“The U.S. economy is in very good shape — it has a strong underlying growth trend,” said Douglas Holtz-Eakin, an economist and president of the American Action Forum, a center-right think tank, reports the Associated Press. After all, 3rd quarter GDP rose 2.8 percent.
However, Murray Rothbard used to tell us in class that GDP was a ridiculous way to gauge the strength of the economy. He said if the U.S. government destroyed everything west of the Mississippi and then rebuilt it, the nation’s GDP would explode but no one west of the Mississippi would be better off.
In fact, the growth in prices has left lower income Americans broke. According to Moody’s Analytics chief economist Mark Zandi, “High-income households are fine, but the bottom third of U.S. consumers are tapped out. Their savings rate right now is zero.”
Almost Daily Grant’s reports that overall credit card balances reached $1.17 trillion in the third quarter, up 26 percent over the prior two years. Many borrowers can’t make the payments leading to “U.S. credit card firms [writing] off $46 billion of bad debt over the first three quarters of 2024, reports the Financial Times, citing research from BankRegData. That represents a 50 percent uptick from the same period last year and marks the highest comparable nine-month figure since the Great Recession’s aftermath in 2010.”
Consumers aren’t the only ones stiffing their lenders. Roughly one in ten office building borrowers in the U.S. is delinquent on payments. Bisnow.com reports, “Roughly 11 percent of office buildings tied to CMBS loans were delinquent, beating the previous high watermark of 10.7 percent set during the Great Recession in December 2012, according to Trepp, which began tracking the CMBS sector in 2000.”
This may seem like old news. But, “more than $2B in office loans became freshly delinquent in December, causing a 63-basis-point increase in the overall delinquency rate, according to Trepp.”
“Looking closer at the CRE sector, loans secured by offices, especially those in major cities, remain the top concern,” the Fed said in its November supervision and regulation report.
Apartment and retail loan delinquencies are also rising, “with the delinquency rate on apartment properties rising from 2.7 percent to 4.6 percent. More retail owners also are also having trouble staying current, with delinquencies rising from 6.5 percent at the end of 2023 to 7.4 percent.”
The housing market seems to have hit a wall with unsold inventory for sale of completed new houses spiked by 57 percent year-over-year to 124,000 houses in November, according to Census Bureau data. This is the highest since June 2009 during the housing bust.
Wolf Richter wrote on WolfStreet.com, “Homebuilders are trying to find buyers for these completed ‘spec’ houses by piling on incentives, including costly mortgage-rate buydowns, and by cutting prices. But obviously, they haven’t done nearly enough to trim their bloated inventories, which continue to balloon, and they’ll have to do a lot more to bring those prices and payments down.”
Median new home prices have fallen to the lowest level since 2021. Unsold inventories for sale at all stages (not yet started to completed) of construction increased by 8.1 percent to 493,000 houses, the highest since December 2007 and 9.1 months worth of supply.
Mega Builder Lennar stated during its latest earnings call, “Consistent with our strategy of matching sales pace with production, we adjusted sales price, incentives, and margin in order to re-ignite sales and actively manage inventory levels.” (emphasis added)
As for existing home sales 2024 saw 4.04 million sales, the lowest number since 1995, “below even the worst years during the Housing Bust,” Richter points out.
While prices on Wall Street remain robust, trouble lurks on Main Street.
