Good Tuesday AM,

Rain, do we want it or not (not that we have a choice)? I guess the answer as it is in most things, in moderation is great but extremes are not always beneficial. California is in the middle of a once in a several lifetime deluge. I read that these rains are the second worst/largest in 170 years. I cannot fathom this number but here it is: 20 trillion gallons of water are being dumped on California in a two-week period. Some of it is helpful and some of it is not… wreaking havoc on infrastructure, housing, businesses, people, etc. Comparatively, Lake Mead holds 9 trillion gallons. My mind then goes off on a tangent about building a really big funnel in the sky so we can direct the rain fall to wherever we want. I’m going to get working on that next.

One line sales pep talk for both agents and lenders:

The MBA projects there will be 3.5 million mortgages made to homebuyers in 2023 at 40% cash, that back into almost 6 mm real estate transactions. Let’s GO!!!

It should be no surprise that the ten year is pulling back today and is at 3.63%. This is what happens MOST of the time when we test a key level as we did yesterday at the 3.50% level and fail to break through. The same applies to Mortgage Bonds which bumped up again a dangerous level of resistance and failed to break through. The pull back in both cases held the trend line on the way down. I believe that these current levels will not break apart and that the price will move closer and closer to the center of the range until we get the CPI number on Thursday. Today we learned that Small Business Optimism dropped and came in lower than expectation. No surprise there. We do not have any significant news until CPI on Thursday.

Early data suggests rents fell by 3% in the last three months of 2022 on a seasonally adjusted annualized basis (in typical year rents grow by about 3%). The national apartment vacancy rate rose to 5.9% in December, its highest level since April 2021, and has been rising by 0.2% a month recently, according to Apartment List. At that pace, the vacancy rate would be at its pre-pandemic level by April. All this is happening while there are more apartment units under construction than there have been in more than 50 years, which will dump even more supply onto the market. Even before accounting for the possibility of job losses and a recession in 2023, this increased supply will create more vacancies. But as has been pointed out, millennials are now at the age where they are more likely to want to buy homes than rent them. The country’s demographics in the 2020s are tilted toward ownership, not renting. So as the housing market recovers from this soft patch, we should expect the for-sale market to recover more strongly than the rental market. Fingers crossed.

Please remain safe and stay healthy, make today great!