by Gayl Mileszko
Another January comes to a close, leaving us in another state of shock. How did it happen so fast? How have these first 31 days of the new year passed so quickly? What happened to our grand plans, our firm resolutions, our insistence that this-year-things-are-gonna-be-different? Wait, wait! We cry. We are not ready for February yet! We haven’t even started to pay off our holiday bills, we still have presents to return, our tax documents have yet to arrive, and we still have to change a few old calendars. Can’t we turn back the clocks?? Do we really have to let our happy holidays fade away so soon? After all, we only just now learned the teams that will be playing in the Super Bowl!
Auld Lang Syne-Backer
It used to be that Super Bowls were played in early to mid-January and that helped us to usher out the old year with the last of our over-the-top food feasts and excess drink with secular, sports-loving revelry. The odd Roman numerals gently help our transition from the last season into the new one. But the 9/11 attacks postponed the 97th World Series between the Yankees and Diamondbacks, and then the XXXVI Patriots-Rams contest. These championship games became designated as National Special Security Events, requiring additional security measures per the new Department of Homeland Security. So the Bowl games in 2002 and from 2004 to 2021 got pushed into early February. Then, three years ago, as the NFL added an extra week after the conference playoffs to the schedule, the TV extravaganza that has become one of the world’s most watched sporting events got moved up closer to mid-February. Pretty soon, Super Bowls may start aligning with baseball’s opening day, which has moved up by a month from where it began in late April in 1876, and the IRS tax filing deadline, which got pushed forward from March to mid-April back in 1954.
In the digital era, most online forms and software correction programs no longer require us to scratch out the date errors once so common in check-writing and correspondence at the start of the year. Although Americans still send about 6.5 billion greeting cards a year, handwritten letters and paper checks have nearly gone the way of the dodo bird. Back in 1999, 60% of all noncash purchases, gifts and bills were handled with paper checks. Two decades later, only about 4% were. Again, as a result of 9/11, much changed. Banks once trucked paper checks to one of 45 Federal Reserve central processing centers, which in turn sorted them and then loaded them onto airplanes. On a normal day back then, about $6 billion in paper checks flew to their final destinations for deposit. But that amount rose to $47 billion after the FAA grounded airplanes in September of 2001 and the growing backlog spurred legislation allowing banks to use electronic images of checks. Today, there is only one Fed check processing center left in Atlanta for the three-quarters of retirement-age Americans who still write checks. Almost none of us use our checkbooks to pay for groceries, fast food, or transportation as we once did, but check usage remains quite common for those of all ages in dealings with building contractors, charities, tax payments and landlords.
The median asking rent from landlords in December was $1,713, according to Realtor.com, down $4 from November and down $63 from the July 2022 peak. But median rent is still 22% higher than the same time in 2019, before the pandemic and, in many places, rents aren’t dropping at all – they are just increasing at a slower pace. Approximately half of U.S. renters have found themselves paying more than they can afford: according to Harvard University’s Joint Center for Housing Studies, 22.4 million households pay more than a third of their income in rent and 12 million are spending more than half their income on housing. The National Investment Center for Seniors Housing & Care (NIC) just reported that the average asking rent for senior housing was up 5% from 2022 as the number of occupied units rose to a new record level. The good news is that about 436,000 multifamily units were completed in the third quarter of 2023, the highest level since 1988. The number of multifamily units under construction peaked in July at over 1 million, the highest level on record, according to the US Census Bureau, but NIC data show that that year over year senior housing inventory growth was only 1.4% for ether period ended December 31, one of the smallest increases since 2012. As builders face higher costs due to interest rates on their loans, material costs, land costs and labor shortages, the National Association of Home Builders forecasts that multifamily construction will decrease by about 20% next year despite heavy demand from Millennials, Gen Z, and Baby Boomers.
Rooms for Boomers, Gloom for Bloomers
According to Harvard’s Joint Center for Housing Studies, 2.4 million older homeowners, many of whom are trying to age in place, are paying more than 30 percent of their income for housing on top of tax, insurance, and utility payments. Housing affordability and availability are among the concerns most often cited by economists in the past few years. Polls, including the one on January 31 by Issues and Insights/TIPP reported that 64% of respondents across all ages, said they are living “paycheck to paycheck’ these days.” That included 63% of Democrats, 67% of Republicans, and 62% of independents 62% of white Americans and 69% of black and Hispanic Americans surveyed. Even those in the wealthier groups — those earning $75,000 or more a year (53%), and those who describe themselves as investors (51%) — said they are also having trouble making ends meet on a monthly basis. Of those surveyed, some 24% reported that they have $0 saved, and another 20% said they had just $1,000 set aside. Consumers living paycheck to paycheck own nearly 60% of the credit cards in the U.S. according to LendingClub. And Wells Fargo just reported that November’s consumer credit report showed an increase exceeding $5 trillion for the first time ever.
A Home for Every Season?
The option to buy versus rent is not available to all. Finding, never mind affording, a home to buy remains extremely challenging. Mortgage rates are hovering in the range of 6.50%, sellers who locked in a low rate before COVID hit have been extremely reluctant to list, and home prices most recently (November 2023) rose 5.1% nationally, year-over-year. Six cities reported new all-time high prices in November – Miami, Tampa, Atlanta, Charlotte, New York and Cleveland — according to S&P CoreLogic Case-Shiller index data released on January 30. And available home supply remains 34.3% below the average in early 2020 according to Realtor.com. Although up from record lows in 2020, Freddie Mac has estimated that the U.S. has a 3.8-million-unit shortage of housing. Harvard’s Joint Center for Housing Studies (JCHS) projects that U.S. households headed by someone more than 80 years old will number 17.5 million in 2038, 12 percent of all households, and a significant percentage of this population will require different housing, support and support structures.
Support and Expectations for Rate Cuts
Ahead of the Federal Open Marketing Committee meeting this week, the first of 2024, several Members of Congress have asked Chair Jerome Powell to lower interest rates to help bring down housing costs, noting that high interest rates have aggravated the country’s persistent crisis of housing access and affordability. Since the Fed raised its target rate to the range of 5.25% to 5.50% in the battle against inflation that has not been transitory as initially described, the effective rate on a 30-year mortgage topped 8%. The rate has since fallen but it continues to constrict supply of new and existing homes, and exert pressure on rental costs. This week, four Fed members are rotating into voting policy committee positions, including the presidents of the regional banks of Richmond, Atlanta, San Francisco and Cleveland, while the presidents of Chicago, Philadelphia, Minneapolis and Dallas are rotating off. Permanent members include the seven Washington-based governors as well as the president of the New York Fed. At this writing, 30-day Fed Funds futures pricing data reflects a 92% probability for a rate pause this week, but markets expect six quarter-point increases beginning in March and ending in December with a target rate of 3.75% to 4.00%.
Political Probabilities and Polling
This being a presidential election year, the nation’s voters have just begun to focus on their likely options in November. Caucus and primary results in the first two states appear to foretell of a rematch from 2020, but only 110,298 Republicans voted in Iowa, and 448,707 Republicans, Democrats and Independents voted in New Hampshire. The next primary will take place among Democrats in South Carolina on Saturday. The latest polling from Emerson College and Morning Consult on January 29 shows former President Trump with a 2% to 5% lead in the popular vote. The Wall Street Journal forecast is for another squeaker with electoral votes in a half dozen states determining the outcome. In the Senate, the WSJ currently sees 50 Republican, 47 Democrat and 3 tossup seats and, in the House, 213 Republican wins, 203 Democrat wins and 19 tossups. Top voter concerns are immigration (35%), inflation (32%), crime (16%) and health care (16%) according to the latest Harvard CAPS-Harris Poll.
No Toll on Confidence
The many worries and concerns of voters are not registering in the latest gauges of consumer feelings. Despite inflation still rising and housing prices and stock indices at record highs, on Tuesday the Conference Board’s consumer confidence index reached a two-year high on surging views of current conditions and declining pessimism about the future. That came on the heels of the latest University of Michigan consumer confidence survey which jumped 13% in January to its highest point since July of 2021, with a two-month gain of 29% not seen since the end of the 1991 recession. The upward trend is evident, although ratings of the economy vary between those identifying by political party and scores remain far below those seen from 2015 through February 2020.
Borrowers Highly Confident in the Debt Markets
U.S investment grade corporate bond issuance may set a new January record in the range of $189-$200 billion in 2024 and February sales are estimated in the range of $150 billion. High yield corporate volume stands at $28.6 billion at this writing, just below the total expected across all YTD municipal bond issuance at $32 billion. Muni volume in the first month of the year may end higher than the decade’s average, according to the Bond Buyer and among the top three Januarys since 2010. Also, the 12-month issuance pace is nearly back to $400 billion according to Municipal Market Advisors. Our underwriters and institutional sales executives are seeing more fund buy-side activity and welcome a third week of conventional municipal bond mutual fund inflows. Our retail sales team continues to report solid demand from individual accounts given the high relative yields and the interest in tax-exempt income that tends to climb ahead of tax filing season. This month is, however, registering a fairly rare period of negative muni returns after the last two amazing months of gains in 2023. Yields are up Muni bondholders will see $41.3 billion of principal and interest payments hit their accounts beginning on Thursday, February 1 and concluding by Leap Day on February 29.
Where We Stand at the End of January 31, 2024
At the close on January 26, three major equity indices were up on the year: the Dow by 1.1%, the S&P 500 by 2.5% and the Nasdaq by 3%. Oil prices climbed by 8.9% to $78.01 a barrel; gold prices fell 2.2% to $2,018 an ounce. Bitcoin stood flat at $41,900. Treasury yields have increased across the board with the 2-year at 4.34% up 10 basis points, the 10- year at 4.13% up 26 basis points, and the 30-year at 4.36% higher by 34 basis points. In the muni market, the 2-year AAA general obligation benchmark yield closed last Friday at 2.71%, up 19 basis points on the year. The 10-year at 2.46% finished 18 basis points higher and the 30-year at 3.61% has increased 19 basis points.
High Wall of Worry, High Confidence in Our Ability to Serve our Clients
Theories about how financial market performance may be manipulated by pressures exerted on the central bank voters or market-moving buys and sells by major firms or algorithmic trading programs have long been debated. There are also countless black swans floating in the realm of possibility threatening to skew performance in one direction or another. The Wall of Worry stretches from Israel to Yemen to Iran, Russia, China, North Korea and well beyond. Here, there are impeachment actions that may impact the Biden administration, court actions impacting the former president, policies impacting energy, homeland security, market and business regulations, and so many other areas of American life. We acknowledge that some issues have risen to the top and that the mix of elected officials is likely to change, but we plan to operate as we always have, day-to-day — in the best long-term interests of our clients. At HJ Sims, we have navigated markets like these and many others going back to 1935. We invite you to contact us, tap our expertise, and come to meet with us in person at one of our branch offices, or in person at our 21st Late Winter Conference in San Diego to take place from February 21 to February 23 at the Mission Bay Resort. We have always believed in the outcome of income and the duty of doing right in our partnering, structuring, and execution. Come talk to us about what you need in this pivotal year of 2024!