Home News Premarket stocks: The housing market is a mess, but this isn’t 2008

Premarket stocks: The housing market is a mess, but this isn’t 2008

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A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber?can sign up HereYou can listen to the audio version of the newsletter by clicking the same link.


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CNN business

The US’s largest bank reported relatively strong third-quarter earnings on Friday. But in these reports, investors found ominous clues about the future of the housing market. Fear of impending danger.

what’s happening: JP Morgan

(JPM)
reported a 34% decline in third-quarter mortgage revenue from the year-ago quarter, while Wells Fargo recorded a 52% decline over the same period.decrease is mainly A spike in interest rates leading to a slowdown in demand for mortgages.city ​​group

(c)
and Morgan Stanley

(MS)
It also reports that mortgage growth is slowing.

Mortgage rates soared to their highest level since 2002 as the Federal Reserve raised interest rates this year. pandemic housing boombut the Federal Reserve thinks it’s a good thing.

Fed President Jerome Powell said in September that “the housing market is going through a very hot period across the country.” “In the long run, supply and demand will need to be better aligned for housing prices to rise to reasonable levels and for people to be able to buy homes again. It will probably have to go through a fix.”

Powell’s prescription for what he called a “difficult” housing adjustment led to concerns of another housing and financial collapse similar to 2008.

The data show that the market is clearly in slowdown mode.

Declining home sales 7 consecutive months The National Association of Realtors reported that sales of existing homes, including single-family homes, townhomes, condos and co-ops, fell 19.9% ​​in August from a year ago.

House prices are still trending upwards, but are starting to stabilize. Prices in July rose 15.8% year-on-year. This is a smaller jump than the 18.1% growth seen in June. S&P CoreLogic Case-Shiller IndexThe 2.3 point difference over the two months is the largest slowdown in the index’s history.

“This is the sharpest change in the housing market since the 2008 housing market crash,” said Darryl Fairweather, Chief Economist at Redfin last month.

This is not 2008. The market situation is very different from 2008. Analysts are telling homebuyers and investors not to panic. Also, housing inventory is still low and prices will not crash even as demand slows.

“Before the pandemic, there was a shortage of about 5 million homes, and that shortage isn’t going away any time soon,” said Lawrence Yun, chief economist at the National Association of Realtors trade group. in last month’s report.

Homeowners strapped to low-interest 30-year mortgages are also reluctant to sell their homes and switch to higher interest rates.

JPMorgan Chase & Co. Chief Financial Officer Jeremy Burnham said when asked by CNN Business Friday that he “doesn’t expect a big crash” in the housing market like it did during the Great Recession in the late 2000s. Stated.

Home prices have skyrocketed over the past decade, leaving homeowners with ample cushion to fall back on, Burnham said.

Burnham also noted that lending standards have tightened over the past 14 years. The 2008 financial crisis was exacerbated by very lax oversight of the mortgage market.

Employment and wage growth remain healthy, and homeowners can afford to pay their mortgages and are not forced to sell their homes as they were during the 2008 Great Recession.

What’s next: Investors will next look to next week’s housing starts data as an indicator of where the housing market is headed.

kroger

(KR)
On Friday, it announced plans to acquire Albertsons in a deal worth about $25 billion that could change the U.S. retail industry and impact how millions of customers shop for groceries. Report to colleagues Nathaniel Meyersohn and Jordan Valinsky.

The deal, which is expected to close in 2024, will unite two of the country’s largest supermarket chains and create one of the largest private employers. Together, his two companies have 710,000 employees, nearly 5,000 stores and more than $200 billion in sales. The company says it serves 85 million households.

If the deal goes through, it would be one of the largest mergers in US retail history. dwarf Amazon

(AMZN)
acquired Whole Foods for $13.7 billion in 2017, making the company the third-largest retail chain in America by sales. According to Morgan Stanley, the company’s total market share in the $1.4 trillion grocery industry would be his 13.5%, making him the second-largest grocery store after Walmart.

(WMT)
share of 15.5%.

The move also comes as businesses battle higher costs and grocery inflation hits its highest level in decades. Grocery store prices soared again last month. The household food index, which measures grocery store prices, rose 0.7% from the previous month in September, 13% last year.

Kroger will buy Albertsons for $34.10 a share. That’s about 30% above the grocery chain’s average share price over the past month.

Both companies operate dozens of grocery chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons. The two companies said they were trying to spin off nearly 400 stores to form new rivals and gain antitrust clearance.

Check out this space: The merger is still subject to Federal Trade Commission approval. Consumer watchdogs, trade unions and Democrats are already strongly against the deal. They say it will harm consumers by raising prices and driving competition. I have.

Battling decades of high inflation, American consumers are starting to hold off on purchases amid aggressive rate hikes by the Federal Reserve.

September retail sales were unchanged from the previous month after a revised 0.4% rise in August. Economists had forecast a 0.2% monthly increase, according to Refinitiv estimates.

Consumers spent less money last month on cars, furniture, electronics, building materials, sporting goods and gas stations, according to the report. Report to colleague Alicia Wallace.

According to Moody’s Analytics, the typical American household spent $445 more a month in September on the same goods and services they purchased a year earlier.

“Inflation is expensive,” said Ryan Sweet, senior director at Moody’s.

Bank of America, Charles Schwab and BNY Mellon report third quarter earnings.

Coming later this week:

▸ The National Association of Realtors reports existing home sales for September.

▸ Third quarter earnings for Goldman Sachs, Johnson & Johnson, United Airlines, American Airlines, Tesla, AT&T, Verizon and Netflix.

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