Bobby Darvish has been involved in the mortgage industry since 1998 He is a Certified Mortgage Planning Specialist from CMPS Institute, has studied residential mortgage & commercial mortgage underwriting courses, is a Business Finance Consultant graduate as well as a licensed broker.
Trump’s Billionaire Neighbor Warns U.S. Economy Is In An “Omnibubble”
Jeff Greene, who made his first fortune shorting subprime mortgages during the Great Recession, sees trouble ahead for real estate and no relief for crypto or tech stocks.
During the last major recession from 2007 to 2009, a little-known entrepreneur named Jeff Greene
made billions of dollars by buying credit default swaps on subprime mortgage-backed bonds as the housing bubble collapsed.
Now Greene, a Palm Beach-based real estate mogul with an estimated $5.1 billion fortune, thinks the economy is going through another bubble in assets ranging from crypto and SPACs to overvalued tech stocks and real estate. "We've been in an omnibubble, there's no question about it," Greene, 67, told Forbes in a phone call from his Hamptons estate, something he’s been saying for months now. "If you spend trillions and trillions of dollars in every advanced economy in the world and have coordinated fiscal and monetary stimulus, obviously you’re going to create bubbles and inflation."
Asked when he thinks a recession will hit, Greene guessed it might come in the first or second quarter of 2023. "Next spring [we'll] definitely be in a much slower economy,” he said. “If this recession really happens, you'll have all kinds of people stopping their construction projects and laying people off and [you’ll] start to see unemployment creep up quickly.”
More than a decade ago, Greene made a fortune from the wreckage of the housing market and reinvested some of his profits into apartments and condominiums, eventually building a residential real estate empire concentrated in south Florida and Los Angeles. But despite skyrocketing prices for real estate across the country, Greene thinks the boom will soon turn to bust. “The real estate market is in a bubble,” he said. “We’re way overbuilt and you’re going to see a lot of people have problems with their real estate developments,” he posited, referring to residential real estate.
He also sees a parallel between the subprime mortgage crisis of 2007 and the booming stock market and crypto wave of 2021. “It's like when I was doing the subprime short [betting that the value of subprime mortgages would fall] and I remember saying, 'Who's on the other side of this trade?' These mortgage-backed securities had almost no possibility of being paid back,” he said.
"It's the same thing with people saying, 'Well I have to buy equities because I don't want to make one percent [return with low interest rates] so I'm going to put my money in something that's highly inflated,” Greene said. “And they bought crypto, SPAC shares, houses to flip, equities and private equity investments at unprecedented multiples of revenue with no prospect of earnings whatsoever.”
While he still invests in a range of stocks and private equity, he told Forbes he’s now more risk averse than he was a decade ago, with little debt on his real estate projects in Florida and New York, where he recently finished construction on a 30-story residential building in lower Manhattan. He’s also turned down several offers to sell his buildings for cash or invest in highly-valued private companies in early funding rounds. (He won’t say which particular companies have approached him.)
Unlike his successful bets against the housing market in the Great Recession, Greene isn’t shorting anything this time around. Asked what he would do if he was more open to taking risks, he outlined a potential strategy. "If I were more aggressive, because I saw this [bubble] happening, I would have sold more at the top. I would have built a war chest and been sitting here waiting for opportunities [to buy at lower values],” Greene said. “The kinds of deals that people were bringing to me to invest in some of these tech companies, I was getting calls [saying] ‘I can get you into this special round at a billion dollars, the company is doing $40 million in sales.’”
He found those offers to be overpriced: Greene thinks many of those tech companies are bound to run into difficulties as the stock market continues to drop and the economy enters a recession next year. "[I’m] thinking, 'Who's doing this?'” he said, referring to investing in startups at sky-high valuations.
“I have friends who are very smart people that were doing this and everybody thought they were going to be the next Zoom. A lot of these companies lose money and now they’re cutting expenses and trying to make it through this period,” he said. “You can be sure that there are companies that are going to be up against the wall. You'll be able to get into some of these—what I call 'science projects' [because] they're just sort of ideas that are unlikely to become huge—at very favorable terms. And people will make a lot of money, one of them will be the next Google or Amazon. In those spaces, there’ll be opportunities.”
Still there is no doubt that Greene is a beneficiary of the bubble. Greene, who’s lived in Palm Beach since 2009, pointed out the increasing exodus of billionaires and wealthy investors leaving northern states to relocate to south Florida, where property prices have soared since 2020. And it’s not just billionaires who are moving to the Sunshine State: rents in Miami rose nearly 26% on a year-on-year basis in the second quarter of 2022—higher than all major U.S. metro areas—and demand for apartments is near record levels, according to Marcus & Millichap.
“There's just extraordinary migration to our area, which has put tremendous pressure on [real estate] values,” said Greene, who cited the recent announcement that billionaire Ken Griffin plans to move his hedge fund Citadel from Chicago to Miami as providing yet another boost to the local economy.
The influx of the superrich to Palm Beach has also increased enrollment at the Greene School, a nonprofit pre-K-through-high school in Palm Beach that Greene founded with his wife, Mei Sze, in 2016. There are now 150 students enrolled at the school, up from 123 in the 2019-2020 school year.
"The kinds of families who are moving into our town and putting their kids in our school, it’s like the all-star team,” he said, citing a pre-K class with parents including several Ivy League-educated hedge fund founders. “These are people that will create all kinds of jobs and businesses that are going to juice the Palm Beach county economy. I'm very bullish long-term on the economic growth and the value of my holdings there.”
Greene estimates that he owns “virtually all of the remaining high-rise development sites on the water” in Palm Beach, much of which he acquired after the housing market crash in 2009 when land values were cheap. But even if the property market in south Florida is still booming, Greene sees dark clouds ahead if, as he expects, the economy tips into a recession in early 2023—particularly for real estate investors who are highly leveraged.
Even among fellow billionaires, Greene has seen the impact of recession fears on their high-spending lifestyles. “I was at Hotel du Cap with a bunch of superrich people [two weeks ago], one of the most expensive hotels in the world in Antibes, France, and everybody’s saying ‘Oh my god, I’ve lost 30% of my net worth.’ But they’d already booked the hotel,” he said. "Those days are going to be over this winter. You’re going to start seeing people spending less money and the recession will kick in.”
It's time to pull out Jimmy McMillan's slogan for his 2010 New York mayoral run: “The rent is too damn high.” But today, the slogan applies across the country as renters feel the squeeze.
The median monthly rent in May hit $1,849, a 26.6% increase since 2019 before the pandemic, according to Realtor.com’s Monthly Rental Report.
“Single-family rents continue to increase at record-level rates,” Molly Boesel, principal economist at CoreLogic, said in a statement regarding its Single-Family Rent Index (SFRI) report. “In April, rent growth provided upward pressure on inflation, which rose at rates not seen in nearly 40 years. We expect single-family rent growth to continue to increase at a rapid pace throughout 2022.”
During the pandemic, rent moratoriums and rent assistance programs helped renters who were laid off stay in their apartments. With the expiration of those programs, rent affordability is becoming a crisis with rising inflation.
Where you live will determine the amount of your rent hike. In Miami, rent increases are averaging 40.8% with Orlando seeing increases of 25.8% and Phoenix 17.8%.
“Rent and for-sale listing prices are closely correlated,” according to Realtor.com’s report. Therefore, it’s not surprising that rents are high in Miami and Phoenix, as both cities typically lead in S&P CoreLogic Case-Shiller national home price 20-city index.
New Yorkers are complaining about 40% rent increases, with the average rent on a (non-subsidized) apartment in May was $4,975 a month, a 22% from last year.
For rent-subsidized New Yorkers, the New York City housing board voted to increase rent for rent-stabilized homes 3.25% for one-year leases and 5% for two-year leases.
“There’s no question that renters are facing sky high prices. And with rising inflation reflecting price jumps for both rents and everyday expenses, many renters are feeling the strain on their finances,” Danielle Hale, chief economist at Realtor.com, said in a press release. In a bit of good news for renters, last month’s prediction of rents surpassing $2,000 sometime this summer is going to take longer to materialize.”
Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government.
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U.S. home prices climbed to another record high in April, as inflation continued to run hot across the housing market in the spring.
The latest S&P CoreLogic Case-Shiller index released Tuesday put the annual increase in the cost of a home at 20.4% in April, down slightly from the prior month's upwardly revised jump of 20.6%.
The pace of increases slowed marginally for the first time since November in a potential sign home prices may be beginning to cool, but many cities across the country continued to see prices soar at a quickened pace.
“April 2022 showed initial (although inconsistent) signs of a deceleration in the growth rate of U.S. home prices,” Craig Lazzara, managing director at S&P DJI, said in a statement. “We continue to observe very broad strength in the housing market, as all 20 cities notched double -digit price increases for the 12 months ended in April. April’s price increase ranked in the top quintile of historical experience for every city, and in the top decile for 19 of them.”
Cities that saw the biggest price accelerations were Tampa, Miami and Phoenix, with year-over-year home prices gains of 35.8%, 33.3%, and 31.3%, respectively.
Moreover, S&P CoreLogic Case-Shiller’s 10-city composite registered an annual increase of 19.7%, climbing from 19.5% in March. The 20-city composite saw an annual gain of 21.2% compared to 21.1% during the prior month.
Bonds are once again under pressure. The ten-year has risen above the 3.20 level and appears to be headed toward 3.30. The MBS is sitting on a critical support level of 97.50. It needs to hold or we risk 97.20 at a minimum. The news today was mixed. Consumer confidence was once again hammered and I give this the most weight. Perhaps later the market will agree with me. This pullback seems more technical than fundamental and it needs o run its course. Thursday is a massive news day, lets hope it bring us favorable bond news.
This week we update you on what happened last week with the economy and how it will impact the markets this week. We also share some of the stocks we are eyeing between now and Friday the1st of July:
After a record-shattering year in 2021, the housing market is at an inflection point. Higher interest rates have taken some heat out of the homebuying market, and the large number of apartments under construction should bring some relief on the rental side. For lower-income households and households of color, though, the pressure of high housing costs is unlikely to relent. According to our new The State of the Nation’s Housing 2022 report, the surge in the prices of gas, food, and other necessities has made matters worse, especially now that most pandemic emergency government supports have ended.
The costs of housing continue to climb. Home price appreciation nationwide hit 20.6 percent in March 2022, marking the largest jump in three decades, and is continuing to rise. The runup has been widespread, with 67 of the top 100 housing markets experiencing record-high appreciation rates. [INTERACTIVE CHART] Meanwhile, rents were up 12 percent in the first quarter of 2022, with increases in several metro areas exceeding 20 percent.
High Hurdles for First-Time Homebuyers
With interest rates rising, on top of double-digit home price increases, the income and savings needed to qualify for a home loan have skyrocketed. Potential homebuyers saw monthly mortgage payments on the median-priced US home rise by more than $600 over the past year. At today’s prices, the typical downpayment that a first-time buyer would need for a median-priced home is $27,400, which would rule out 92 percent of renters, whose median savings are just $1,500.
Increasing Inequalities
The massive windfall from rapid home price appreciation has widened the wealth gap between homeowners and renters. In 2019, the median wealth of homeowner households was $254,900—about 40 times the $6,270 median wealth for renter households. Because of their relatively low homeownership rates, many Black and Hispanic households missed out on these equity gains.
Persistent Affordability Challenges
Job and income losses early in the pandemic increased the affordability challenges for millions of households who were already struggling. In 2020, the share of households paying over a third of their income for housing climbed 1.5 percentage points to 30 percent. [INTERACTIVE CHART] This includes a 2.6 percentage point jump in the rate for renters and a 1.0 percentage point increase in the rate for homeowners. The increase among Black households was also disproportionately large at 2.4 percentage points.
Housing Construction at a New High
Residential construction has finally picked up: single-family starts hit 1.1 million in 2021, exceeding the million-unit mark for the first time in 13 years. Multifamily starts were also at a 30-year high, but supply-chain delays have lengthened the time to completion, leaving some 1.64 million homes still under construction in April 2022, which was higher than at any time since 1973.
The Outlook for Housing
The lessons learned during the pandemic have led to a number of proposals to greatly expand the housing safety net and provide increased support for first-generation homebuyers. While these measures have yet to be implemented, it is important to continue the policy debate over the best approaches to making housing affordable for all.
Bonds are flat this morning. The only news released was the existing home sales number, which was terrible. No surprise there. It is impossible to have housing affordability at an all-time low, with record consumer debt and the savings rate falling like a rock, without seeing a slowing in home sales and prices. We now have the retail inventory to sales ratio at nearly all-time highs. You may recall when the inflation storm started, I said that people were flush with cash and that all the buying and growth in the economy was revenge buying. My analogy was that people got starving (metaphorically speaking) while on lockdown.
Once they were free, they hit the buffet line, and cooks could not keep the food trays full. My point was that soon people would be full, but the cooks could not see this, and they kept on filling the trays. This is what the inventory-to-sales ratio tells us. Milton Freidman once said that the definition of inflation is too much money chasing too few goods. The government filled everyone's pockets just as the available goods dried up due to the shutdown.
Now it's different, and the pendulum will swing hard. We now have too few dollars (think record-high debt and nearly a record low savings rate) chasing too many goods. This is deflationary. Some have brought up the jump in the money supply. Economists know that money's velocity matters, not the money supply. The velocity of M2 is at an all-time low. Yes, this will lead to much lower rates and much lower prices. We have to let this play out.
Thought of the Day:
Nobody wins all the time. Nobody! Winners understand that there will be losses and that losses are on the same path that is taken to win. Average people turn back and go home.
Bloomberg) -- US house prices are likely to fall as mortgage rates exceeding 6% crimp affordability for the average buyer, according to Capital Economics.
Properties could contract an annual 5% by the middle of next year, Matthew Pointon, senior property economist, said in a research note Monday. He’d previously projected no change in values by that time.
An average household looking to buy a home for the median price will now have to put more than a quarter of their annual income toward mortgage payments, according to the report. That surpasses the average 24% seen in the mid-2000s.
“That deterioration in affordability will shut many potential buyers out of the market,” Pointon wrote. “That will reduce the competition for homes, and sellers will eventually see the need to accept a lower price for their property.”
The Federal Reserve’s actions to get inflation under control has squeezed U.S. housing market activity, though prices have so far stood firm. Capital Economics expects property values to rebound to a 3% annual gain by the end of 2024.
43% of homeowners have delayed home improvements and maintenance due to inflation. Here’s why that’s risky
KEY POINTS
Inflationary pressures have caused some homeowners to delay big projects related to home ownership, a new study shows.
The cost of financing renovations or improvements is also getting more expensive, with interest rates on consumer loans expected to continue ticking upward.
Homeowners spent an average of about $4,000 on repairs last year, according to the research.
For homeowners, big projects and purchases may be another casualty of rampant inflation, new research suggests.
Overall, 60% of homeowners in a recent survey are less comfortable making large purchases for their home or household because of rising prices, according to Hippo Insurance’s 2022 Homeowner Preparedness Report. And nearly 43% either strongly (14.4%) or somewhat (28.4%) agree that inflation has caused them to delay planned home improvement or maintenance projects.
The poll used to generate the study was conducted April 29 to May 1 among 1,915 U.S. adults, by Ipsos on behalf of Hippo.
With inflation up 8.6% year over year in May — more than expected and the fastest pace since 1981 — households are facing price increases in everything from groceries and gas to rent and clothes, according to the latest data from the U.S. Bureau of Labor Statistics. Generally speaking, demand continues to outstrip supply, which is hampered in many cases by supply-chain issues.
Residential housing construction costs are up 19% from a year ago, according to the National Association of Home Builders. This can translate into higher costs for home improvement projects, depending on the specifics. The housing market appears to be cooling amid higher interest rates and skyrocketing home prices, however; the median list price of a home in the U.S. is $447,000, up 17.6% from a year ago, according to Realtor.com.
US Inflation Quickens to 40-Year High, Pressuring Fed and Biden
Olivia Rockeman
(Bloomberg) -- US inflation accelerated to a fresh 40-year high in May, a sign that price pressures are becoming entrenched in the economy. That will likely push the Federal Reserve to extend an aggressive series of interest-rate hikes and adds to political problems for the White House and Democrats.
The consumer price index increased 8.6% from a year earlier in a broad-based advance, Labor Department data showed Friday. The widely followed inflation gauge rose 1% from a month earlier, topping all estimates. Shelter, food and gas were the largest contributors.