Despite mortgage rates hitting multidecade highs and jitters in the bond market, demand for new homes is strong and prices are rising.
By Andrew Ross Sorkin, Ravi Mattu, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Lauren Hirsch and Ephrat Livni
Wall Street is increasingly divided on whether the U.S. economy is at risk of falling into recession. The minutes from the Fed’s latest meeting released on Wednesday show that officials are still focused on inflation, but that the central bank’s economists have reassessed earlier forecasts of a downturn. One area looks safe from the dreaded “R” word: the housing market.
Despite soaring borrowing costs, demand is strong. House prices have been ticking higher across much of the country in recent months, and that trend looks set to continue. Goldman Sachs revised its home-price forecast upward this week, saying the average closing price will climb 1.8 percent by year’s end; previously, it said home prices would fall by 2.2 percent. Goldman predicts home prices will rise even more next year, in part because housing supply is so constrained.
Forecasts of a prolonged housing market slump haven’t materialized. The Fed has been on a mission to muffle inflation by raising borrowing costs. Those moves have helped push mortgage rates to a 22-year high. According to Bankrate, the average rate for a new 30-year mortgage hit 7.31 percent this week, a near doubling since the Fed began raising rates in March 2022. The bottom line: A typical home buyer’s monthly mortgage payout topped $2,600 last week, a debt level that’s alarming some market watchers.
“Home buyers have demonstrated behavior that, in our view, reflects unsustainable adaptations to elevated mortgage rates,” the Goldman Sachs strategists Roger Ashworth and Vinay Viswanathan wrote in a research note. “For example, the average debt-to-income ratio on conforming purchase mortgages is over 38 percent, a significant aberration from post-Global Financial Crisis averages.” Goldman’s housing affordability index this week hit its lowest level since it was created 25 years ago, the same report notes.
Mortgage relief may prove elusive. After the release of the Fed minutes, which left the door open to more rate rises, the futures market on Thursday morning has increased the odds of another increase this year to roughly 40 percent. Another keen area of focus is rising yields on the 10-year Treasury note — because mortgage rates tend to tick higher as that gauge climbs. The yield on Wednesday hit a high last seen in 2008, a point when the housing market collapsed and started a global crisis.
Wall Street is bullish on the housing market this time. Homebuilders’ shares have been soaring this year, attracting huge bets from the likes of Warren Buffett’s Berkshire Hathaway.
It’s a different story in the commercial real estate market. The sector is in more precarious shape thanks to a potentially toxic brew of post-pandemic office vacancies, rising rates and an expected flood of renegotiations for commercial mortgages in the next two years. Regional banks have most of the exposure to this market.
HERE’S WHAT’S HAPPENING
Walmart beats sales expectations and raises its full-year forecast. Unlike Target, Walmart has seen no slowdown from inflation-squeezed consumers. It also benefited from cutting supply chain costs and has avoided discounts. Its shares jumped in premarket trading.
Another bidder for U.S. Steel emerges. ArcelorMittal, the world’s second-largest steel maker, is considering an offer for its smaller rival, Reuters reports, sending U.S. Steel shares higher in premarket trading. ArcelorMittal sold off its U.S. unit in 2020 to Cleveland-Cliffs, the first firm to go public with its bid.
Richard Blumenthal calls on the Saudi investment fund’s boss to testify about the PGA Tour deal. The Democratic senator from Connecticut said he wants Yasir Al-Rumayyan to address questions next month as the Senate continues its investigation into the proposed merger of the Saudi-backed LIV Golf and the PGA Tour. Mr. Al-Rumayyan has declined previous invitations, but Blumenthal said he could be compelled to appear.
Americans have nearly burned through their pandemic savings. The San Francisco Fed estimates that the excess savings built up as a result of lockdowns and government stimulus checks in 2020 and 2021 will run out for most households in the third quarter. Economists fear that could sap consumers’ buying power, putting pressure on the economy.
Is business winning the lobbying war over China?
As the United States pushes to tighten trade restrictions on China, C.E.O.s have had to tread a fine line. But have business leaders found a way to push back against the China hawks?
The hedge fund titan Ken Griffin is the latest to score a victory. Mr. Griffin, the Citadel founder, successfully pushed back against Gov. Ron DeSantis’s proposal to ban citizens of seven countries, including China, from buying property in South Florida, according to Bloomberg. Mr. Griffin built a team to influence lawmakers — and won major concessions. The final version of the law included exceptions for lawful workers and others.
There’s a lot at stake for both Mr. Griffin and Mr. DeSantis. Mr. Griffin has plans to move hundreds of employees to Miami and establish the company’s headquarters there. “Florida is defined by its promise of freedom and economic opportunity, and our state government must continue to reflect and uphold these ideals,” he said.
Mr. DeSantis, meanwhile, trails in the polls as he tries to jump-start his run for the White House with a more pro-business message.
President Biden’s latest executive order has also drawn attention. The directive issued last week banned private equity and venture capital firms from investing in sensitive sectors in China, such as artificial intelligence, quantum computing and advanced semiconductors. Lawmakers on both sides of the aisle have criticized the restrictions as not broad enough.
Narrowness is the point. Mr. Biden and senior officials, including Treasury Secretary Janet Yellen and Jake Sullivan, the national security adviser, have stressed in recent months that their efforts are meant to focus on areas of national security, not stifle Chinese development. (Beijing isn’t convinced.)
Industry is pushing. Chip makers in particular have been active in Washington, with the heads of Intel, Qualcomm and Nvidia saying that new curbs would damage American business. Intel’s C.E.O., Pat Gelsinger, has argued that the government’s push to get more chip factories built in America would be less effective if the companies weren’t able to sell to China.
But not everyone buys that argument. Oren Cass, executive director of American Compass, the conservative think tank, believes that taking a narrow approach may only help Beijing reach its goal of becoming self-sufficient in these technologies and supplanting American rivals. “One can perhaps forgive the lobbyists their poor arguments; they are only doing their job,” Mr. Cass wrote in the Financial Times. “What’s unforgivable is those in the Biden administration failing to do theirs, and to distinguish the private from the public interest.”
“Central banks are divided in four categories: the bad ones, like the Federal Reserve; the very bad ones, like the ones in Latin America; the horribly bad ones; and the Central Bank of Argentina.”
— Javier Milei, the libertarian Argentinian presidential candidate whose shock win in a primary last weekend caused market turmoil and sent the peso plummeting, in an interview with Bloomberg. His economic plans include abolishing the central bank, replacing the peso with the dollar and slashing spending.
The big wait on new S.E.C. climate disclosure rules
Companies are gearing up for a contentious new S.E.C. rule that would require them to disclose their emissions. But business leaders are still not sure when — if ever — the regulation will go into effect, or what exactly it will entail.
October is the official deadline for the final version. That’s what the S.E.C. designated in the Federal Register. But that date has been changed before, and further delays could prove costly. If the agency waits too long to complete its proposal, it runs the risk of the rule being nullified by Congress if party power dynamics shift in the next election. The S.E.C. did not respond to requests for comment.
Congress is getting antsy. More than 75 House Democrats wrote to Gary Gensler, the S.E.C. chair, this month urging action “as quickly as possible.” Their big concern: Extreme and frequent severe weather is exacting a hefty toll on the economy, with climate-related disasters in the United States costing more than $165 billion in 2022.
But House Republicans want the proposal to be scrapped, saying companies’ climate disclosures aren’t relevant to investors. Senator Joe Manchin, Democrat of West Virginia, also opposes the proposal. That could make it a bone of contention in budget debates in the Democratically-controlled Senate.
Businesses are pushing ahead with preparations regardless. Much of the resistance to the rules has been aimed at a demand that large companies disclose “Scope 3” emissions, meaning the emissions of their suppliers and those of customers using their products. But critics say Scope 3 emissions are tough to calculate.
Under a new E.U. climate-reporting regime, thousands of U.S. companies will already have more requirements, including on Scope 3. Climate accounting specialists point to new tools that simplify compliance, making calculations as routine as traditional accounting.
“If you’re a C.E.O. of a major business, you’re taking a major risk” by waiting, Freddie Evans, C.E.O. of Minimum, a carbon accounting software company that has teamed up with Nasdaq on reporting for companies on its exchange, told DealBook. “Every organization in the U.S. and E.U. needs to have infrastructure in place.”
THE SPEED READ
The British defense company BAE Systems agreed to pay $5.6 billion for Ball Corporation’s aerospace division. (FT)
Paramount Global has reportedly scrapped plans to sell its majority stake in BET Media Group. (WSJ)
Hawaiian Electric is said to be in talks with restructuring firms to address its financial and legal challenges after the Maui wildfires. (WSJ)
An appeals court ruled that the abortion pill mifepristone should remain legal but with big restrictions, setting up a potential showdown in the Supreme Court. (NYT)
New York City banned TikTok on government-owned devices over security fears. (NYT)
The welterweight champion Terence Crawford has called for a boxers’ union. Meanwhile, labor leaders from Detroit to Hollywood are adopting increasingly tough tactics. (Bloomberg, NYT)
Best of the rest
You’re not imagining it: The dialogue in streaming shows is hard to make out, leading to a boom in the use of subtitles. (NYT)
“Doctors Transplanted a Pig Kidney Into a Person a Month Ago. It’s Still Working.” (WSJ)
The author Michael Lewis says only Hollywood cashed in on the success of the film based on his book “The Blind Side.” (WaPo)
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Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” More about Andrew Ross Sorkin
Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. More about Ravi Mattu
Bernhard Warner joined the The Times in 2022 as a senior editor for DealBook. Previously he was a senior writer and editor at Fortune focusing on business, the economy and the markets. More about Bernhard Warner
Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. More about Sarah Kessler
Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced
Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch
Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors. More about Ephrat Livni
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