rest of the country. But it claims it’s “diverse” and won’t see the impact.
All the major analyst houses are calling for a recession in 2016. That usually means it won’t happen. When have they all ever been right on that call?
“The recession in 2016 will bring lower housing prices.”
Also- why would a recession bring lower housing prices?
It never happened in the past in Chicago. Over the last 50 years, Chicago never seen declining home prices except for the years during the Great Recession and after the recent bubble burst. In the mid-1980s they were flat for like 5 years, but never declined.
Chicago home prices didn’t decline in the early 1980s recession. They didn’t decline in the early 1990s. They didn’t decline in the early 2000 recession either.
Why would they decline this time?
“Why would they decline this time?”
Because this is not the 1980’s or 1990’s, or 2000’s. You have to think about how we got where we are today.
“Why would the Fed reverse course in just a few months? What would that do?”
Because they are idiots. This raise was to “save face” and to try to trick people into thinking everything was great. Commodities and junk are telling a VERY different story. They are canaries in the coal mine. When these co’s start to go bk, and more funds blow up, the fed will be left with no choice. A cut followed by negative interest rates is more likely than 4 hikes next year….
“Because this is not the 1980’s or 1990’s, or 2000’s. You have to think about how we got where we are today.”
So it’s different this time.
I agree that these are different conditions because we are now in a rising rate environment and not a falling one. But it’s not different than the 1970s (when prices didn’t decline.) Nasty recession in the early 70s. Worst stock market in 2 decades. “Malaise.” Volker jacking up rates to stem inflation. Commodities crisis.
But Chicago housing prices didn’t decline.
It would take another Great Recession/Depression to see housing prices decline in Chicago again. It’s a once-in-a-100 year event.
“Commodities and junk are telling a VERY different story. They are canaries in the coal mine.”
No. Commodities did the same thing in the 1980s. The only housing market destroyed was Texas’ because that’s where the job losses were. The same thing will happen this time around, though, in Alberta and some other parts of Canada. Already, Calgary prices tumbling quickly. They are in a world of pain up there.
Which companies are going to go bk? Some smaller explorers probably will if the downturn in oil continues a few more months. They have tons of debt. No way to pay. But the big boys will just buy up their assets. And the banks will extend and pretend rather than take those losses on their books. Don’t forget, with the explorers, they have actual assets in the ground.
But the miners and equipment makers have been through all of this before. In fact, many, many times. Their management knows there are cycles. They will do what Joy Global is doing. Layoff, cut the dividend, cut as many other costs as possible and wait it out. Joy Global has been around since 1884. They’ve seen it all.
By the way- everything IS great Chuk. Strongest economy in 15 years. Unemployment rate is 2.9% in Minneapolis.
I love all the pessimism. It’s really quite bullish.
We will inevitably have another recession. That is the way the cycle works. And maybe it will be later in 2016 if Texas turns into a debacle. But I don’t see why Chicago housing prices would fall in that scenario.
Also, historically, once the Fed starts raising they continue to do so at a fairly steady clip. They don’t raise once and then not raise again for another year.
I’m expecting them to raise again in March.
“I love all the pessimism. It’s really quite bullish.”
You’ve been 100% wrong for 5 years. I highly doubt that will change now.
“By the way- everything IS great Chuk.”
How were things in 2007?…
Really? What have I been wrong about? That housing is at peak in the GZ in Chicago? That the place to be is in stocks? That the economy is humming along?
I love it that you disagree with me Chuk. Very, very bullish.
Are you an economist? I think you must be. They call ALL of the recessions ahead of time. They are 100% accurate every single time.
We may see a recession later this year. Who knows? No signs of it yet but those are often delayed. Everything is at peak. Peak home prices. Peak stock prices. Peak auto sales. Peak restaurant sales. Highest job openings. Lowest jobless claims in 45 years.
How much better can it get? Ultimately it has to slow or give back some of it.
But I don’t see how that would bring down Chicago housing prices. Under your scenario, rates would be the lowest ever making housing even cheaper. We are at record low inventory right now so there would be no inventory flooding the market to push prices lower.
No regular recession in the last 100 years in Chicago has caused housing prices to go down.
“How were things in 2007?…”
How were they in 2000? In 1990? In 1982?
Did housing prices fall in Chicago in 2001? 1991? 1983? The early 1980s recession was brutal. But no housing price decline in Chicago.
Recessions don’t cause housing price declines unless it’s a depression like Texas was in the 1980s where everyone just walked away from their houses because they were all laid off.
Your argument about the housing market doesn’t make sense. In 2007, there was massive inventory under construction in Chicago. We don’t have that scenario right now. It’s the complete opposite.
“Really? What have I been wrong about?”
I already told you. Everything. You were the moron telling everyone not to buy in 2011/2012. Housing prices were going to go lower, etc. Every year while the market left you renting in the dust, you kept saying “next year it will go back down”. Now, you have finally turned bullish at the top. Classic sucker move, and that’s the reason why your blog is useful.
Simply put, you have no clue.
Do a google search for the odds of a recession in 2015. Plenty of people were calling for it in 2014 and in early 2015. It didn’t happen.
It’s nearly impossible to actually predict a recession. Even those who thought housing was a massive bubble in the mid-2000s and would end in disaster to the US economy (see The Big Short movie) made their bets much earlier. The US economy held on much longer than even those bears anticipated. Same with the dot-com bubble in 1999. In 1998 people were saying it was going to end badly and it still took over 2 years to bust.
“Do a google search for the odds of a recession in 2015. Plenty of people were calling for it in 2014 and in early 2015. It didn’t happen.”
But I wasn’t. Timing is everything.
Oh okay. So you are always right but all those professionals are always wrong.
Like I already asked- when are we having it then?
A recession is two quarters in a row of declining GDP growth. That’s unlikely to happen in Q1 given the current numbers although the last few years, Q1 has been hit due to the really cold east coast weather and snow. Computer models are showing a polar vortex in the middle of January. Unclear if that will happen as it’s a bit early and the models are mixed.
California could see a slowing, economically, in Q1 and Q2 if they really get those El Nino rains and roads/houses are washed down hills. Also, Californians will be less likely to eat out and whatnot if the rains are that bad. Not sure that will be enough to pull the rest of the country down with it though. Maybe.
Stock market isn’t signaling a recession yet and its forward looking. But maybe it is wrong.
I see you have absolutely no reason why housing prices in Chicago would fall, even if we did have a recession.
Because they won’t.
“Although, I’m predicting the housing market is going to get hit really hard in the bubble cities like Chicago.”
“But I don’t see how that would bring down Chicago housing prices.”
Those two posts are a little over an hour apart. Please explain.
BTW, now we have to count dots, interpret roman numerals, and refresh the captcha before posting.
economy is not “great” its a plowhorse economy trudging along slowly
not that its bad, I mean its better than a recession/deflation blah blah but something needs to happen for it to really take off and I fear we are about 15 years or so away from that happening technologically
“Oh okay. So you are always right but all those professionals are always wrong.”
No. I am always right and you are always wrong.
“You realize that has NEVER happened, right? The Fed raising rates and the yield falling. ”
we’ve also tightened while 2 of the top 4 economies in the world (euro&japan) are quantative easing and China is easing their monetary policy… the flight to the dollar and treasuries is going to continue to be immense
these fucking captchas are really annoying now sabrina!
“Because they are idiots. This raise was to “save face” and to try to trick people into thinking everything was great.”
yeah they really should have put some balls on and raised sometime in 2014 when things were actually “good” but yellen is another useless decision maker… she should be a politician like the rest of the invertebrates
rates
won’t stay elevated forever probably not longer than 2-3 years. we’ll be back at zero before you know it.
We may see a recession later this year.
What, like next week?
“I’ve been running this blog for 8 years and in that time there has only been one Federal Reserve policy:cutting rates and keeping them near zero.”
I’ve been reading this blog for 6+ years and in that time there have only been Sabrina Post Policy: feature GZ properties and not much else
Now’s your chance to state your case.
Where will the Chicago housing market go in 2016 now that we’re in a rising rate environment?
In those 8 years there have been two presidential election years so I would look to what happened then for more of the same.
My bet is
* more Reluctant Landlords unload their properties because they have hit that sweet spot between what they owe and what the market will pay such that they don’t have to bring money to the table.
** neighborhoods that were on the Gentrification Train to up-and-coming but halted during the bust will start to gain more momentum (Humboldt Park and Albany Park specifically).
“They will do what Joy Global is doing”
(partly) Live off the bk restructuring from 15 years ago?
I’m thinking that we should all highlight or star this post as the entries will be widely quoted and referenced next year. Especially as the state of the market, and interest rates in 2016 becomes factual and not speculative!
All of you arm chair economists predicting a recession or housing prices to dive crack me up. No one knows what economic, political or social events are going to take place a month from now or a years from now. jp3chicago has a good idea, let’s highlight this post.
My personal belief is that real estate as an asset class is over valued. But I don’t know if it will continue to rise, decline or stay stagnant. Perhaps hyperinflation takes over and you ain’t seen nothin yet and real estate prices really take off. Or we get a deflationary depression. Or we stay stagnant. No one knows.
P.S.- Sabrina please fix this stupid captcha posting problem. It is getting super annoying. Thanks.
“Did housing prices fall in Chicago in 2001? 1991? 1983? The early 1980s recession was brutal. But no housing price decline in Chicago.”
“I see you have absolutely no reason why housing prices in Chicago would fall, even if we did have a recession. Because they won’t.”
Sabrina are you being sarcastic or sincere?
(I’ll presume you’re referring to nominal, not real, price changes.)
“I’ll presume you’re referring to nominal, not real, price changes.”
There are about 4 people here who consistently comment with recognition that there is a difference. Sabrina is not one of them.
“There are about 4 people here who consistently comment with recognition that there is a difference. Sabrina is not one of them.”
The problem with ‘real’ prices is that it relies on the fabricated BLS (Or just BS) numbers for inflation. You know, the figures that say inflation is flat because gas prices have dropped, and completely ignore educational, child care, healthcare and housing costs…and housing costs is owner’s imputed rent if that’s not a completely fake academic idea of how to index inflation.
SO I prefer just to speak in nominal numbers.
The problem I have with the captcha is that I can’t do mathematics in roman numerals, and people haven’t been taught mathematics in roman numerals probably 1500 years. Here’s a primer.
http://turner.faculty.swau.edu/mathematics/materialslibrary/roman/
The problem with real dollars is that no one gets paid in real dollars and no one spends real dollars. It’s useful when trying to understand returns vs. inflation but not in day to day discussions.
And every time I see II below I have to remind myself that it’s not 11.
A 0.25% increase won’t change consumer buying habits, it’s insignificant for consumer behavior. People won’t stop buying over 0.25% increase. I’m more concerned how large tax increase in 2016 will affect sales.
Checked new assessed values on cook county assessor website, so many went up 30-45%. On top of increased assessed valuation, there will be that additional tax on properties over $250,000. For a $500,000 property it will add extra $500, and city will calculate it based on their accessed value.
When bills with first tax installments are mailed, they’ll carry the largest portion of taxes, so will look scary to many owners. Investors will see decrease in cap rate, some will have to subsidize their properties, may decide to put them up for sale. Increases in taxes, and huge increases like this, usually hurt prices.
There was a very good article by Dennis Rodkin on it:
http://www.chicagomag.com/real-estate/January-2014/Illinois-Now-Has-the-Second-Highest-Property-Taxes-in-the-Nation/
This might cause large increase in inventory in late spring and in summer, when leases expire.
In addition, 2016 is election year, usually in election years everything slows down 3 months before elections and remains slow for a couple months after elections.
2016 should be be an interesting year.
“The problem with real dollars is that no one gets paid in real dollars and no one spends real dollars”
Everyone gets paid and spends real dollars–a nominal dollar on 12-18-15 is exactly the same as a real dollar on 12-18-15. People don’t *save* real dollars. People don’t plan their retirements on real dollars.
The nominal/real issue relates to statements like:
“The early 1980s recession was brutal. But no housing price decline in Chicago.”
Yeah, there wasn’t a decline in *nominal* terms, but inflation was mid to high teens, while nominal price growth was mid single digits. As the original Case-Shiller article showed, in real terms, Chicago home prices declined from 81-86:
http://academics.wellesley.edu/Economics/case/PDFs/SingleFamilyHomes.septoct1987.pdf
And that matters when you’re saying “never”–in a near zero inflation environment, down in real terms = down in nominal terms.
“I see you have absolutely no reason why housing prices in Chicago would fall, even if we did have a recession.
Because they won’t.”
Sabrina, do you care to explain to your readers why you told them 1/1s in the south loop would go down from $99k but now you feel that they won’t go down from $220k. I eagerly await your answer….
you know inflation is bad when your tenant offers payment in kind.
My feeling is that spring market in 2016 will be shorter and quieter than 2014-2015. Early in spring, there will be some spike in prices, just because spring market usually is fed by expectations and worries, that later in the year prices would go up.
Increased inventory, super high taxes, added less than perfect condition of 80+% of condos, and no savings, huge debt – factors why price increases won’t be sustainable and won’t last.
Prices might go down, most likely they will. Summer market will be slow, and fall market – not good. I hate to feel like this – but this is not the end of the world, it will eventually recover, and sellers will still be selling and buyers will still keep buying. Just play field will look different, it always does.
I’ve been reading Sabrina’s blog from day 1 of its existence, just rarely have time to comment, though like crib chatters and chatteratti:) and thank you Sabrina for letting it happen and for all your incredible work on this site.
At Chuk
Have you ever heard Sabrina admit to a wrong call?
What happens to kids in western states like Colorado
http://www.nytimes.com/2015/12/18/upshot/rich-children-and-poor-ones-are-raised-very-differently.html?smprod=nytcore-ipad&smid=nytcore-ipad-share
I do think the read aloud is a big deal
“Have you ever heard Sabrina admit to a wrong call?”
No. And even worse she lies about what her calls were despite the fact that a simple google search will prove her wrong.
“P.S.- Sabrina please fix this stupid captcha posting problem. It is getting super annoying. Thanks.”
Please hit the refresh near the captcha before submitting and all would be fine.
“Have you ever heard Sabrina admit to a wrong call?”
So Chuk is still not saying why housing prices would decline next year in Chicago if we have a recession? That’s why it’s suddenly all about Sabrina and what she thinks.
I see.
Because they won’t. But Chuk can’t say why they will.
Everyone knows that home prices nationally have only declined twice in the last 100 years in America. And in Chicago, it is the same. Only during the Great Depression but most people rented then anyway and in the recent housing bust. That is it.
Even during the nasty early 1980s recession with record high mortgage rates, Chicago housing prices didn’t decline.
It takes a huge financial crisis to get home prices to fall in Chicago.
Apparently, we’re going to have one of those in 2016 (according to Chuk.)
“Sabrina, do you care to explain to your readers why you told them 1/1s in the south loop would go down from $99k but now you feel that they won’t go down from $220k. I eagerly await your answer….”
Sure. Glad to.
1. Inventory is at record low in the GreenZone and even in many other parts of the city. In the South Loop that is also the case. The 10,000 condos that were sitting there unsold in 2009-2010 have been absorbed by turning them into rentals or selling them.
2. Mortgage rates are still near record lows.
3. The job market is the best since 1999 nationally and in Chicago, it is improving significantly. Unemployment in the Chicago metro area is at 5%. That’s higher than some other markets (Cleveland, Minneapolis, Indianapolis) but it’s far better than where we were the last few years and it’s still heading in the right direction- which is down.
4. Rents are WAY higher than buying now (and continue to rise) which means more people will try and buy. Why would you rent a 2/2 for $5,000 a month in Streeterville when you can buy it for $3,000?
“Sabrina are you being sarcastic or sincere?”
Chicago’s housing market is incredibly stable. The housing bust we just experienced is a once-in-a-lifetime event. Actually, what happened nationally is also a once-in-a-lifetime event.
Could there be a massive earthquake that crushes the California housing market, causing home prices to fall 50%? Sure.
Could the commodities bust ruin North Dakota’s housing market? Sure.
Is Houston/Dallas in trouble if crude goes to $20? Maybe. They claim they aren’t but we’ll see, right?
For Chicago’s housing prices to actually fall, there would have to be massive inventory come onto the market to outstrip demand. Where will that come from? Because, as of right now, I don’t see them building much of anything except about 5 fancy million dollar condo towers.
“(partly) Live off the bk restructuring from 15 years ago?”
Yes- just like Caterpillar, Deere, AGCO and all the other equipment makers. They’ve all been through these kinds of market conditions many, many times. Did I say many times? Yes, many, many times. They’ve been through 2 world wars for goodness sakes.
Will it be pleasant? No.
But people are getting all dark about the economy for no reason. Which is why it’s really bullish.
“So Chuk is still not saying why housing prices would decline next year in Chicago if we have a recession?”
What are you confused about? Your answer is contained in your question. I said that I think we will have a recession, and as a result, housing prices will go down. What more would you like? Would you like me to tell you what a recession is?
If I said I thought Chicago would get nuked, and prices would go down, would you ask my why I thought prices would go down?
Sabrina, can you give a clear answer on what YOU think prices will do in 2016? Because you have already said they will go up, down and stay flat. Please pick one…
Note: I never predicted any dramatic decline in prices. I am predicting -5% or so in 2016.
“Why would you rent a 2/2 for $5,000 a month in Streeterville when you can buy it for $3,000?”
Why don’t you tell us why you rent?
“I’ve been reading this blog for 6+ years and in that time there have only been Sabrina Post Policy: feature GZ properties and not much else”
Icarus, really? From you? I expect more than a cheap shot after all these years.
If it wasn’t for this blog, most readers would have no idea where Jackson Park Highlands was even located. And forget about Galewood or the Villas. Pullman? Nah, never heard of it.
The problem with covering the “rest” of the city began in 2013 when inventories dropped to record lows and basically have stayed there.
I’ve been threatened by real estate agents so many times over the years about photos, that I started using my own pictures of properties many years ago to simply bypass them. That was fine when there were 10 houses for sale in Galewood. I could go there, take a bunch of pictures, and it would be worth it for me to spend the time doing it.
It’s not worth it when there is only 1 house for sale in that neighborhood and it goes under contract in 3 days with multiple offers. It really came down to: what’s the best use of my time? And it’s not going to Old Edgebrook or Galewood to snap one photograph.
Perhaps this spring will be different and we will see a surge of new inventory in a lot of non-GZ neighborhoods. It’s been awhile since I was in Beverly and Morgan Park, for instance. Those neighborhoods are hot but if enough comes on, I’ll go check it out again.
I love blogging about all parts of the city because there is certainly a lot more to Chicago than the GreenZone. But it will really be about the inventory.
“1. Inventory is at record low in the GreenZone and even in many other parts of the city. In the South Loop that is also the case. The 10,000 condos that were sitting there unsold in 2009-2010 have been absorbed by turning them into rentals or selling them.”
But, but, but, what about the “shadow inventory”?!?!? Or were you lying about that?
“2. Mortgage rates are still near record lows.”
I thought they were about to “skyrocket” and the last time they went up even a little bit, the housing market “completely died”? Or were you lying about that?
“3. The job market is the best since 1999 nationally and in Chicago, it is improving significantly. Unemployment in the Chicago metro area is at 5%. That’s higher than some other markets (Cleveland, Minneapolis, Indianapolis) but it’s far better than where we were the last few years and it’s still heading in the right direction- which is down.”
What about all those lawyers that haven’t had a raise in a decade? What about all those recent grads with tons of student debt that could never afford to buy? Or were you lying about that?
“4. Rents are WAY higher than buying now (and continue to rise) which means more people will try and buy. Why would you rent a 2/2 for $5,000 a month in Streeterville when you can buy it for $3,000?”
You said it was MUCH cheaper for you to rent than to buy. You kept giving me your handy dandy New York times calculator. Or were you lying about that?
Think hard about your answers, I have many links handy….
“we’ve also tightened while 2 of the top 4 economies in the world (euro&japan) are quantative easing and China is easing their monetary policy… the flight to the dollar and treasuries is going to continue to be immense”
It’s actually fairly simple for the Fed if they want the 10-year to rise. They simply start selling the $4 trillion on bonds sitting on their books and that will take care of it. So if they want higher rates, they can easily make it happen.
“not that its bad, I mean its better than a recession/deflation blah blah but something needs to happen for it to really take off and I fear we are about 15 years or so away from that happening technologically”
If you live in Lincoln Nebraska right now, they are giving you free vacations in order to get you to come work at businesses there. They are raising wages. They are trying to recruit on the coasts to get people who are paying absurd mortgages to move to where it is sane.
They are at FULL employment.
How much better does it have to be before people admit that this is a great economy?
I’m telling you, the pessimism is SO bullish.
http://www.wsj.com/articles/in-lincoln-neb-a-view-of-full-employment-1450394644
“I’m telling you, the pessimism is SO bullish.”
I’m telling you, your optimism is SO bearish.
“I’m telling you, your optimism is SO bearish.”
Bearish for what? The economy? The housing market? What?
I’ve been bullish on the economy for 8 years. So that’s nothing new.
I’ve been bullish on housing since last spring. Unless the Fed actually does raise rates 4 times in 2016 and then the higher mortgage rates could really mess with housing since prices are so high. That will all depend on wages though. If we get large wage inflation than high housing prices could sustain.
“It’s actually fairly simple for the Fed if they want the 10-year to rise. They simply start selling the $4 trillion on bonds sitting on their books and that will take care of it. So if they want higher rates, they can easily make it happen.”
So simple! With that kind of sound reasoning, you would make a great Fed chair. Probably couldn’t be much worse than Yellen.
“I’ve been bullish on housing since last spring.”
Ummmm. That’s like saying “I’ve been a Patriots fan since November”.
“Unless the Fed actually does raise rates 4 times in 2016 and then the higher mortgage rates could really mess with housing since prices are so high. That will all depend on wages though. If we get large wage inflation than high housing prices could sustain.”
So, you agree that housing prices will go down?
By the way- I’m the only one here who is bullish on housing and the economy (so it appears.) Out of thousands of people who come to this site and the dozens who actually post comments, I am the only one willing to be bullish.
That tells you all you need to know. I’m sure I will be attacked all this week for being stupid and clueless and whatever other trash Chuk and others throw my way. But that is why it is SO incredibly bullish.
Heck- just look at Chuk’s attacks on me right now. He has NO economic argument against what I am saying. None. He’s just calling me stupid which is SOOOOO bullish. This all reminds me of 2007 and 2008 on this blog all over again. I was called endless names then too.
I’m waiting for Heitman to show up and tell me that Lincoln Park is doomed in 2016.
Ha! Awesome.
“That tells you all you need to know.”
Yes, yes it does…
“So, you agree that housing prices will go down?”
Not under your scenario. That’s the only thing I was ever arguing.
Chuk’s argument:
Economy goes into a recession in 2016. Fed does not raise rates again. Yields decline. Mortgages get cheaper. Housing prices go down.
My counter:
We could see a recession. Who knows? We’re due for one but that means nothing. Fed continues to raise rates with these economic conditions (ie no recession). Mortgage rates go up. Housing prices will decline if the rates go up.
Also- we’ve never had housing prices fall during a normal recession in Chicago. It’s not going to happen this time either- whenever we get the next recession. In 2016, 2017 or whenever that is.
“Chuk’s argument:
Economy goes into a recession in 2016. Fed does not raise rates again. ”
You seem to be easily confused:
“A cut followed by negative interest rates is more likely than 4 hikes next year….”
just sleep together and get it over with. it’s so obvious.
Chuk: “A cut followed by negative interest rates is more likely than 4 hikes next year…”
Then you should trade fed funds futures because they are definitely pointing to more raises.
Sabrina: “By the way- I’m the only one here who is bullish on housing”
Well, I’m thinking Chicago housing prices continue to rise about 3 – 5% per year and I am not worried about mortgage rates going up. Does that make me bullish on housing? But you seemed to be recently taking the opposing view on that.
“You seem to be easily confused:”
You said we are going into a recession in 2016.
And then housing prices will drop.
We’ll see.
It has never happened. But then, the Fed has never had $4 trillion on its balance sheet before either.
“You said we are going into a recession in 2016.
And then housing prices will drop.”
You already said you believe that higher rates will result in lower housing prices.
Do you believe that raising rates at the wrong time/too fast can lead to a recession?
“Then you should trade fed funds futures because they are definitely pointing to more raises.”
Will we get more? Probably. Will we get 4 next year? I’m not so sure.
I’m confused, I thought Sabrina was talking about bubble 2.0 and how excited she was about documenting it.
“I’m confused, I thought Sabrina was talking about bubble 2.0 and how excited she was about documenting it.”
Probably toxoplasmosis.
http://www.techtimes.com/articles/58616/20150608/cats-can-literally-make-you-crazy-what-to-know-about-the-cat-parasite-toxoplasma-gondii.htm
“I’ve been threatened by real estate agents so many times over the years about photos”
Can you just use Google Earth’s street view? Right click it and save it.
I also wonder if the Cook County assessor would mind if she just used their photos. And suppose she just hotlinked it? Then it’s not even on her server so it’s not like she “took” it.
“the Cook County assessor”
Those pix are from 2007/8, so aren’t very current for a lot of properties.
Sabrina: “once the Fed starts raising [rates] they continue to do so at a fairly steady clip. They don’t raise once and then not raise again for another year. I’m expecting them to raise again in March.”
I’ll bet you $1 the Fed does NOT raise the Fed Funds target rate 25 bps on March 16, 2016.
Right now, the CME futures market sez the probability of a rate hike then is 50%, so it’s a coin toss.
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
(Click on the tab labeled “March 16, 2016” to see the current probability of a rate hike occurring on that date.)
C’mon. What’s a dollar?
“C’mon. What’s a dollar?”
Is that bet in real or nominal dollars?
“I also wonder if the Cook County assessor would mind if she just used their photos. And suppose she just hotlinked it?”
Thanks for the suggestion, but there’s no way that would work. It would be the world’s ugliest blog.
I’ll have the November sales update on Cribchatter tomorrow. I couldn’t get to it this morning.
“Why would the Fed reverse course in just a few months? What would that do?”
Hmmmm…..
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/01/20160106_odds.jpg
“You realize that has NEVER happened, right? The Fed raising rates and the yield falling.”
Any regrets on this one yet?
“How much better does it have to be before people admit that this is a great economy?”
How about this one?
“By the way- everything IS great Chuk. Strongest economy in 15 years.”
This one maybe?
“By the way- everything IS great Chuk. Strongest economy in 15 years.”
The stock market isn’t the economy Chuk. 284,000 jobs in the last 3 months. Over 2 million jobs in the last year. Record auto sales. Record home prices. Record art and collectible prices.
What would you call this????
Um…duh.
It’s a great economy.
Will the US economy go into a recession again? Of course it will. It’s called “the business cycle.” When will it happen? I don’t know. And neither do you. No one does.
Does it help that one of the largest economies in the world is a mess? No. But we just had one of the better holiday seasons since the Great Recession and gasoline is at multi-year lows. Low gas is a stimulus. It helps.
Would I want to be in Houston right now? No. But I’m not in Houston.
“You realize that has NEVER happened, right? The Fed raising rates and the yield falling.”
The Fed has raised one time. They will raise 4 times this year unless the data goes against them. If the 10 year finishes the year where it’s at or goes lower while the Fed is raising rates, we all have bigger problems than me being wrong.
I’ll take that as a “no” then.
Will the two of you just kiss and make up?
“The stock market isn’t the economy Chuk.”
“Record art and collectible prices.”
Um…huh?
“Low gas is a stimulus. It helps.”
So, if oil goes to $20, that’s a good thing, right?
yes $20 is a great thing for consumers all the world who’ve been reluctantly supporting wahabbi autocratic Kingdoms and corrupt dictatorships around the world. not so good for salafism.
“So, if oil goes to $20, that’s a good thing, right?”
It has to be. Sure…it will put some oil related companies out of business but that happens as things change. It’s huge savings in everyone’s pockets. Most importantly it keeps more money in the US. The main problem that I see is that it destabilizes Saudi Arabia, which could have very negative consequences.
So, if oil goes to $10, that’s a good thing, right?
hint: You have to understand what it would take for oil to get to $20 (or $10).
Oil could get there because the economy sucks or because some middle eastern country needs to pump a ton to stay in business. I’ll take the latter scenario – at least until the Saudis start creating 100K Jihadis.
Will be interesting to watch markets early next week, when Western sanctions on Iran will be lifted, paving the way for additional crude exports. Iran is planning to raise exports by 500,000 barrels/day, rising in a few months to an additional 1M/day…how will that affect market. Any thoughts on market reaction?
“hint: You have to understand what it would take for oil to get to $20 (or $10).”
yeah a world awash in oil. oils been a racket for 30 year now: OPEC, the Goldman tax, regulations both good and bad, etc. the real price of oil is probably $10. we all knew
when oil crashed in 2008 that $33 was the ‘real’ price at that time, and now with a Chinese slowdown and an Iranian oil boom coming immenently, $10 is probably a realistic price. and when it gets back up to $50, the fracking turns back on…
I don’t belittle your position on oil, everyone has a valid opinion, and often the most extreme positions turn out the most accurate. Who would’ve thought three years ago we have a $30 oil today? not me or or dozens of other analysts
I’m not predicting oil will go to $20 or $10. I have no idea. But if it does, I do not think it will be a good thing.
it would be a great thing for world growth and it’s one of the only things that has stopped the world from going further down the economic depression. but it’s awful for old security for the countries rely on oil as their budget: Venezuela Russia the whabbis. but great for countries that want to grow, it’s like free energy as long a there is a will to pump in autocratic countries.
“when oil crashed in 2008 that $33 was the ‘real’ price at that time, and now with a Chinese slowdown and an Iranian oil boom coming immenently, $10 is probably a realistic price. and when it gets back up to $50, the fracking turns back on…”
Who would have thought the US and Canada would be producing as much oil as they do? The technology changed. It got better. It’s now easier to extract.
Oil is like any commodity. In 2008, there was supply and no demand. Shockingly, the price dropped. When demand improved, the price rose. Gasp. Economics.
The inverse is happening right now. Demand is the same but too much supply. When it equalizes, or when inventories drop enough, then the price will rise again. We know how much oil the world uses every day. It’s not rocket science. Unless there’s a recession, it’s pretty steady.
The fracking can’t get turned “back on.” Do you know what it takes to drill oil? Rigs. Men. Equipment. None of which are in the shale regions at the moment. Go to North Dakota. Apartment buildings sit empty. Workers aren’t coming back any time soon. It’s not like you flip a switch and start pumping again. It would take months to get production going again.
Additionally, new owners will probably own a lot of the production anyway. The small exploration companies will go out of business. There have already been 40 bankruptcies. Those leveraged to the hilt are already out of the game. Bigger companies with cash will buy up the assets. You think after 75 to 100 years in the oil business they don’t know how to deal with supply and demand? After surviving a whole decade in the 1980s with crude under $20? Come on.
Low oil is a boom for a consumer-driven economy like the United States. Just ask the restaurant owners right now. They love it.
“hint: You have to understand what it would take for oil to get to $20 (or $10).”
Canadian oil sands is already trading that low. It’s at $16 a barrel. Your point? We’ve been at $10 and $20 before. Heck, does anyone remember that the last time was the late 1990s when the economy was booming??? Oil averaged like $15 a barrel in 1998. Give me a break.
I paid $0.59 a gallon to fill up in Oklahoma back then.
I’m trying to think back to gas under $1 a gallon. Imagine the boon to the economy? Imagine how many more movies and dinners out on the weekends the average family could do?
Wow. HUGE stimulus. It would hurt in the oil producing regions, but that is a small part of the overall economy.
“I’m not predicting oil will go to $20 or $10. I have no idea. But if it does, I do not think it will be a good thing.”
I think you need to spell it out, and speak very slowly.
too bad EVERYTHING else costs so much more… like healthcare, food, clothing, hell… MOVIES
“It has to be. Sure…it will put some oil related companies out of business but that happens as things change. It’s huge savings in everyone’s pockets. ”
I wasn’t asking if it was a savings for people. I was asking if it was a “good thing”. Would it be a “good thing” if lumber prices fell 50%?
Chuck, you know the answer – certainly, it is scary. Oil is just a part of commodities market. Oil comes down, other commodities go down, causing more downsizing, layoffs across sectors – already see it through Intel and others. Economy is one complex adaptive system, with multiple pieces of puzzle in it, all intertwined.
Walmart is closing stores, Macy’s is downsizing, more retailers offering steep discounts – all these are strong indicators of downturn. With more layoffs, salary reductions, bonus cuts, purchase power will be diminishing, causing tremendous ripple effect.
One of the rules of economics is – individual’s reduction in spending reduces the incomes of others and their abilities to spend.
“Sabrina on December 17th, 2015 at 11:47 pm
I love it that you disagree with me Chuk. Very, very bullish.”
Nice top-tick…
The flirting between Chuk and Sabrina is so obvious. It’s like they’ve met before …
I think Vera would be more compatible…
“Would it be a “good thing” if lumber prices fell 50%?”
Not enough information to answer. It depends. If it was because someone figured out how to grow trees at 1/3 the cost then that would be a good thing regardless of the companies destroyed in the process. Increased productivity is always a good thing. If it was because the whole world went into a depression and nobody was building houses any more then that would be a bad thing.
“Walmart is closing stores, Macy’s is downsizing, more retailers offering steep discounts”
I was in Macys a few weeks ago. What a mess. The entire men’s clothing section is ugly/urban style exactly what a man shopping at macys would not buy. They had like $70 calvin klein workout shirts, sean jean and other ridiculous jeans at sky high prices. The stuff that wasn’t urban was eastern european club wear with one of 12 brands (all owned by two or three conglomerates). I wandered the empty isles thinking “who buys this stuff?” Apparently nobody.
The rest of the store was trash. The entire store is a step above Kohls, which itself i’m surprised is still in business. I can buy practically the same item at target for cheaper and better quality.
And wal-mart? They’ve been cannibalizing themselves. They even said that most wal-mart stores that are closing are within 10 miles of a better performing wal-mart. Building two wal-marts close to each other won’t make twice as much sales, silly!!!
And the only two wal-marts in chicago are wal-mart expresses in the city, in uber-liberal and wealthier areas where people wouldn’t set foot in wal-mart unless their life depended on it.
The US has more retail space per capita than anywhere else in the world, it’s not surprising that retail is taking a hit There’s just too many box stores, too many strip malls, all selling pretty much the same goods….
“the only two wal-marts in chicago are wal-mart expresses in the city, in uber-liberal and wealthier areas”
Chicago and Franklin?
The one on Broadway is kinda silly, being so close to the *other* one on Broadway. An who (in Lakeview) is getting their scripts sent to Walmart instead of Walgreens or CVS?
Fully agree with homedelete! The core of this Macy’s and Walmart and many more to follow closures and downsizing is – we do not care what kind of garbage they were selling – these multiple stores represented a huge bulk of those newly created jobs, reported by government as growth, helped to reduce unemployment. They will start correcting themselves and turn into layoffs. A little bit here, and a little more there, more in manufacturing – and it shows an opposite trend from growth, right?
“I was in Macys a few weeks ago. What a mess. The entire men’s clothing section is ugly/urban style exactly what a man shopping at macys would not buy. They had like $70 calvin klein workout shirts, sean jean and other ridiculous jeans at sky high prices. The stuff that wasn’t urban was eastern european club wear with one of 12 brands (all owned by two or three conglomerates). I wandered the empty isles thinking “who buys this stuff?” Apparently nobody.”
Agreed. You have to be metrosexual and gender-fluid and have the frame of a David Bowie to fit in any of it. H&M same thing. Lord & Taylor is going down bad, it’s worse than Kohl’s. Neiman Marcus’ prices are stratospheric. I guess that leaves Nordstrom and Costco and Ebay.
” wal-marts in chicago”
There’s one in Pullman off the Borman Expy near 111th and there’s another on W. Grand near Cicero Ave.
The closing of retail stores isn’t a good indicator of the economy. People aren’t not buying things, they’re just not buying things at Macy’s and W*lmarts and are instead buying things online. I’d bet the demand for warehouse workers and delivery drivers has never been higher.
retail in general is just a mess. kohls Walmart Sears jcpenneys – these stores all have the same junk. yes it’s all junk. j-lo bedsheets made in china, food network cooking utensils made in China yet ridiculously overpriced, a Star Wars display every 50 feet. it’s literally all knick knacks and chinzy nothings. I walk around Sears and I’m like no wonder this store is failing – who wants to buy anything? and then I walked through the electronics section and the one thing I did need, a cable for my tv, was $20 and it would be $4 online or $8 at target. and of course the shelf was full. the days of suburban housewives buying cheap Chinese housewares are over, it was a novelty that lasted a while but it’s all over. it’s a monoculture at all the stores and nobody wants to buy any of it. it’s like consumerism is nearly over and it’s not going to be missed.
HD sounds like an 80 year old trapped in a 30 year olds body.
“HD sounds like an 80 year old trapped in a 30 year olds body.”
Yes, I totally agree, and you’re not the first person to say that. I’ve also been saying this for years. Mentally I feel like an 80 year old to.
$10/bbl oil would mean either someone invented a cheap alternative to oil or there is near zero demand (Economy collapsed)
I’ll leave it to other to bloviate about the ramifications
http://blogs.wsj.com/moneybeat/2016/01/12/10-oil-sure-why-not/
I’ll leave the bloviating to you …
“retail in general is just a mess. kohls Walmart Sears jcpenneys – these stores all have the same junk.”
It’s hard to believe anyone shops at these stores. They are so depressing. Why not stay home and shop online? I like to seek out high quality clothing on mark down. Myhabit is great for that. Why would I spend $50 to get an acrylic garbage sweater from one of those stores, when I can buy a designer cashmere sweater for the same price on Myhabit. Sure, it’s last year’s colors/styles, but I don’t care.
90% of kohls is trinkets and useless housewares. Walmart makes me feel dirty when I leave the store. Sears makes me want to kill myself. Best Buy makes me feel like I’m paying the full retail price on all my purchases. don’t even get me started on big lots, Ashely furniture, etc. office max/Office Depot must be a huge money laundering scheme. I’ve been in half a dozen stores and I only see employees. they sell the same junk as all the other stores except for one wall of paper products and office supplies. target is the only retail store that feels like a retail store. clean, busy, has items I want to buy, housewares and trinklets are only a few isles. and that downtown target on state is awesome. carsons was a waste of space, target is much better fit even if it’s just an oversized CVS.
“I’ve been in half a dozen stores and I only see employees.”
I’d like to know what stores you go to that have employees. I consider myself lucky if I can find anyone working there.
$10/bbl oil would mean either someone invented a cheap alternative to oil or there is near zero demand (Economy collapsed)
We’ve only gone below $10 a barrel on WTI one time (non-inflation adjusted.) But in 1998 it was pretty darn cheap and there was no economic collapse. Was below $15, on average, in 1998. Actually, $11.91 a barrel (according to Google)- inflation adjusted.
“these multiple stores represented a huge bulk of those newly created jobs,”
Actually, they don’t. But you can believe that the economy is only creating Walmart jobs if you want to. Walmart and JCPenney didn’t hire 2 million people in the last year.
I just heard an advertisement for truck drivers on the radio. Schneider is hiring, if anyone is looking. They are desperate. 300,000 job openings for truck drivers nationwide. Walmart is laying off just 10,000.
By the way, two Walmarts are closing in Chicago. Both are the express model. This was an experiment by Walmart to open small, targeted urban stores but there are too many Walgreens and CVS carrying food now.
The “neighborhood” stores will remain open. That includes the one in Lakeview near Broadway and Diversey. These are also smaller than the regular walmarts but this concept must be working.
“The one on Broadway is kinda silly, being so close to the *other* one on Broadway. An who (in Lakeview) is getting their scripts sent to Walmart instead of Walgreens or CVS?”
The one they are closing is an Express store. It was their smallest model. The one on Diversey is a “neighborhood” store- which is bigger.
“Chuck, you know the answer – certainly, it is scary. Oil is just a part of commodities market. Oil comes down, other commodities go down, causing more downsizing, layoffs across sectors – already see it through Intel and others.”
Why is it “scary”? Do you all read Zerohedge? Lol.
Was Intel laying off when crude was $11 in 1998? When it was $16 in 1999?
Hmmm….no.
Will we have another recession? Certainly. But you all seem to think we’re in one right now. When we are not.
This last holiday season was actually quite a good season for the retailers. It was the best December ever for L Brands because its Pink division is crushing it. Lululemon raised guidance. Ulta will crush it but we won’t find out until March, when it next reports. Nike is crushing it, even in China.
Those that sell coats and sweaters couldn’t handle 70 degrees in New York on Christmas Day. No one bought a coat. It was awful. Apparel sales fell almost a percent. The January cold will never make up for those lost sales so those particular retailers got hit.
Travel is crushing it. Carnival had another wonderful quarter and said bookings for the first 3 quarters of 2016 are already stronger than last year. United said it saw weakness to Europe because of the Paris attacks but that just means people will vacation in Quebec or Montreal or St. Barts instead.
If the economy sucked, you wouldn’t be seeing $6 million condos selling in Chicago like hotcakes. 2015 was the best year for luxury real estate since before the bust. And maybe EVER. Record number of high sales.
Who knows going forward. But unemployment was just 4.5% in the entire state of Ohio in November. Sure, that’s backward looking. Maybe now, in 2016, unemployment is spiking higher. But so far, no signs of that. China has had a weak economy for over a year now. If Ohio manufacturing was going to be impacted, we should be seeing it.
“I wasn’t asking if it was a savings for people. I was asking if it was a “good thing”. Would it be a “good thing” if lumber prices fell 50%?”
In a consumer based economy, yes, it is a good thing.
“Would it be a “good thing” if lumber prices fell 50%?”
By the way- haven’t they already done this? I think it’s close. Down 40% or something. All commodities are down big, not just crude. The commodities index is at its lowest level since it was created in 1991.
It’s what happens when China stops growing.
“If the economy sucked, you wouldn’t be seeing $6 million condos selling in Chicago like hotcakes. 2015 was the best year for luxury real estate since before the bust. And maybe EVER. Record number of high sales.”
In the last 12 months 7 condos sold above $5 MM, which is good for the city, but that’s not exactly hot cake sales. But we’re all entitled to a bit of hyperbole.
BTW, is it just me or are the posts out of sequence?
In the last 12 months 7 condos sold above $5 MM, which is good for the city, but that’s not exactly hot cake sales. But we’re all entitled to a bit of hyperbole.
Please tell us how many sold in 2012, 2013, 2014. How about 2007?
ANY property selling over $5 million is actually kind of rare. We had 7 sell. Just condos. That doesn’t even include SFH.
We were talking about condos. Here are the stats from the MLS. Earlier I added in Ken Griffin’s sale which did not cross the MLS.
2007: 6
2008: 7
2009: 1
2010: 7
2011: 4
2012: 7
2013: 6
2014: 4
2015: 6
I forgot about the George Lucas purchase this year, which also did not go through the MLS.
http://blogs.wsj.com/moneybeat/2016/01/12/10-oil-sure-why-not/
I’ll leave the bloviating to you
Guessing you’re going to be going down to the CME Tuesday put your money down
These are for only sales over $5 million?
We were talking about condos.
By the way- there are only 17 condos on the market listed over $5 million in Chicago right now. It’s not the spring selling season yet, however, so more could come on the market (or not if the stock market sell off is spooking the rich.)
The $5 million level, either in a condo or a SFH, is quite rare in Chicago. We aren’t NYC or SF. There are few buyers at that level. Yet 2015 was one of the strongest years we’ve seen.
The inventory is also sparse for SFH.
There are 60 single family homes in the Chicagoland area listed over $5 million. Only 17 of those are actually in the city limits.
“These are for only sales over $5 million?”
Yes. When I drop the limit to $4 MM the number doubles or triples.
$20, $10? How about negative oil prices….
https://confoundedinterest.files.wordpress.com/2016/01/negativeoil_ci.png?w=585&h=296
“We’ve only gone below $10 a barrel on WTI one time (non-inflation adjusted.)”
WTI has never been as low as $10 since the ’73 embargo. Was never as high as $10 before that. If we’re talking about nominal dollars.
“But in 1998 it was pretty darn cheap and there was no economic collapse. Was below $15, on average, in 1998. Actually, $11.91 a barrel (according to Google)- inflation adjusted.”
SMH.
The $11.91 was the nominal bottom, and the post-embargo low. Inflation adjusted, that’s about $18 today. In inflation-adjusted terms (aka real dollars) that was certainly the post-1950 low, and may have been the post-WW2 low (conflicting info, after gthooi).
Were it to drop to $10 now, that would be over 40% below the all time (modern era) low. Think about that.
“Were it to drop to $10 now, that would be over 40% below the all time (modern era) low. Think about that.”
pumping technology has greatly improved output and OPEC has essentially forgone it’s cartel like status to maintain marketshare.
cinnamon and pepper and silk used to be expensive commodities too many eons ago. so was iron bronze and tin.
“OPEC has essentially forgone it’s cartel like status to maintain marketshare.”
I cringe every time one of the news commentators talk about opec producers maintaining market share. Market share is a branded product concept. It makes no sense when talking about a commodity. The reason is that where you buy your commodity from tomorrow has no relation to where you got it yesterday. The reason these guys keep pumping is that they have no choice. They need the money – at whatever margin they can get.
Gary but that’s what market share is. they want to supply as much as the market as they can. they pump more than anyone else so they have too also. this is why OPEC exists in the first place, to prevent one party over pumping their share and reducing prices.
this party won’t last when OPEC cuts production significantly in the future. we are in for a wild ride.
“this party won’t last when OPEC cuts production significantly in the future. we are in for a wild ride.”
OPEC cannot cut. Venezuela has already said they won’t do it. Others in the group have also said they will cheat. They have no choice. They have bills to pay. Russia, not a member of OPEC, has said they will keep drilling forever and ever. They, too, have budget concerns and some money out of the ground is better than no money out of the ground.
No one has any incentive not to cheat.
“WTI has never been as low as $10 since the ’73 embargo. Was never as high as $10 before that. If we’re talking about nominal dollars.”
The $11.91 WAS inflation adjusted in 1998, anon (tfo).
“The $11.91 WAS inflation adjusted in 1998”
Inflation adjusted to when? Jul-2000? Why does that date matter to us?
$11.91 in 2015 was under $8.50 in 1998, inflation adjusted. Using CPI, it would be $8.19 nominal 1998 dollars. The lowest daily price in 1998 was $10.82, and that’s not the lowest nominal price in the last 30 years–that was on March 31, 1986.
As far the non-traders among us are concerned, the dailies are completely meaningless, and the weeklies (nominal bottom of $11.00, Christmas week, 1998), almost as much so. The monthly average is what matters most, and that nominal bottom was Dec-98, at $11.35. Which would have hit $11.91, inflation-adjusted, sometime in 2000.
The $37.21 Dec-15 average for WTI is $27 and change in 2000 dollars. So, yeah, still 2.5 times the all time low, and, yeah, at $20, it’d still be 20% higher than the real dollar low in Dec-98. But that low isn’t meaningfully expressed as $11.91 “inflation adjusted”.
Venezuela cant cut but is getting a haircut with the closing of Hovensa a few years back and the current price of oil
Russia can keep drilling but there will be a point where no one will loan them any money
The House of Saud tipped its hand with Aramco going public
The HoS is going to provoke a ME crisis as Iran & Russia will eventually realize that selling at a loss but make it up in volume mantra doesn’t work
TNX 1.96
Sabrina sez “If the economy sucked, you wouldn’t be seeing $6 million condos selling in Chicago like hotcakes.”
I say: Hmm. . . . hotcakes.
Sabrina asks: “Does it help that one of the largest economies in the world is a mess? No. But we just had one of the better holiday seasons since the Great Recession and gasoline is at multi-year lows. Low gas is a stimulus. It helps.”
Sabrina asserts: “This last holiday season was actually quite a good season for the retailers. It was the best December ever for L Brands…. Lululemon raised guidance.”
Provide the link(s) buttressing your claims, so that others may consider your evidence, too.
Fwiw, some guy holds the contrary opinion: “December [Retail Sales] Numbers Are a Huge Disappointment”
http://www.advisorperspectives.com/dshort/updates/Retail-Sales-in-Review
“he 10-year yield will continue to fall, potentially below 2% once again”
You realize that has NEVER happened, right? The Fed raising rates and the yield falling.”
Since The Fed hiked rates mid-December, 10Y Treasury yields have plunged around 40bps with today’s 6bps drop taking out 1.9015% Black Monday lows, all the way back to April 2015 lows.
“The Fed has raised one time. They will raise 4 times this year unless the data goes against them. If the 10 year finishes the year where it’s at or goes lower while the Fed is raising rates, we all have bigger problems than me being wrong.”
Fed funds futures: Less than 30 pct chance of even 1 rate hike in 2016
Sabrina, care to comment?
“Sabrina, care to comment?”
Um…it’s only the 3rd of February? And I think I said it pretty clearly in that comment: if the data goes against them, they will change course. So far, the data hasn’t gone against them but they will consider everything in March.
“And I think I said it pretty clearly in that comment”
In other words, if what you think doesn’t happen, then you will be wrong. What a brave statement. I think the Panthers will win this weekend, unless they don’t. See, then I can pretend I didn’t say the Panthers would win.
“In other words, if what you think doesn’t happen, then you will be wrong.”
What I said in the comment you pasted is pretty clear.
1. The Fed said they will raise 4 times this year. But the Fed is always data dependent. If the data changes, they change course.
2. The data hasn’t, as of Feb 3, changed. The Fed acknowledged at their last meeting that there was some slowing in the economy. That’s what everyone is going on that “well- that means there won’t be ANY increase this year.”
Who is believing a thing the desperate Wall Street types are saying? They are a drug addict. They want the Fed drug. They will do anything to get it. Right now, they aren’t getting it so they are kicking and screaming about it.
Mrs. Yellen will testify next week. We’ll find out more what she’s thinking then.
It’s really not rocket science. The Fed is reactive to what is going on. If we start seeing job losses every month, then yeah, the Fed isn’t going to raise. Duh. But as I said in my prior comment- that means we’re all in a world of pain that has nothing to do with the Fed.
But I’m expecting another pretty solid number on Friday. ADP was actually quite good. So why the panic over raising? The US economy is doing well right now.
As I keep saying, would I want to be in Houston right now where thousands are losing $1800 a day jobs? (as I heard on the radio this morning).
Um…no.
But we’re not in Houston here.
So I think the Panthers will win, unless they don’t score as many points as the Broncos. Then I think they will probably lose.
So, you’re sticking with your 4 raises this year?
“So, you’re sticking with your 4 raises this year?”
I am the Fed. So yes- they are raising 4 times this year unless the data goes against them. The data hasn’t gone against them so they’re raising in March. So far, they haven’t indicated otherwise.
If Mrs. Yellen comes out next week warning the Committees that they’re going to pause, then that’s what they’re going to do. But they’d look like fools and idiots and I don’t think anyone on the FOMC ever wants to look like that.
If you think the Fed will hike rates in March—”The data hasn’t gone against them so they’re raising in March”—why didn’t you accept the friendly wager I proposed above?
“thousands are losing $1800 a day jobs”
Wait–there were *thousands* of oil workers who had $400k+ (annual) jobs?
“Wait–there were *thousands* of oil workers who had $400k+ (annual) jobs?”
Yes. Very common in Texas for the specialized, experienced drillers at the rigs to be earning that much. That’s why this downturn is so devastating for those in that area. They were living in $1 million homes. And until the oil sector comes back, they will NOT be able to get a job that even comes close.
There have been articles describing $180,000 a year oil workers who are now trying to get truck driving jobs just so they can have SOMETHING to try and pay the bills.
Here’s an article with the salaries:
http://www.cnbc.com/2015/07/22/
It lists all the “average” salaries in the industry as of 2015. Since this is “average” plenty made more than this. So yes, there are thousands making $200,000, $300,000 and $400,000 a year in this industry. It’s HIGHLY specialized.
Geophysicist $198,512
Drilling engineer $176,415
Reservoir engineer $183,502
Production Engineer $175,788
How many of these do you think work for Exxon? And then add in Apache, Anadarko, Chevron, BP, Occidental, Conoco and three dozen smaller players. It’s thousands making these salaries.
I know it’s really eye opening for the white collar professionals who think law (and maybe medicine) are the only professions you can get rich. They are way down on the list now. These engineers at the oil companies were making more than those in the general counsel’s office.
law and medicine aren’t places to get rich.
Many of those oil jobs are also located 100 miles west of nowhere, so some of the pay is to incent people to live in places no person would ever otherwise want to live.
Hell, even Walzmart has to pay nearly $20/hr in West Nowhere, North Dakota.
“The data hasn’t gone against them so they’re raising in March.”
You sure about that….
tnx is 1.74% now
“tnx is 1.74% now”
I take it that is not “firmly above 3%”…
Here’s the right link to that salary article:
http://www.cnbc.com/2015/07/22/oil-and-gas-jobs-pay-is-still-big-but-not-booming.html
No evidence that *anyone* (short of ownership, and c-level) was making $400,000, nevermind “thousands”.
“No evidence that *anyone* (short of ownership, and c-level) was making $400,000, nevermind “thousands”.”
Again- these are the “average” salaries of those jobs. If the “average” is $190,000 then that means quite a few are making more than $190,000 unless you assume just one person is a Drill Engineer.
On the radio, the guy they interviewed made $1800 A DAY and he was now out of work. Sorry you cannot make that in your profession but to deny that there were thousands of these (mostly men) employed all over the oil states is ignorant and stupid. And yes they make more than nearly all of the management back in Houston or Dallas.
Supply and demand. Many more lawyers than there are drilling engineers and the other specialized professions that know how to put fracking sand into the drill bit.
Interesting contrast. The upstream guys being laid off. All high salaries.
But the downstream guys are now in big demand (at the refineries.) Also making big salaries- but without college degrees.
There have been THOUSANDS of people making this kind of money, working on the rigs, very, very experienced personnel, now laid off. They’ll never get a job paying that much money again unless oil prices make a comeback. And downstream isn’t hiring them because they don’t have the right skill set.
http://www.latimes.com/nation/la-na-texas-oil-20160126-story.html
As the price of crude oil has veered south over the last year, Houston has become a city of contrasts. Most of the pain has been felt in “upstream” management of crude production — among white-collar geologists and engineers in corporate offices clustered on a stretch of Interstate 10 known as the “Energy Corridor” on the city’s west side.
The “downstream” refineries, along another stretch of Interstate 10 to the east, now pay less for the crude oil they process. They are in the midst of a more than $50-billion construction boom, and their blue-collar employees are working round-the-clock shifts.
Of 40,000 estimated jobs lost in the oil and gas sector in the Houston area last year, many were on the west side, including about 13,000 white-collar professionals — lawyers, accountants, engineers, architects and consultants.
As the downturn lengthens, total job losses in the region could continue, Gilmer said. But they will not be as hard a blow as the last big bust in 2008, he said, and will be cushioned this year by job gains in other sectors, including 10,000 new construction jobs on the industrial east side.
Schuelzke and his friends didn’t attend college and instead started work here for more than $60,000 a decade ago in a field that now pays six figures. Their companies have been hiring steadily, about 20 new operators a quarter.
A refinery veteran sitting nearby chimed in that he tried to retire from ExxonMobil last year, but he was so in demand as a trainer that he returned.
“You realize that has NEVER happened, right? The Fed raising rates and the yield falling.”
TNX 1.60
“Then you should trade fed funds futures because they are definitely pointing to more raises.”
Market expecting only 5.2% chance of a single hike by Feb 2017 as of now.
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
“If the “average” is $190,000 then that means quite a few are making more than $190,000 unless you assume just one person is a Drill Engineer.”
Didn’t you spend a week arguing with Gary that engineers start at high salaries, but have a low top end?
Now, you’re arguing almost the opposite.
And *STILL* based on a single anecdote, from a guy who was probably a 1099 contractor, and may have been citing his single best contract. No actual data, except a $190,000 average, and one guy who needed to make his high day rate for 220+ days to hit the $400k number that “thousands” of laid off dudes were making.
For actual data, there are a number of places that give a typical range for drilling engineers of $150,000 to $230,000. The same sites peg the salary for a drilling operations director at $400k, or more. Have a lot of those guys lost their jobs? No doubt. But it simply ain’t “thousands” of $400k jobs that have been lost.
“Didn’t you spend a week arguing with Gary that engineers start at high salaries, but have a low top end?”
That’s your normal joe schmo engineer in Silicon Valley. Energy engineers are a different breed when you get way up the chain of command because of supply and demand issues over the last 10 years. Of course, now, there is no supply and demand issue because they’re closing all the rigs and it will take years to re-open those. Many of the very senior guys will likely be retired by then.
All I know is, on the radio report on CBS they interviewed an energy engineer who said he was making $1800 PER DAY and now was out of work and how was he going to replace that kind of income? Um…you’re not.
It sucks for everyone in that industry.
And yes- it’s thousands of jobs at those salary levels. There’s not one single guy making that kind of money. Again, supply and demand. There were thousands.
Over 100,000 jobs lost already last I checked (it’s probably many more by now because that was a bunch of months ago.) These are mostly high paying jobs. Heck, women working in marketing departments at oil companies were making $120,000 and working on the rigs is a real, skilled job.
As I said- they have closed over 1000 rigs in the United States in the last year. If every single one had even just one drill engineer, then that is a $200,000+ job that just went poof into the night.
“On average, energy jobs in Houston pay about $200,000 per year with benefits and other perks, nearly three times the $70,000 the typical wage earner takes home, Jankowski said. “It would be very difficult to find something outside of oil and gas that pays as well.””
On average. And for ALL “energy” jobs. This is why Texas, Oklahoma and the Dakotas have been booming over the last 10 years. These were some of the best paying jobs in the economy. And many can earn 6 figures without even having a college degree.
They also talk about the $100,000 signing bonuses.
So yeah- life was good. As I’ve said- I wouldn’t want to live in Houston right now.
http://www.houstonchronicle.com/business/energy/article/Rising-layoffs-stun-worry-oil-industry-workers-6460142.php
“Market expecting only 5.2% chance of a single hike by Feb 2017 as of now.”
Yeah. No one thinks Yellen and company will do anything for years and years.
Of course, these are the same people who think we’re in a recession right now.
“If every single one had even just one drill engineer”
You really think that that is how it works? A supervisory position for every single well?
Sheesh.
“I am the Fed. So yes- they are raising 4 times this year unless the data goes against them. The data hasn’t gone against them so they’re raising in March.”
You were wrong. Shocking.
like Jim Cramer, an excellent contrarian indicator!
“like Jim Cramer”
You have made a jim cramer reference, i have now lost all respect for you.
“I am the Fed. So yes- they are raising 4 times this year unless the data goes against them. The data hasn’t gone against them so they’re raising in March.”
“You were wrong. Shocking.”
They’re no longer data dependent Chuk. Even you know that. Come on.
4.9% unemployment rate
Average job gain of 235,000 the last 6 months
S&P 500 just 5% off the highs
Wages being pressured (but only on the low end so they’re overlooking it)
Housing back to record high prices (and then some)
The data that they look at ALL supports raising the rates. It’s actually much better than in December when they first raised. The economy is actually quite hot right now. But they’re too chicken after what happened in January with the stock market. And February’s more moderate wage inflation data gave them a way out.
Chuk- what about your prediction that prices would fall this year? That the US economy would go into a recession?
I still stand by what I said. The Fed should have raised today if they had any credibility. Now they do not. Party on.
What’s YOUR excuse for getting it so, so wrong?
“What’s YOUR excuse for getting it so, so wrong?”
You can’t be that stupid. It’s just not possible.
“What’s YOUR excuse for getting it so, so wrong?”
“You can’t be that stupid. It’s just not possible.”
Once again, Chuk comes onto this site and never says ANYTHING about any properties. He really has nothing to contribute at all.
Where’s the recession Chuk? WHERE THE HELL IS IT????
Oh wait…
As I said, if the data stays this hot the Fed should have raised this month. They did not. Because they are no longer data dependent- as this article also confirms:
http://www.bloomberg.com/news/articles/2016-02-29/rbc-if-yellen-doesn-t-hike-in-march-then-the-fed-isn-t-really-data-dependent
It’s a joke. But at least we now know where we stand.
Meanwhile, the economy is heating up which is good (bad?). Good as long as there is no inflation. But heaven help the next batch of homebuyers who will have to buy these overpriced properties (as this bubble expands.)
When will we see some of the new apartment towers being converted to condos???
Sabrina
You need to pause and more closely read your source material.
The next part of the line on the link says
“At least not on domestic data.”
“Once again, Chuk comes onto this site and never says ANYTHING about any properties. He really has nothing to contribute at all.”
I take it back. You are that stupid.
“When will we see some of the new apartment towers being converted to condos???”
Not for a long time, they all get sold to the likes of pension funds at valuations higher than a condo conversion would yield.
“When will we see some of the new apartment towers being converted to condos???”
Completed in 2010…Walton on the Park is going condo…So I believe it went from condo to rental now back to condo.
http://www.chicagobusiness.com/realestate/20160316/CRED03/160319861/as-condos-come-back-gold-coast-tower-gets-second-chance
“Completed in 2010…Walton on the Park is going condo…So I believe it went from condo to rental now back to condo.”
Walton on the Park, now being called the Alchemy, isn’t a “new” build. It’s a housing bust building (hence, why it had to go to apartments in the first place.) There were plenty that did that. Heck, the investor who bought up like 40 units in 757 N Orleans and rented them out is now selling them again.
That’s NOT what I was asking about.
When will one of the buildings constructed in the last 4 years go condo?
When will one of them that they were going to rent out- actually just go straight to condo first?
That’s the next stage of Bubble 2.0. That is what happened in the late 1990s as demand started to pick up. The Sterling was apartments. It was converted to condos before anyone moved in. The luxury high rise The Fordham in River North was originally slated to be apartments (which is why the layouts are very apartment-like) but this too was converted to condos before a single renter ever moved in.
“You need to pause and more closely read your source material.
The next part of the line on the link says
“At least not on domestic data.””
No- chichow- I don’t need to “pause” and “more closely read” that article. You do.
The Fed’s ONLY mandate is domestic!
Lol!
What don’t you understand????
Their mandate is:
1. Inflation
2. Employment
In the good ole US of A. That is it.
Will they look at what China, Europe, Japan, India, Mexico and everyone else is doing and how it could impact the US economy? Of course.
But they would have had to look at ALL of those countries in December when they raised rates because the data told them to do so. The data in March was stronger than in December. There is no reason, IF they are data dependent, to stay put in March. None. At. All. Not even based on what is happening in China, which isn’t any “worse” than they were in December.
As I said- they are no longer data dependent. That much is obvious.
As long as they make that clear- then fine. Because I don’t want to hear Yellen say in another press conference that raising rates depends on the data. Because it doesn’t. Not anymore.