Lead Story… Mortgage rates have plunged since the Federal Reserve increased short term interest rates in December. What happened is relatively simple: when short term rates rose, the value of the dollar rose as well, meaning that assets denominated in dollars (think mortgage bonds and long to intermediate term treasuries) became more valuable. At the same time, overseas economies continued to nose dive and the stock market tanked. Net result: investors seeking a safe place to stash their money piled into 10-year Treasury bonds which 30-year mortgages are loosely based upon. This opens up the possibility that rates could be headed for a new record low. While good for borrowers, this isn’t particularly great news for the economy in general or housing in particular since it casts more uncertainty about economic and employment growth going forward. If we do see record low rates it could lead to big problems for lenders. Guy Cecala of the publication Inside Mortgage Finance recently noted that most lenders had stopped hedging for rate drops, buying into the mantra that rates had “nowhere to go but up.” They were wrong, at least in the short to intermediate term which could lead to big losses.
But Wait, There’s More: If you think that the oil sector is a hot mess, wait until you get a load of the mining sector.
It’s Easy to Grin When Your Ship Comes In: The Port of LA just had its busiest January ever due mostly to strong inbound traffic that is likely resultant from the strong dollar.
Canseco’s Corner: Admitted steroid cheat, tax cheat and failed reality TV star Jose Canseco took to Twitter again to share more of his financial wit and wisdom. This time he predicted a 20% increase for gold. Last week the former MLB star who has struggled mightily with his own finances posted a biting critique of Japan’s monetary policy. If he keeps it up, he might just become a fixture here at Landmark Links. Congrats, Jose. You are well on your way to becoming the next Lenny Dykstra.
Continued Strength: 2015 was a banner year for the hotel industry. If early indications are correct, it will be more of the same in 2016.
Missing the Mark: You’ve probably heard the phrase “they don’t build ’em like that anymore.” That saying is increasingly true in the world of home building. Recently, the Irvine neighborhood of El Camino Real made the list of Redfin’s 10 Hottest Neighborhoods of 2016. Why, you ask did a relatively obscure neighborhood built out in the 70’s and 80’s make the list? Simple. El Camino Real offers what most buyers want but builders can’t afford to develop profitably: “While Irvine has seen a lot of new development in recent years, consisting mostly of two-story houses on small lots, what’s really driving El Camino Real’s popularity are the spacious single-level homes located on large lots.” The report also noted that the neighborhood has lower HOA fees than new developments and no Mello-Roos taxes which are common in newer Irvine developments while still having access to Irvine’s excellent schools and amenities.
Love Thy Neighbor(‘s House): A lack of inventory in core infill markets has buyers paying up for their neighbor’s homes before they hit the market rather than purchasing a large home and moving.
Out of Balance: Scarcity of construction workers has been an issue for quite some time and it looks like things are getting even tighter as more job openings become available with few workers to take them.
Grocery Ink: Whole Foods is going to start putting tattoo parlors in some of their stores because, hipsters. Two thoughts on this: first, if I could figure out an effective way to remove tattoos I’d get out of capital markets tomorrow. It’s the business of the future once the hipsters start aging. Second, get off my lawn.
Going Loonie: Coachella Valley home builders aren’t the only ones getting hammered by the Canadian dollar falling to a 13-year low against the greenback. The NHL does all of it’s business in US dollars but collects a substantial amount of revenue in Canadian Dollars. The Loonie’s fall could result hundreds of millions of dollars in lost revenue for the league and, subsequently reduced salaries for players under the latest revenue sharing agreement.
Bad Fit? Tesla announced last week that it will sell it’s new Model 3 for as little as $35,000 ($25,000 with government subsidies). However, some of the very same characteristics that make Tesla such a great fit in the luxury market could work against it in the mass market.
Chart of the Day
Headline of the Year Nominee: 2016 is just starting but “Man Urinates in WalMart as He Puts Trout in Pants” will be a hard one to top.
Jilted Lover: In today’s Video of the Day, drivers near a nature reserve in southern China discover that hell hath no fury like a horny jilted elephant.
Gettin’ Busy: In a scene straight out of Zoolander, two 200-lb African spurred tortoises had an interesting way of interrupting a fashion show in NY.
Landmark Links – A candid look at the economy, real estate, and other things sometimes related.
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