Egon von Greyerz warned about the grim choice central planners now face, systemic collapse or currency collapse. Plus a major update on the real estate market.

Pick Your Poison
October 5 (King World News) – Egon von Greyerz:  The Fed has no good options left. It’s either tighten and risk systemic collapse, or ease and destroy the currency. Pick your poison…

Listen to the greatest Egon von Greyerz audio interview ever


Gerald Celente: 
Last week, U.S. mortgage interest rates rose to their highest levels since July 2007 during the Great Recession. 

The average rate for a 30-year, fixed-rate loan climbed to 6.7 percent by Thursday last week, rising from 6.29 percent the week before, according to the Federal Home Loan Mortgage Corporation’s (Freddie Mac’s) survey of lenders. 

It was the sixth consecutive week of rising rates, which now have more than doubled the level of about 3 percent where they began this year. 

Rates have risen with the U.S. Federal Reserve’s key federal funds interest rate, which the central bank has hiked relentlessly since last spring in a so-far vain attempt to control inflation. 

Usually, mortgage rates are more closely tied to the yield on the 10-year treasury note, which bounced wildly last week in the wake of the U.K.’s financial crisis. (See “U.K.’s Debt Bomb Roils Bond Markets in Europe, U.S.” in this issue.) 

The bond market’s gyrations account for a wider-than-usual disparity among rates offered by different lenders, according to Sam Khater, Freddie Mac’s chief economist. 

As we had forecast, higher rates would deflate the housing market that was artificially pumped up by cheap mortgage rates. Now buyers can’t afford to pay more as a result of higher mortgage rates and many owners who were planning to sell the home they own to buy another one are hesitating because of far higher rates. 

Many potential buyers will continue renting, shut out of the home-buying market by the combination of rising interest rates and stubbornly high home prices. 

By the end of August, sales of existing homes had fallen for seven consecutive months. 

Applications to refinance existing mortgages have plunged 85 percent, year over year, according to the Mortgage Bankers Association (MBA). 

The cratering market in refinancing will drag mortgage loans in general down by 48 percent compared to last year, the MBA predicted. 

In articles such as our “U.S. Market Overview” and “Community Bankers: Housing Crash Coming?”, we have correctly been forecasting for more than a year that when the U.S. Federal Reserve raised its fed funds rate to or above 1.5 percent, the housing market would begin a deep slump. 

The market crashed first for modest-and middle-income households, as fewer were able to afford down payments or qualify for mortgages at higher interest rates. 

The figures prove the point: the percentage of homes sold to first-time buyers has been steadily slipping in recent months. Historically, those buyers make up 40 percent of the market; by February of this year, they comprised just 29 percent. 

Therefore, the higher interest rates rise, the deeper the housing market will decline…

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In August, after sales of existing homes declined for a sixth consecutive month, the National Association of Realtors (NAR) predicted that “we may see two or three additional months of some decline—nothing meaningful,” Lawrence Yun, NAR’s chief economist, told Business Insider. 

Now things have changed, Yun says. 

Existing home sales were down 19.9 percent in August from a year earlier, he noted, leading him to predict an overall 15.2-percent slump in sales for this year compared to last. 

Home sales will drop by 7.1 percent next year, compared to 2022, even if the market recovers during the second half of 2023, he warned. 

That implies a slump lasting for at least three consecutive quarters, which would be triple the length of Yun’s earlier prediction. 

What’s different now? 

“The big news for the housing market is the mortgage rates jumping this high this quickly,” Yun said in a 28 September BI interview. 

“Just last week, it was around 6 percent,” he noted. “Now it’s going to 7 percent. These are substantial changes.” 

The average rate was 7.06 percent on 3 October, reported. 

As rates moved from 3 to 7 percent during the course of this year, the average mortgage payment rose by 50 percent, he said. 

He sees rates staying near 7 percent for the next several months, but eight-percent mortgages could be ahead if inflation continues to “get out of hand,” Yun said. 

If mortgage rates tick up one percentage point, that can make homes harder to afford as much as a 13-percent jump in home prices, according to Nadia Evangelou, NAR’s research director. 

She foresees slowing home sales at least until April. 

However, slowing sales will not mean lower prices everywhere, Yun emphasized. 

Instead, prices will edge up 1.2 percent next year, primarily because fewer houses than normal will be on the market, he said. 

“Month-to-month [price] change is showing decline,” he said, which “means that in about six months, half of America is probably going to see some price declines, but the other half will see some continuing price increases,” depending on location and market segment, he added. 

Higher interest rates and continuing high home prices will extend the trend of modest- and middle-income buyers being shut out of home ownership, a problem we have tracked through articles such as “Home Prices Up, Incomes Down” and “Middle-Income Buyers Too Poor to Buy Homes”. 

Burdened by student debt and rising living costs, even more Americans will spend a greater proportion of their lives, or perhaps all of their lives, renting instead of realizing their dream of home ownership, a trend we have documented extensively in articles such as “Home Prices Rise Record. Middle Class Dream Dying” and “Mortgage Rates Surpass 6 Percent for First Time in 14 Years”…

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On 27 September, lumber futures prices dropped to $429.30 per thousand board feet, falling 60 percent from their peak last March to levels preceding the COVID era and its building boom, according to Random Lengths, an industry research service. 

The lower prices signaled a slowdown in the construction industry. 

Wood prices plunged when the COVID War began but soon soared as those still employed splurged on home improvements and new dwellings while there were no services or activities to spend money on. 

Over the period, two-by-fours tripled their pre-COVID record price in an early warning of inflation and fractured supply chains, The Wall Street Journal noted. 

In spring 2021, soaring lumber prices boosted the cost of a new house by $36,000, which we highlighted in “Lumber Prices Add $36,000 to Cost of New Home”. 

Builders now say cheaper wood is allowing them to cut prices and offer incentives to prospective buyers of new homes in an attempt to revive home sales without harming companies’ margins. 

In April, the rate of single-family home construction reached its fastest in more than a decade, the WSJ said. Since then, it has slowed by 13 percent, offset by an increase in construction in multi-family homes.

Apartments use about two-thirds less lumber per dwelling unit than single-family houses do. 

Lumber consumption will shrink by 2.5 percent this year and 4.5 percent in 2023 as the building industry slows under higher mortgage interest rates and the COVID-era building boom makes its final exit, the consulting firm Forest Economic Advisors (FEA) predicted. 

Mills in western Canada, which produce a large share of North America’s lumber, need to see prices of $500 per thousand board feet to break even, FEA said, so are likely to control output to hold that price. 

During the COVID era, mill ownership consolidated among fewer, larger companies. As a result, a relatively small number of firms are able to buoy market prices by cutting back production, advisory firm Wood Resources International said.

While lumber prices are down, they are still way up. Before the COVID War they were in the $200s per thousand board feet range. But considering reports of record-low inventories, rising milling costs, higher wages, increasing energy and transportation costs etc., minus an escalating World War III or other wild card, they will stay in their current $400 range.

Given Keynote Speeches To IMF, World Bank & Federal Reserve
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