Did Fed just Blink?

They may have, but that statement would seem to indicate that they plan on raising rates again in December.

Of course. They will raise in December. It is just that 4 more raises as per Fed’s dot plots do not seem to be happening. Perhap max 2 more including December rate rise.

So, Fed Funds ends up at 3.00.
Where do mortgage rates end up?

Sorry, I guess you're saying 2.75?

Two more will be 2.75-3 percent fed fund target range. 5 and 10y treauries could be relatively unchanged from here with in 25bps vs people fearing that 10y will be 4-5 percent vs close to 3 percent currently. Yield curve flattish.

I also think that due to increasing govt deficits and future commitments, Fed has no choice but to keep the fed funds rates low to keep the economy growing.

So 10y at 2.8 percent with Fed signaling only two rate raises next year vs 3 rate raises previously. The Fed forecasts tends to adjust more slowly historically than reality as they give more weight to data rather than sentiment. They may go once at most next year in my opinion and their neutral estimate has changed to 2.8 from 3 percent vs 1y back estimate of 3.5 percent. 2.8 percent neutral estimate may come down a little further to 2.7 percent. That is a huge long term positive but equity market wanted more.

https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20181219.pdf

Now that some of the panic is out of equity markets, 10y at 2.72 almost 50bps below the recent peak. Guessing smart buyers for resales are taking advantage of soft market, plenty of choices and low rates.

Smart money is now moving back into resi? The US stock markets are stabilizing? The world has certainly changed in the past week!

I am talking individuals not commercial real estate.

I know. Sounds like wishful thinking.

Wondering what people,who were calling for 4 percent, think? Of course, there is nothing wrong in being a perma bear and at the same time always being long equities for the long run.

As far as I know, most are still predicting mortgage rates in the low 5's for 2019 which is around 50% higher than 2016.

Interest rates are just one component of demand and the stock market is not well correlated to real estate, at least not in past years. Its all about market sentiment and I think most buyers have already made up their minds about the health of the current market.

Obviously in January when various Real Estate market reports are released about both Q4 and the year as a whole (Olshan has already published theirs) news outlets will publish articles with their takes on the market. I'm finding it hard to think of a scenario where these don't have a further negative impact on the market.

I think this cycle is over.

30, People have been calling for 4 percent 10y treasury for 2017 and 2018 as well and it has been widow-maker trade as both fed and market has lowered neutral rate level expectations. Jan Hatzius is one of the famous economist who has been constantly wrong in his forecast for rates and just lowered his forward path of fed hikes including factoring in a possible decrease.
My opinion is that 10y will settle around 3 percent and we may be at the low of the range.

"Jan Hatzius is one of the famous economist who has been constantly wrong in his forecast for rates and just lowered his forward path of fed hikes including factoring in a possible decrease."
So that means they are definitely going up? Lol.

30y fixed mortgages tend to come in between 1.5% to 2% over 10y treasury. So you are saying you think mortgage rates will settle in the 4.5% to 5% range.

Yes and that may be the peak level of mortgage rates when Fed is trying to slow down the economy. It is not that much higher than post 2009-10 average rates including the anomaly lasting for a short time in 2016. Of course, I am not in the business of forecasting rates. So take it for what it is worth.

More from Powell. Trying to fix his mistakes from the post fed conference.
https://www.wsj.com/articles/fed-chairman-powell-sees-flexibility-on-rates-this-year-11546616769?mod=searchresults&page=1&pos=1&mod=article_inline

Goldman coming around to forecasting lower yield of 3 percent and Bullard being more vocal in “no need to raise fed fund rates”. I think Fed is done raising rates. Perhaps one more time later in the year if the economy is strong. So we have a new neutral of 2.50 to 2.75. Very bullish for real estate long term.

https://www.wsj.com/articles/goldman-sachs-lowers-forecasts-for-yields-fed-11547038801?mod=mhp

I go with Jeffrey Gundlach who predicted the stock market downturn early in 2018.

https://www.cnbc.com/2019/01/08/gundlach-on-2019-rising-yields-to-hit-stocks-trouble-in-bonds-and-a-possible-bitcoin-bounce.html

So 10y down to 2.53 now that Fed is done for the year. And they will like end the QE unwind earlier than most people thought. Not sure this low level of 10y is sustainable unless Fed cuts next year.

http://amp.timeinc.net/fortune/2019/03/28/mortgage-rates-tumble

On the margin it is clearly very helpful even at the high end as the deep pocketed safety seeking investors have fewer attractive alternatives for their money. 10y down to 3.40 and I have seen Citi do 30y at 3.60 for private client with first 10y interest only.

10y down to 2.40. Not sure if it remains this low but German 10y at zero. So who knows.

Has the yield curve inverted?

Good chart for historical average 10y rate.
https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart

https://www.wsj.com/articles/inverted-yield-curve-is-telling-investors-what-they-already-know-11553425200

https://business.financialpost.com/investing/investing-pro/the-yield-curve-has-inverted-heres-why-investors-shouldnt-freak-out-and-go-to-cash

https://www.marketwatch.com/story/this-time-an-inverted-yield-curve-suggests-the-stock-market-has-already-peaked-some-analysts-say-2019-03-28

People are still making the mistake of only looking back not forward and the reasons for the current low yield. While I do not have a conviction that the rates will stay low, one needs to keep in mind that the current low rates are driven by slower global economy (driven in big part by China unable to grow that fast due to its larger size), global internet shopping and price comparison, abundance of oil driven by US, and a consequent lack of inflation globally. If there is recession in the US, 10y rate may go below 1 percent like Germany. And if the boom continues, it may stay below 3 percent. It is not going to cure ultra high end development in NYC without another 10-20 percent price drop from $4k per sq ft, but “affordable” segment with limited supply benefits tremendously.

Finally, here comes the lower 10y rate 2019 forecast from the Wall Street economists. Hatzius at 2.75 now after years of shouting rates going up to 4 percent.

https://www.wsj.com/articles/wall-street-firms-cut-treasury-yield-forecasts-11554661800?mod=mhp

So when does the recession start?

It is must harder to forecast recession than forecasting general level of rates. All I can guess is if the recession hits, even if a shallow 2 quarter one, 10y may go down to 1 percent.

If fed stays on sidelines and has an accomodative policy with the possibility of cutting rates, I think we can keep a recession at bay. Powell may have made a mistake with the increase in Dec. I go with the general theory that economic expansions do not die of old age, but rather they are usually murdered by the fed.

I generally agree that Fed is much less of a risk now but there can always be something unexpected which impacts the sentiment - China is currently weak and unstable spot as an example; In 2020, we may have a socialist takeover by Bernie Sanders or similar.

All I believe is interest rates will likely go down to 1-1.5 percent in a recession letting credit worthy people carry real estate cheaper. Banking system is much stronger now. So real estate loans will be available in recession.

I think it depends a lot on how badly the Real Estate market shits the bed. We are already seeing properties being foreclosed on which never would have been 2 or 3 years ago. If that spreads, banks liquidating properties will become the market maker and the prices they are making the market at aren't pretty.

Bank liquidations are long term healthy. I wish 1 Manhattan Square would go under under bank liquidation 30 percent down from current ask so that fair value to move the inventory gets commonly known for hard to sell new developments.

I absolutely agree that resisting the market's want to find a bottom usually results in worse outcomes. But you guys are still fighting me ;)

30, We disagree as you paint everything with the same brush. I have been pretty clear in my view that ultra-luxury priced at more than 4-5k per sq ft, which has huge oversupply, still has 20 percent room to go down and it will still remain expensive. Then there are selected development like 1 Manhattan Square which need to take a price cut due to poor location. And there are move in condition resales from $1200-1700 - a very large segment of the market. I continue to believe there is limited downside in this segment. Streeteasy condo index reflects mostly this segment and is barely down 5 percent from the peak with 1-2 percent still to show up in the numbers. What is your view on this last segment? Lower rates are tremendous help for this segment.

I've got a feeling we're in a recession now but we don't know it yet. The danger of lowering interest rates to prop up the economy is that you may not be able to use it when things get really bad. Capitalism is a house of cards that needs to collapse on occasion in order to rebuild.

Lower rates may help dampen the fall but this roller coaster has already crested the hill. Please keep your arms and legs inside the car for the remainder of the ride for your own safety.

@30 Could you expand on your comment regarding foreclosures? The only data I could find for NYC showed a jump up from 2016 to 2017, but it seems to have been pretty stable since then.

Sure. Most of the data you are going to find on foreclosures is either city wide or borough wide gross numbers. A lot of it also refers to foreclosure suits started not properties taken. But none of it talks about quality of properties. So here is an example:
This is a foreclosed/bank held property which is going up in an online auction which will sell at a significant discount (my guess is just over/under $1MM):
https://streeteasy.com/building/325-5-avenue-new_york/35e

If you are interested in specific details about the auction please email me.

@30 Got it - so it sounds like the number may not have changed, but you are seeing a shift in the quality of what is going to foreclosure. Interesting - you are right that's one of those subtle data points which the existing metrics won't catch.

I am not in the market for that specific apartment, but will let you know if anything changes.

@30 I'd like to learn more about the auction, where do I find your contact info or get more info? Thanks.

Fed watching low inflation carefully as per May 1 meeting. It looks like Fed is not raising rates anytime soon as in 2019. What a change in the last 7 months despite strong economy when Fed was supposed to be raising rates.

So fed lowered long term Fed funds neutral to 2.50 down from 3.5 a year or so back. And forecasting rate cuts in the next 6 months. It seems to me that 2.50 is the peak not long term neutral which is perhaps closer to 2.0 percent on Fed funds. Hatzius models do not work as he is just cloning Fed models and the historical models used by Fed do not yet fully reflect the new world.

Sorry should say lowered from 3.5 three years back.
https://fred.stlouisfed.org/series/FEDTARMDLR

Are they going to blink one more time and cut more in next meeting despite Powell claiming that last 25bps cut was just an insurance not a series of cuts? In the meantime, bargain hunters and existing home owner's in NYC can enjoy low mortgage rates.

They would need to do that anyway to support the bubble, when it comes to the moment.

Evan just blinked and more or less confirmed a rate cut next meeting. So 2 percent 10y will be new normal it seems.

EvanS just blinked and more or less confirmed a rate cut next meeting. So 2 percent 10y will be new normal it seems.

A déjà vu of the Obama hell

Today's markets not happy, supposedly due to yield curve inversion. It seems lately that every bad day has been followed by a very good day or two. The next few days will be interesting.

While I have been in the generally lower 10y rates being justified camp, at 1.6 percent 10y, I think this may be the low for a while.

This chaos must last for a while, there is no way to heal an economic system destroyed by Fed and obama

So Fed fixed the inverted yield curve many people were hanging their hat on as a predictor of recession. It seems we are now in new normal range of below 2 percent fed funds. Not sure if Fed will need to cut more in the next six months assuming some progress is made in China trade deal.

Fed is breaking its fix of the inverted yield curve. The 5yr was below the 2yr again today (2:15pm), and both fell below the 3 month. The 10yr yield is down 11bp and counting

By how much? 10-15bps do not matter as there are many technical factors due to zero rates by ECB. How is 2 to 10 spread? It was as low as -50bps in the last few months.

Ignore this portion
“It was as low as -50bps in the last few months.”

I mean that for 3m vs 10y. “It was as low as -50bps in the last few months”.

The crooks started QE again, what else can be worse?

How so? There are just lending short term (1 day to 2 weeks) against highly rated collateral which has no impact on long dated rates vs the previous QEs.

it will escalate