Tag: Janet Yellen

Yellen Sounds Alarm on “Impossible” Housing Market for First-Time Buyers

Posted on by slightbourne@noblecapitalmarkets.com

For investors looking at hot housing sectors, Treasury Secretary Janet Yellen just aired some cold hard truths about the brutal landscape facing first-time homebuyers. In testimony before the House Ways and Means Committee, the former Federal Reserve chair minced no words in declaring it “almost impossible” for those trying to get that coveted first rung on the property ladder.

“With house prices having gone up and now with much higher interest and mortgage rates, it’s almost impossible for first-time buyers,” Yellen bluntly stated, citing the twin pains of home price appreciation and elevated financing costs.

Her candid assessment encapsulates the scorching environment scorching the dreams of millions of aspiring homeowners. After a pandemic-driven housing boom, the headwinds buffeting the entry-level market show no signs of abating:

Prices at Nosebleed Heights
According to Zillow data, a staggering 550 U.S. cities now have median home values topping the once-unthinkable $1 million mark. California accounts for nearly 40% of those cities, with the Los Angeles and San Francisco areas ground zero for pricing outliers.

Mortgage Rates Kryptonite
The days of locking in a 30-year mortgage under 3% now seem quaint relics. As the Fed jacked rates higher to tame inflation, average mortgage rates soared past 7% as of early 2024 – more than double pandemic-era levels. For cash-strapped first-timers, that translates into over $600 extra in monthly payments for a $400,000 loan.

Inventory Drought
Perhaps the biggest obstacle is critically low supply pipelines thanks to existing homeowners being financially “locked-in” to their low mortgage rates, as Yellen described it. They are disincentivized from listing and moving to avoid securing a new mortgage at higher rates – leading to a self-perpetuating cycle.

Rapacious Investor Competition
Even affordable starter homes in short supply are being ravenously consumed by investors. A Redfin report showed they purchased over 1 in 4 U.S. homes in Q4 2023 alone. With hedge funds and private equity firms devoting massive capital to residential real estate, it’s perhaps the biggest pricing pressure of all.

Yellen herself acknowledged the troubling dynamic, stating “We know that affordable housing and starter homes are an area where we really need to do a lot to increase availability.”

So what is being done to combat the brutal affordability crisis freezing out so many first-time buyers? The Biden administration has floated a novel twin tax credit concept:

  • A $10,000 credit for first-time homebuyers could provide vital funds for larger down payments to offset higher rates.
  • A separate $10,000 credit incentivizing existing owners to sell their “starter home” when upsizing could modestly relieve inventory shortages.

Some lawmakers are taking a more forceful approach – moving to punish corporate real estate investors gobbling up residential properties. Proposals include revoking depreciation and mortgage interest deductions, penalty taxes, and even mandates to divest rental home portfolios over time.

Whether such measures gain traction remains to be seen. But there’s no denying the current state of housing markets represents something close to a perfect storm for strivers trying to get in the game.

As an investor, the opportunities are evident amid the obstacles:

  • A generational housing shortage should keep upward pressure on asset pricing
  • Financing challenges and inventory scarcity create huge pent-up demand tailwinds for homebuilders
  • Solutions like single-family rental operators may temporarily ease entry-level pressures
  • And any public-private innovations that help reignite first-time buyer demand could be lucrative portfolio additions

Because for now – as Janet Yellen so starkly articulated – breaking into the housing market as a newcomer is indeed “almost impossible” based on today’s towering barriers. Sometimes the frank truth is the first step towards meaningful investment opportunities.

Janet Yellen Signals Potential Tariffs on Chinese Green Energy Exports

Posted on by slightbourne@noblecapitalmarkets.com

U.S. Treasury Secretary Janet Yellen escalated trade tensions with China over its massive subsidies for green industries like electric vehicles, solar panels and batteries. During her recent four-day visit to Beijing, Yellen bluntly warned that the Biden administration “will not accept” American industries being decimated by a flood of cheap Chinese exports – a repeat of the “China shock” that hollowed out U.S. manufacturing in the early 2000s.

At the heart of the dispute are allegations that China has massively overinvested in renewable energy supply chains, building factory capacity far exceeding domestic demand. This excess output is then exported at artificially low prices due to Beijing’s subsidies, undercutting firms in the U.S., Europe and elsewhere.

“Over a decade ago, massive Chinese government support led to below-cost Chinese steel that flooded the global market and decimated industries across the world and in the United States,” Yellen said. “I’ve made it clear that President Biden and I will not accept that reality again.”

While not threatening immediate tariffs or trade actions, the stark warning shows Washington is seriously considering punitive measures if Beijing does not rein in subsidies and overcapacity. Yellen said U.S. concerns are shared by allies like Europe and Japan fearing a glut of unfairly cheap Chinese green tech imports.

For its part, China is pushing back hard. Officials argue the U.S. is unfairly portraying its renewable energy firms as subsidized, understating their innovation. They claim restricting Chinese electric vehicle imports would violate WTO rules and deprive global markets of key climate solutions.

Escalating tensions over green tech subsidies could disrupt trade flows and supply chains for renewable energy developers, electric automakers, battery manufacturers and more across multiple continents. Some key impacts for investors:

Rising Costs: Potential tariffs on Chinese solar panels, wind turbines, EV batteries and other components could increase costs for green energy projects in the U.S. and allied countries, slowing roll-out.

Shifting Competitive Landscape: Non-Chinese exporters of renewable hardware like solar from countries like South Korea, Vietnam or India may benefit from U.S. trade actions against China, increasing overall competition.

Consumer Prices: Green tech price inflation could be passed through to consumers for products like rooftop solar systems, home batteries and EVs if tariffs increase costs.

Strategic Decoupling: If tensions escalate towards a full “decoupling”, it could accelerate efforts by the U.S., Europe and others to secure their supply chains by bringing more critical green industries in-house through domestic investments and subsidies.

Stock Impacts: Depending on how tensions unfold, stocks of firms exposed to U.S.-China green tech trade flows could face volatility and disruptions in both directions. Tariffs would likely create clear winners and losers.

For now, Yellen says new forums for discussions have been created to potentially resolve overcapacity concerns. However, her blunt warnings suggest the U.S. will not hesitate to take tougher actions to protect America’s fledgling renewable energy and electric vehicle industries from alleged unfair Chinese trade practices.

Yellen: Food, Rent Inflation Clouding View of Economy

Posted on by slightbourne@noblecapitalmarkets.com

Treasury Secretary Janet Yellen recently pointed to persistently high food and rent prices as a major reason why public perception of the economy remains negative, despite progress on overall inflation. With President Biden’s reelection chances closely tied to economic views, this consumer disconnect poses a threat.

In an interview with CNBC, Yellen acknowledged inflation rates have meaningfully declined from last year’s 40-year highs. However, she noted that “Americans still see increases in some important prices, including food, from where we were prior to the pandemic.”

While the administration touts top-line statistics pointing to economic strength, Yellen admitted that “this remains notable to people who go to the store and shop.”

Rent inflation also sticks out painfully to consumers, even as broader price growth cools. “Rents are rising less quickly now, but are certainly higher than they were before the pandemic,” Yellen said.

Polls Reveal Sour Public Mood Despite “Bidenomics”

This stubborn inflation in highly visible categories is clashing with the White House’s rosier messaging. The administration has dubbed the economy “Bidenomics” and trumpets metrics like robust job gains.

But almost 60% of voters disapprove of Biden’s economic leadership in the latest polling. His approval rating lags the economic data as people feel pinched by prices at the grocery store and housing costs.

Per Yellen, the disconnect boils down to prices remaining “higher than they used to be accustomed to.” She stressed the administration must now “explain to Americans what President Biden has done to improve the economy.”

Yellen expressed optimism views will shift “as inflation comes down, prices stop rising, and the labor market remains strong.” Time will tell if this turnaround happens soon enough to impact the 2024 election.

Food Prices Remain a Stinging Reminder of Inflation’s Sting

Of all consumer goods, food prices stand out as a persistent driver of inflation angst. Grocery bills grew 12% year-over-year in October, far above the 7.7% overall inflation rate. From eggs to lunch meats, few foods escape sticker shock at the store.

Russia’s invasion of Ukraine damaged vital grain supplies, resulting in huge price spikes for wheat, corn and cooking oils. Lingering supply chain dysfunction continues hampering food transport and packaging.

Restaurants also face higher food costs, which owners pass along through bigger menu price tags. Rising labor costs further squeeze restaurant margins.

In all, grocery and dining prices have become stinging daily reminders that inflation remains an economic burden. This clouds public sentiment despite falling gas prices and cheaper consumer goods.

Rents and Housing Costs Also Weigh Heavily on Consumers

Along with food, Yellen called out persistent rent inflation as a culprit of economic gloom. Annual rent growth sits around 7%, down from last year but still squeezing household budgets.

Low rental vacancy rates give landlords continued pricing power in many markets. While mortgage rates have shot higher, rents have yet to meaningfully slow for lack of alternatives.

Surging rents are especially painful due to housing’s outsize impact on living costs. One report estimated that housing accounts for 40% of a typical family’s inflation burden.

Beyond rent, housing costs like property taxes, homeowner insurance, and home services are also outpacing overall inflation. And higher mortgage rates make buying a home even less affordable.

These housing stresses help explain why such a large majority of Americans still rate current economic conditions as poor. With shelter eating up more paychecks, consumers feel deprived despite broader progress.

All Eyes on Food and Housing Costs as Midterms Approach

Yellen made clear that stubborn inflation in categories like food and rent is the administration’s biggest obstacle to touting economic gains. As President Biden gears up for a likely 2024 reelection bid, perceptions of the economy will carry substantial weight.

Democrats are hoping the public mood brightens as the impact of cooling prices materializes. But that remains uncertain with high-visibility costs still stinging consumers.

If relief arrives soon across grocery aisles and rent rolls, voters may yet reward President Biden and Democrats for delivering an overdue inflation reprieve. But the clock is ticking with the 2024 campaign cycle fast approaching.

For now, Biden’s political fate remains tied to the cost of bread and monthly housing bills. If lidding inflation can make such necessities feel affordable again, the president may stand to benefit.