Mortgage interest rates are now rising, while rising costs are squeezing household budgets. After a more than 30% increase in home prices and construction spending, the housing market risks becoming a drag heading into 2023, says a report from ING Bank.
The U.S. housing market has been a major support for economic activity during the pandemic. Falling mortgage rates as the Fed lowered borrowing costs, combined with work-from-home flexibility that opened up more options for living, spurred a surge in demand.
At the same time, supply was constrained by COVID-19 restrictions, which initially led to a decline in construction activity. For-sale inventory fell to historic lows and, in an environment of excess demand, prices soared.
The S&P Case Shiller housing index is up 30% nationally since the pandemic occurred in February 2020, and even Chicago, the worst performing city, has experienced a 20% rise.
Rising construction contributed strongly to the growth.
Residential construction spending fell 5% between March and May 2020, but as work and traffic restrictions were lifted, construction activity rebounded. It is now up 35% from pre-pandemic levels, with builders’ spirits buoyed by rising selling prices, even as labor and building supply costs rise.
The result is that growth in residential construction investment has outpaced overall GDP growth, so that this sector alone accounts for 3.5% of total economic output.
In the short term, it appears that housing will continue to contribute positively to the economy. Employment and wages are increasing across the country, supporting demand, and new and existing home sales remain strong. This continues to support homebuilder optimism, as housing starts and building permits are at levels not seen in 2006.
Warning signs begin
Mortgage application data showed a small decline in home purchase applications. While the movement was not strong, the problem is that we could be looking at much larger declines in the coming months.
This is because mortgage rates are rising rapidly at a time when runaway inflation is eroding household purchasing power and consumer confidence.
The University of Michigan reported that sentiment is the weakest since 2011 and not far from the lows seen during the 2008 global financial crisis. With potential homebuyers beginning to feel more nervous about the economy, the prospect of sharply higher monthly mortgage payments adds additional reason for caution.
Treasury yields are rising as Fed officials shift to a narrative of wanting to curb inflation, and financial markets now anticipate that the federal funds rate will end 2022 at 2.25%, up 200 basis points from the beginning of the year.
Rising benchmark borrowing costs imply further upside risks to mortgage rates and housing could move from excess demand to excess supply.
Inventory levels remain low by historical standards, with 1.7 months of existing home sales. They are starting to pick up a bit for new homes, with 6.3 months of sales versus 3.5 months at the end of 2020.
But if home sales slow in response to lower demand, these inventory numbers could rise quickly. Let’s also remember that with building permits and housing starts at elevated levels, there are going to be more residential properties coming on the market later this year and early 2023.
Consequently, we see an increasing likelihood that the housing market will begin to move from significant excess demand, which has fueled rising home prices and construction, to one where we are in better balance.
However, with the Fed focused on fighting inflation by raising the fed funds rate and shrinking its balance sheet, we could see mortgage borrowing costs continue to rise rapidly. This would increase the chances that the housing market will tip into oversupply and home prices will start to fall, the bank asserts.
While this in itself is not particularly worrying from a household balance sheet point of view, as household liabilities appear to be low by historical standards, it may translate into further falls in consumer confidence and weaken consumer spending, as well as dampen new residential construction.
On the other hand, the slowdown in the housing market will open the door to Fed rate cuts in 2023, ING experts say.
Housing is not only important from an activity standpoint. The sector also has more than 30% of the weighting of the consumer price inflation basket through primary rents and equivalent rent from landlords.
If housing prices stabilize and may even fall, this could quickly translate into lower inflation readings. This would give the Fed more flexibility to respond with interest rate cuts if they end up rising so much that the economy begins to weaken.
CP Group announced the acquisition of Bank of America Plaza in the heart of Midtown Atlanta.
The 55-story Class-A skyscraper – an icon of the Atlanta skyline – was acquired in a joint-venture with funds managed by HPS Investment Partners, LLC.
Bank of America Plaza is a nationally recognizable office tower comprising over 1.35 million square feet of premium space. The property, which has been an enduring fixture of Atlanta’s Midtown submarket since its construction in 1992, boasts a prime location and a mix of both top-tier traditional and tech-focused tenants. It is currently occupied by anchor tenants including Bank of America and national law firm Troutman Pepper.
“We are proud to acquire one of Atlanta’s most recognizable landmarks in Bank of America Plaza,” said Chris Eachus, Partner at CP Group.
CP Group plans to launch a $50 million capital improvements program which will include a complete overhaul of the lobby, development of an on-site high-end restaurant and 100,000 square feet of customizable prebuilt office suites, as part of CP Group’s in-house flexible workspace program, worCPlaces.
Current amenities at Bank of America Plaza already include an expansive 10,000 square feet of newly renovated conference center space with breakout rooms, comprehensive fitness center, newly constructed food hall, on-site bank branch, and salon.
Bank of America Plaza is in the heart of the Midtown submarket – a fast-rising tech, commerce, and cultural hub. The area is home to Georgia Tech, as well as an expansive business community, which now includes 23 Fortune 500 companies – including Anthem Blue Cross Blue Shield, Google, Meta, Microsoft, and Norfolk Southern – as well as proximity to Atlanta’s Tech Square, which contains the highest density of startups and established innovators in technology in the Southeastern U.S.
“This asset stands to benefit from the exponential growth in economic development and corporate relocations to Atlanta, and more specifically Midtown. We look forward to applying our unrivaled operational expertise and deep knowledge of the Atlanta market to unlock even more value at this iconic property.”, added Eachus.
Pixabay CC0 Public DomainJanus Henderson nombra a Ali Dibadj próximo consejero delegado . Janus Henderson nombra a Ali Dibadj próximo consejero delegado
Janus Henderson today announced that its Board of Directors has unanimously appointed Ali Dibadj as Chief Executive Officer of the Company effective no later than 27 June 2022.
Ali Dibadj joins the Company from AllianceBernstein Holding L.P. where he has served as CFO & Head of Strategy since February 2021 as well as Portfolio Manager for AB Equities since 2017.
Previously, he served as AB’s Head of Finance and Head of Strategy from April 2020 to February 2021. He co-led AB’s Strategy Committee in 2019 and served as a senior research analyst with Bernstein Research Services from 2006 to 2020, a period during which he was ranked as the number one analyst twelve times by Institutional Investor. Prior to joining AB, he spent almost a decade in management consulting, including at McKinsey & Company and Mercer. Mr Dibadj holds a Bachelor of Science in engineering sciences from Harvard College and a Juris Doctor from Harvard Law School.
Richard Gillingwater, Chairman of the Board of Directors, said,“We are pleased to appoint Ali Dibadj as the Company’s next CEO. As part of our CEO transition planning, we conducted an extensive internal and external search to identify an executive who both understands our business and has the necessary strategic expertise to help drive the firm’s next phase of growth for the benefit of our clients and shareholders. The Board is confident that Ali is the ideal choice to lead this great company into its next phase of growth and value creation.”
On the other hand, Ali Dibadj said, “I am delighted to join Janus Henderson and look forward to having the opportunity to lead such a talented group of professionals at an important time for the Company and the industry. I have long admired Janus Henderson’s commitment to deliver for its clients with investment and servicing excellence. The executive team, the Board, and I look forward to identifying, expediting, and capturing growth and innovation that creates value for our clients, employees, shareholders, communities, and all stakeholders.”
With cryptocurrency reaching $3 trillion in market capitalization in 2021 before falling back to $2 trillion amidst market volatility in early 2022, it is increasingly important for market participants, including asset managers and advisors, to engage and take a view, according a new Cerulli white paper, Cryptocurrency: Navigating a Frontier Asset Class for Advisors and Asset Managers.
The study suggest that nearly half of advisors indicate they expect to use cryptocurrencies by client request at some point in the future.
For advisors, cryptocurrency is increasingly too impactful to ignore as their clients—and not only younger ones—are likely to be interested in the offerings.
80% of financial advisors report they are being asked about cryptocurrencies, while only 14% are using or recommending cryptocurrencies.
Only 7% of advisors report that they currently use cryptocurrency based on their own recommendation, with a slightly higher 10% reporting they use cryptocurrency by client request. In the next two years, advisors expect their use of cryptocurrency to change—45% expect they will be using cryptocurrency at some point per clients’ requests.
Despite the growing interest from investors, advisors remain skeptical of the asset class.
“Many simply don’t understand or believe in the cryptocurrency as an investment,” states Matt Apkarian, senior analyst.
Apkarian adds: “Advisors commonly believe that the definition of an investment involves the expectation of real return. Given the fact that crypto assets do not represent claims on a stream of income, advisors often believe that the assets lack the ability to be valued, or that they lack growth expectations.”
In addition, structural factors make it difficult or impossible for advisors to commit to the incorporation of cryptocurrency in their strategy.
According to the research, many firms don’t offer investment options for cryptocurrency through their platforms, forcing advisors who want access to direct their clients to use outside platforms.
“This inhibits advisors from exercising discretion on cryptocurrency assets and places a burden on the client for a portion of their planning,” remarks Apkarian. They also face opaque regulatory and tax guidelines. “Advisors encounter mixed messaging and poor information from a tax and regulatory compliance standpoint. For what currently exists as a tiny sliver of some portfolios, advisors may see an imbalance in their return on time spent versus the investment,” he adds.
At the same time, product development for cryptocurrency is occurring rapidly, for both investment products and platforms used to access cryptocurrency. According to the research, cryptocurrency-focused organizations realize the significant complexity that has come as a byproduct of rapid growth, and some are working to develop standards that aid in understanding for investors.
“Advisors owe it to their clients to understand the world of cryptocurrency, so at the very least they have reasoning to support their viewpoint for not including it in their portfolios—a simple lack of understanding of cryptocurrency is not doing the client justice in assessing investment opportunities available,” Apkarian concludes.
Morgan Stanley announced that it will limit its brokers to 90 days per year to perform remote work.
The wirehouse is looking to get staff back in the office and fulfill supervisory duties, according to several inside sources familiar with the changes consigned by Advisorhub.
The policy changes will take effect July 1st.
Morgan Stanley CEO’s James Gorman has been a strong advocate of the move back to the office. Gorman has repeatedly reiterated that “anyone who goes to a restaurant should also come to the office and learn from their peers.”
Brokers requesting additional time to work remotely will have to demonstrate an alternative work location. Eligibility for a remote office will be based on criteria such as length of service or membership in production-based recognition clubs and senior approval.
Those working from an alternate remote location will also be subject to additional monitoring requirements, such as periodic remote inspections.
It is uncertain how many brokers will be able to opt for alternative jobs, a Morgan Stanley spokesperson told the U.S. media outlet.
On the other hand, flexibility options will differ from employee to employee depending on their role and eligibility.
This measure may cause some brokers to leave the company. Especially if some competing firms such as UBS Wealth Management USA are taken into account.
The Swiss firm has said it will not force U.S. brokers to return to their position. Bank of America, on the other hand, called its employees back to the office on March 1, although brokers were exempt from this policy.
PIMCO has hired Jaime Estevez in Miami as Account Manager.
The advisor comes after six years at BlackRock as a member of BlackRock’s offshore sales team for its Miami distribution business, according to his LinkedIn profile.
According to industry sources, Estevez will be part of the team that serves Latin American clients.
In the team he was part of at BlackRock, he covered the US Offshore market, Uruguay and Argentina.
Prior to BlackRock, Estevez worked at Highland Capital Management within their sales team in Dallas, Texas.
In addition, his first Finra booking was in 2014 for Fidelity.
Insigneo, has appointed a new Head of Investment Products, Mirko Joldzic, who joined the firm today, based in the firm’s Miami Headquarter reporting to Javier Rivero, Insigneo’s president and COO.
Mr. Joldzic will be responsible for leading the investment product team and setting the strategic direction of the Asset Management product range, including the development of new products, banking/lending opportunities and collaborating across the organization to identify opportunities and enhancements that will competitively differentiate Insigneo’s product offering.
He also will be supporting the development of new business opportunities and contributing to Insigneo’s recent expansion in Latin America and throughout the United States, according the company’s statement.
Rivero said: “I am happy to welcome Mirko to the Insigneo leadership team as we continue to build our product offering to provide Investment Professionals with a robust platform that is unparalleled in the market.”
Mr. Joldzic has an extensive background in financial services, most recently at Raymond James. He was also part of key teams at world renowned organizations such as UBS, Barclays Wealth and Investment Management, J.P. Morgan and Bank of America. He has a BA of Science Finance from Montclair State University and additionally holds the series 7 and 66 licenses.
“I am excited to join Insigneo and take on this new challenge in my career. I have been following Insigneo in the marketplace and its growth trajectory. I look forward to contributing to the long-term growth plans of the firm. I am also thrilled to join a firm, and a leadership team, whose focus is to offer innovative product solutions and exemplary service to our network of Investment Professionals and help them realize their goals.” said Joldzic.
Wells Fargo announced today $1 million in donations across three nonprofits to enable humanitarian aid for Ukraine and Ukrainian refugees, as well as support services for U.S. service members and their families across the globe.
The funding was distributed among the American Red Cross, World Central Kitchen and the USO.
American Red Cross, in coordination with the global Red Cross network including the International Federation of Red Cross and Red Crescent Societies (IFRC), International Committee of the Red Cross (ICRC) – A global first responder, the Red Cross is distributing food, water, first aid supplies, medical supplies, clothing and other urgent support as well as providing temporary shelter to people affected by the crisis.
World Central Kitchen provides meals in times of crisis. Their team is currently serving tens of thousands of meals to Ukrainian families fleeing their homes as well as those who remain in country.
The USO is rapidly responding with support for American service members in Eastern Europe with call centers, hygiene and meal kits, care packages, and other essentials. It also offers resources that provide care and comfort to U.S. service member families during this stressful time.
In addition, the company is making it easier for its employees to support these organizations through its internal employee giving system. Wells Fargo is also amplifying employee generosity to these organizations through its Community Care Grants program, allowing donations of up to $1,000 to qualify for additional grant dollars to further extend impact.
“In times like this, it’s important we come together to support those most impacted,” said Wells Fargo CEO Charlie Scharf.
Scharf adds: “We appreciate the nonprofits on the ground and hope our grants will enable them to accelerate getting humanitarian aid to those who require it most. At the same time, we want to support our nation’s military, which is often called upon in times of need, and we will continue to provide essential services for service members and their families.”
Both Mariscal Lozano and Bestard arrive from UBS’s Coral Gables office.
As for Bestard, who has more than 25 years in the Miami industry, he has worked at UBS since 2013 when he arrived from Morgan Stanley where he served from 2007 to 2013, according to his BrokerCheck records.
The advisor started in 1997 at Lehman Brothers where he worked for 10 years until 2007.
Mariscal Lozano started in 1999 at Lehman Brothers and moved to Morgan Stanley in 2007 where he worked until 2013 when he moved to UBS. Always based in Miami, according to his Finra profile.
Finally, Rivera, also with Miami experience, started at Morgan Stanley between 2008 and 2015. He then moved in 2015 to Jefferies until late last year, according to BrokerCheck.
Foto cedidaParesh Upadhyaya, Director of Fixed Income and Currency Strategy at Amundi AM.. Paresh Upadhyaya (Amundi): "Mi apuesta es que la Fed seguirá subiendo los tipos hasta septiembre"
Paresh Upadhyaya is Fixed Income and Currency Strategy director and a portfolio manager at Amundi Asset Management. He also leads Amundi Pioneer’s currency research effort from Boston and advises the firm’s global fixed income and equity investment staff on currency-related issues. With a degree in economics and international relations from Boston University and an MBA in finance from Boston College, he has held multiple senior positions at other asset managers and is an authority on fixed income and equity investing, sovereign debt, currencies and monetary policy. On 8 March, Funds Society had the opportunity to interview Mr Upadhyaya to discuss the economic impact of the war in Ukraine, especially the influence of this crisis on inflation, global monetary policies, fixed income and currency investment, as well as the company´s strategy for the current environment.
Fernando Moldenhauer, for Funds Society: Mr Upadhyaya, inevitably the first question has to be about the impact that the current situation in Ukraine is prompting on global economy. As you know we already came from an increasing inflation situation that has been now exacerbated by hikes on energy and commodities prices. We also have the sanctions issue, so the question is: how this situation is going to impact on global economy and on global stock markets? Can it pose a threat to the post-COVID recovery?
Paresh Upadhyaya: Great question. I think what we’re seeing is a geopolitical shock to the global economy. Global economy growth expectations, estimated at 4%, have been cut by at least half a percent or more. The surge in commodity prices is going to hurt, particularly countries that are big importers of commodities, especially oil importers. The other transmission mechanism for slowing global growth is through tightening financial conditions. Financial conditions have been excessively accommodative throughout the world, but those conditions are now beginning to tighten. Global monetary policy began to tighten up last year, but this year is going to start to gain more momentum with the US and the G10 economies entering the tightening cycle, joining much of the emerging markets that began their tightening cycle last year. So the combination of all those factors is going to lead to a weaker growth. I think we are still growing above the trend, but the risks are clearly to the downside and the greater the potential escalation in the Russian-Ukraine conflict, the greater the uncertainty.
FM: Given the current situation. Do you think the FED and other central banks will postpone their tightening policies in an attempt to soften the crisis?
PU:The issue that I think all central banks are facing and this is especially true for the Fed and the ECB, is that inflation has overshot their forecasts by multiples, not just a little, but by a lot. And there are a number of factors that go beyond just very strong domestic growth. The supply chains have aggravated the inflation situation, the demand for goods caused by the pandemic that have really driven up goods prices and energy. In the US we have the tightest labor market in decades while in Europe the unemployment rate is actually below the pre pandemic levels and we could see wages really began to pick up beginning September onwards.
Headline inflation is over 7% and will keep increasing, only starting to rolling over in late Q2 or early Q3. In the US, the risk of a wage inflation spiral is a fact. All of that suggests that even if the Fed wants to be a bit cautious given the external events with Russia, the domestic inflation situation, which is really a global issue, will prevent them from going slowly or more cautiously on rate hikes. So I think at the March meeting the Fed will hike by 25 basis points, and if I was to hazard a guess, my bias is still that the Fed will continue to hike at every meeting and maybe in September they will began to reevaluate if they continue the hiking at every meeting or not.
FM: We have recently seen the first movements of an approach between US and Venezuela government to study the possibility of increasing the Venezuelan oil imports to counter an eventual ban on Russian imports. Would that be an effective measure to avoid the negative effects of the prices hike?
PU: Venezuela is one that is believed to have one of the largest, if not the largest, untapped reserves of oil in the world. But Venezuela is only one of the countries where we can see sort of an increase in output. The other big 800 pound gorilla in the room is Iran, and there was some optimism among some that this may actually increase the odds of an Iranian nuclear deal, which would allow for a huge increase in supply to come into the markets. There are also rumors of President Biden flying out to Saudi Arabia to meet with Mohammed Bin Salman to try to see if Saudi Arabians can boost their output. All of that will not be enough to offset Russia, which is one of the top five largest exporting markets, but it would certainly help alleviate the situation.
FM: Let´s focus now on Amundi Asset Management´s experience with Rusia. Do you still have exposure to the country or you had already left it before the crisis? Did the sanctions impacted you?
PU: Fortunately we were not positioned in Russia. We have been investing in Russia over the last 10 years, but it has always been more tactical than strategic. We actually got out of those bonds on the local currency bonds about a year ago for fear of potential sanctions bills by the US Senate. We weren’t sure when the US would turn on and pass those bills, but one thing that has been sort of a constant trend when analyzing the Russian credit is the threat of sanctions that has been hanging over the country´s head since the invasion of Crimea.
FM: Let’s now open the door for a more in-depth analysis of fixed income markets. How do you think all this situation is impacting this particular sector?
PU: There is this tug of war that’s taking place between geopolitics that is giving a clear flight to quality safe haven status to sovereign bonds, like US treasuries. The precarious inflation situation is very destabilizing as a macro force, and it´s putting upward pressure on yields. Therefore, you will notice that the price action in US Treasuries and in global yields in general, has been very choppy, with sharp spikes up and down.
I think the general bias is that once we get a better handle of the situation or the markets have fully priced in the most likely outcome of the Russian-Ukrainian event, yields will continue to move higher, and therefore we favor being underweight duration in a lot of our core strategies. I would say that we’re still not there yet because I still think there could be a potential series of escalations that could lead to further rallies in Treasuriess or further flight to quality to Treasuries.
FM: As the company´s director of Fixed Income, what can you tell us about Amundi´s approach and latest products on fixed income. Is there any innovation or fund in particular you would like to present to the audience?
PU:So I would say there is a flagship fund, which is this strategic income fund, which is the one that I directly help to manage. And there, as I described earlier, our core strategic holding is to remain underweight duration, to be cautious on spread product, especially at investment grade, where we remain underweight because we think from a valuation perspective it´s hard for us to see yields fall any further. Once the Fed begins its tightening cycle, we think investment grade spreads will widen. On the other hand, we are overweight in high yield spreads, because we are cautiously optimistic that high yield can avoid some other churn that could take place.
FM: What about emerging markets? Given the current situation, is it a good idea to invest on them? What´s the Amundi vision on fixed income and currency investment in emerging markets right now?
PU: I would say that for emerging markets I think we’re going to be cautious for the moment, but emerging market equities and emerging market fixed income securities are already among the worst performing, if not the worst performing asset class in markets. So there is a good deal of pessimism that I would say is already reflected in emerging markets securities. Not to say it can’t get worse, there’s always a risk it could get worse, but I think we’re getting to the point that I think is going to begin to attract bottom fishing in various asset classes. I think what we need some more clarity on the Russian-Ukrainian war. Does this remain localized or is it starting to expand beyond the current war zone? That I think will really answer the question whether this is the time to start buying emerging markets across the board or if it´s time to start buying EM currencies against the dollar and selling the dollar against G10 currencies.
FM: OK, good. So I guess for your answer that you are cautious about the evolution of the euro and the dollar, you think they are going to be resilient. So can you talk a little bit about the new strategies, new approaches that Amundi is presenting regarding currency investment, or your current favorite products or vehicles of currency investment?
PU: On the currency side, you know the dollar has been on a bull market that I think will receive renewed momentum during the Russian-Ukrainian war as a dollar bill benefited from flight to quality. But I I think that the market is now beginning to price in a pretty healthy tightening cycle by the Fed, though I think we still have more to go to take us back to neutral and then even to restrictive territory. So there is still a little more upside to go in the dollar, but I think we’re getting close to where we may be seeing a consolidation in the dollar bull market and I would be looking for opportunities to begin to fade.
