WEBVTT - Surveillance: Housing Market with Feroli (Podcast)

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<v Speaker 1>Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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<v Speaker 1>with Jonathan Ferrell and Lisa A. Bramowitz. Daily we bring

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<v Speaker 1>you insight from the best and economics, finance, investment, and

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<v Speaker 1>international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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<v Speaker 1>dot Com, and of course, on the Bloomberg terminal. Right down,

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<v Speaker 1>an immense joy is Michael Farola, chief US economist at

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<v Speaker 1>JP Morgan, and the hallmark of his weekly notes written

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<v Speaker 1>Friday evening. It comes out about seven pm. Did you

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<v Speaker 1>talk about going beneath headline analysis? And that's the JP

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<v Speaker 1>Morgan team. Even algebraic functions, Michael, Algebraic functions Friday night

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<v Speaker 1>at eight pm is a highlight of my Friday evening.

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<v Speaker 1>What do here algebraic functions say about the American housing market?

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<v Speaker 1>Units are Graham Price hasn't moved, so housing clearly is

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<v Speaker 1>suffering a little bit from higher mortgage rates. And we

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<v Speaker 1>saw that again with the new home sales that Mike

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<v Speaker 1>just mentioned, as well as almost every housing point we

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<v Speaker 1>got last week, and we would expect that to continue

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<v Speaker 1>for the next several months, just given the lags between

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<v Speaker 1>when mortgage rates go up and when home sales come down,

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<v Speaker 1>that said, we're coming off you know, white hot levels,

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<v Speaker 1>and uh so we're basically I think, getting a little

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<v Speaker 1>bit back more into balance. And it's likely to be

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<v Speaker 1>the case that inventories with even with housing home sales

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<v Speaker 1>coming off, inventories will likely remain pretty lane and home prices.

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<v Speaker 1>We don't see home prices declining certainly, so hopefully getting

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<v Speaker 1>a little bit more into balance, cooling off, but but

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<v Speaker 1>not in not two thousand six by our means, Michael,

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<v Speaker 1>this question pains me to ask, but are people getting

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<v Speaker 1>too gloomy as they start to price in some sort

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<v Speaker 1>of slow down that allows the FED to be patient.

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<v Speaker 1>So the Fed, I think we'll continue moving after obviously

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<v Speaker 1>we're gonna get the June July fifty paces point moves.

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<v Speaker 1>And I think to the point you discussed earlier, look,

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<v Speaker 1>Chair Powell is an outcome based guy, and he wants

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<v Speaker 1>to actually see inflation and activity slow down. So while

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<v Speaker 1>housing maybe a leading indicator for the economy, I think

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<v Speaker 1>Powell will actually want to see things slow before he

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<v Speaker 1>actually pulls off of the rate hikes. So I do

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<v Speaker 1>think that maybe we've gone a little bit. Maybe we're

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<v Speaker 1>thinking that fed's going to be too too gentle here

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<v Speaker 1>with the economy. But they really had their work cut

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<v Speaker 1>out for them, and so I don't see them pausing

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<v Speaker 1>after after July. What are you looking for, Michael, is

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<v Speaker 1>a sign that truly we are seeing some sort of

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<v Speaker 1>slow down with respect to inflation at a time when

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<v Speaker 1>we're hearing from everyone here that the consumer is still

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<v Speaker 1>very strong. Yeah, I think you'd really want to see

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<v Speaker 1>the labor markets soften more materially than we have seen. Uh. Again,

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<v Speaker 1>we don't. We don't want to see a lot of unemployment.

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<v Speaker 1>But the jobless claims numbers that we just mentioned the

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<v Speaker 1>can suggest we're still in a very hot waiver market.

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<v Speaker 1>So you would like to see next week not only

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<v Speaker 1>job grows slow, but you know, perhaps vacancies come down. Uh,

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<v Speaker 1>And we'd like to see that happen, you know, in

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<v Speaker 1>a in a smooth kind of linear fashion. Generally that

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<v Speaker 1>doesn't it's not the case, but that would be the

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<v Speaker 1>ideal scenario if we have a nice slow wing and

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<v Speaker 1>jock growth. One of the key sentences I've heard your

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<v Speaker 1>Michael Faroli is central banks that really don't have reaction

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<v Speaker 1>functions right now, they're making it up as they go,

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<v Speaker 1>is you and Bruce Kasman and your team piece together

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<v Speaker 1>Tomorrow's note, Do you have a mathematical structure or a

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<v Speaker 1>geometric structure of where we're heading or as you are

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<v Speaker 1>you as blind as the Central bank? Look. I think

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<v Speaker 1>it's clear that the FED is not operating and has

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<v Speaker 1>not been operating by anything close to a tailor rule

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<v Speaker 1>or any other type of formula reaction to functions. So

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<v Speaker 1>I think that makes you know, gauging central banks here

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<v Speaker 1>a little bit tricky. But that's been the case for

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<v Speaker 1>a couple of years, where you know, you can do

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<v Speaker 1>your implied tailor roll and doesn't look anything like what

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<v Speaker 1>the FETE has been doing. So that's just the fact

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<v Speaker 1>we're living with. What what is the fact we're living with?

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<v Speaker 1>Just Lisa mentions to just watch the consumer is at

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<v Speaker 1>the heart of the matter. So the consumer matters. I

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<v Speaker 1>think the consumer will follow where the labor market goes.

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<v Speaker 1>And that's why I really exercize the labor market. And

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<v Speaker 1>you know, we can talk all about excess saving and

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<v Speaker 1>all that, but it's really labor income that's driving consumer

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<v Speaker 1>spending here, Michael, that's Jamie Diamond online. Three. Pick up

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<v Speaker 1>the phone, say Hi to Mr diamond Forest, Michael Faroli

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<v Speaker 1>at JP Morgan, Jeffrey You is just brilliant with B

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<v Speaker 1>and Y Mellen and jeff You. You say they're wrong.

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<v Speaker 1>All the people doubting plas a chord and dollar intervention

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<v Speaker 1>are wrong. You mentioned the giant Frankel of Harvard and

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<v Speaker 1>you say we need to start to think of about

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<v Speaker 1>a plaza accord of two thousand twenty three. Why is

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<v Speaker 1>the dour too strong? Well, the donar is too strong

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<v Speaker 1>in terms of valuations, but the US needs to figure

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<v Speaker 1>this out on its own accord. The dollar itself from

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<v Speaker 1>the Fed is not really going to matter in terms

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<v Speaker 1>of financial conditions. You look at the four pillars of

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<v Speaker 1>financial conditions, rates, exchange rates, spreads, equity market FFX by

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<v Speaker 1>a long way ranks last, and also what does Japan need?

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<v Speaker 1>What does Europe need? Europe finally they're changing their tone.

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<v Speaker 1>You know, they need a stronger euro to bring down inflation,

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<v Speaker 1>but they need to realize this actually strengthens consumer sentiment

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<v Speaker 1>as well, and they're purchasing power. So this is a

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<v Speaker 1>very different environment compared to several decades ago. We need

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<v Speaker 1>to think about not a new plaza or louver anything

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<v Speaker 1>like that, but what each country needs for themselves. So

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<v Speaker 1>that's the difference between now and three decades. Let's find

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<v Speaker 1>common ground between David focas Landa over the small German

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<v Speaker 1>Bank and Ian Bremer out with this new book, The

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<v Speaker 1>Power cris in Every Nation for Itself. Jeff, you, how

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<v Speaker 1>do you have coordination if you're not kempt down in

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<v Speaker 1>the lobby of the Plaza in New York. Well, you

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<v Speaker 1>know right now you have enough communication between the central

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<v Speaker 1>bankers and we've had that in the last fifteen years

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<v Speaker 1>or so, like the swap lines, and you're during the crisis,

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<v Speaker 1>and you're during the panda, during the pandemic. But it's

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<v Speaker 1>kind of backward looking. There's coordination when it comes to firefighting,

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<v Speaker 1>responding to crises, and look at how the sanctions were

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<v Speaker 1>brought in after the war started, But you know, where

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<v Speaker 1>is the coordination up ahead in an era of deglobalization.

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<v Speaker 1>That's the philosophical question we need to ask. If you're

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<v Speaker 1>talking about deglobalization, then why bother coordinate isn't deglobalization by

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<v Speaker 1>definition every central bank for itself? So philosophically, where do

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<v Speaker 1>they spands right now? Where the government stand that needs

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<v Speaker 1>to be harmonization. If not, then we can forget about

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<v Speaker 1>picking up the phone. Okay, so Jeffrey, if we don't

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<v Speaker 1>get that harmonization and we stay where we are, which

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<v Speaker 1>is and maybe perhaps deglobalization, but a regionalization partnerships, how

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<v Speaker 1>do you see the euro reacting at a time when

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<v Speaker 1>people are downgrading some of their growth expectations for world

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<v Speaker 1>growth and we're starting to see, I don't know, the

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<v Speaker 1>Euro get a little bit of a bounce from that.

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<v Speaker 1>So I think Eurozone policymakers and to their credit, the

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<v Speaker 1>ECB starting to realize this a strong currency need not

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<v Speaker 1>be a bad thing. You know, there are more things

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<v Speaker 1>to an economy than a trade surplus. Let's get away

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<v Speaker 1>from this eighth century merk Untiless way of thinking. No,

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<v Speaker 1>it's harder for Asia and Euro to dislodge. But if

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<v Speaker 1>you have stronger purchasing power, that can actually help offset

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<v Speaker 1>some of the inflation losses and too real income as well.

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<v Speaker 1>So they need to state a stronger euro at this

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<v Speaker 1>point and you're is still going to be undervalued, like

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<v Speaker 1>even five big figures from here, right, So that is

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<v Speaker 1>good for the Eurozone households. It can lift their demand

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<v Speaker 1>in real terms, that's good for the Euro, So they

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<v Speaker 1>need to actually cross that hill. They're not there yet,

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<v Speaker 1>but finally they are starting to shift, so I think

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<v Speaker 1>the Euro will find a new range of higher range.

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<v Speaker 1>But still even with a higher range, right now, it's

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<v Speaker 1>still going to be very, very much under valued. We're

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<v Speaker 1>talking about fluctuations that are miniscule at least for this week.

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<v Speaker 1>But the big elephant the room at Davos has really

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<v Speaker 1>been China. Jeffrey, and how we deal with the fact

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<v Speaker 1>that the slowdown that we're seeing from shutdowns probably are

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<v Speaker 1>not going to end any time soon. How do you

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<v Speaker 1>map that out into a currency call, into a growth

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<v Speaker 1>call at a time when it seems as though that

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<v Speaker 1>is going to remain the policy at least for the

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<v Speaker 1>remainder of the year. Well, what's fascinating is if we

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<v Speaker 1>look at our eye flow custody data, our clients are

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<v Speaker 1>starting to buy CNY, They're starting to buy Chinese equities,

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<v Speaker 1>and after an unbroken run of let's say three or

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<v Speaker 1>four quarters of selling gentle buying in Chinese government bonds

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<v Speaker 1>as well, So it looks like the globe markets they're

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<v Speaker 1>so underweight China right then they're not actually taking a

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<v Speaker 1>growth view. I highly doubt that because of the lockdown

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<v Speaker 1>still happening, but maybe they're just starting to find some

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<v Speaker 1>value on a total return basis with Chinese equities, Chinese

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<v Speaker 1>bonds and also the currency you know where it is.

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<v Speaker 1>But to translate that from a rerating, you know, from

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<v Speaker 1>a growth view, I want to go away China again.

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<v Speaker 1>The window is narrowing on Afraider. So we need more stimulus,

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<v Speaker 1>more government driven stimulus and demand lift right now. But

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<v Speaker 1>yesterday's Premier League comments um he said basically the too

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<v Speaker 1>local governments. You need to fend for yourself, you know

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<v Speaker 1>right now, the very limited resources. That's tough, Darr You

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<v Speaker 1>let's turn to your virology expert expertise, which is of

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<v Speaker 1>China ends on lockdown? What happens to the Greater Pacific

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<v Speaker 1>RIM one day it's going to be over? Then? What right?

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<v Speaker 1>Then we are going to have not only in an

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<v Speaker 1>Asia but probably a global context the mother of all

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<v Speaker 1>services stimuluses. And we're talking about not just lockdowns ending,

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<v Speaker 1>but also borders reopening in China. There's no time frame

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<v Speaker 1>for that, but look at how Thailand, Indonesia, Malaysia, Ascian

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<v Speaker 1>countries dependent on Chinese tourists Davos, you know, Tom going

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<v Speaker 1>to the what shops in Davos? You know, are they

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<v Speaker 1>complaining about lack of Chinese tourists buying what those patech leaps? Right?

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<v Speaker 1>So when they return that two hundred billion dollars services

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<v Speaker 1>deficit China runs with the rest of the world, that

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<v Speaker 1>is going to be such a big stimulus, something we

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<v Speaker 1>can all look forward to. But right now, again no timeline.

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<v Speaker 1>Do you think, Jeff, that we're seeing right now people

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<v Speaker 1>bake in an appropriate slowdown and we take a look

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<v Speaker 1>at the global economy or do you think that there's

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<v Speaker 1>more to come to be priced into risk ASD's and

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<v Speaker 1>frankly even to yield. So on a quality of basis,

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<v Speaker 1>I think we need to differentiate what is a slowdown

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<v Speaker 1>versus so basically soft versus hard landing. I think people

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<v Speaker 1>are still baking in a soft landing right now. But

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<v Speaker 1>if the Fed terms restrictive and we still think the

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<v Speaker 1>market is actually not appreciating the risk of that enough.

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<v Speaker 1>We're talking FED funds right going to three and a

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<v Speaker 1>half to four that kind of level, then a hard

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<v Speaker 1>landing that I think the market is probably taking a

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<v Speaker 1>bit too lightly, right now. So we're not saying as

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<v Speaker 1>it's over yet by any stretch. And the markets are

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<v Speaker 1>appreciating a great slow down. They're just not ready to

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<v Speaker 1>bake in a harder landing. So I think that's where

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<v Speaker 1>some further repricing is needed, be in the short term evaluations, adjustments,

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<v Speaker 1>waiting readjustments. You know, we're seeing a bit of a

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<v Speaker 1>rest bounse, but I think the Fed will have the

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<v Speaker 1>final world on not Jeff you brilliant, extremely important note,

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<v Speaker 1>really pushing against the forget about the Plaza re chord consensus.

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<v Speaker 1>Mr you with b and why melantoday we get to

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<v Speaker 1>rip up the script to do that. With em Rita

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<v Speaker 1>send chief Oil Analystic Energy aspects truly excellent and the

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<v Speaker 1>microeconomics of what Brent crude will do. Em Rita in

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<v Speaker 1>your academic studies to windfall profit taxes work, No, especially

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<v Speaker 1>not at a time when you're asking all it produces

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<v Speaker 1>to all it's a race production right, because there is

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<v Speaker 1>a bit of a supply crunch. So no, the answer

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<v Speaker 1>is no. I go back em Rita to Lyndon Baines

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<v Speaker 1>Johnson and the idea of an investment tax credit. Now

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<v Speaker 1>Suonak is going to fold in here. If you invest,

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<v Speaker 1>you don't pay as much tax. What kind of investment

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<v Speaker 1>program spurs oil production? The problem right now is that

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<v Speaker 1>you know, we do need investment for sure, and into

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<v Speaker 1>your question what kind of investment spurs oil production, you're

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<v Speaker 1>talking about investment in the North Sea um and that

0:12:15.520 --> 0:12:18.400
<v Speaker 1>is not overnight. You are going to still look for

0:12:18.960 --> 0:12:21.400
<v Speaker 1>you need to first and foremost find the oil. But

0:12:21.480 --> 0:12:23.720
<v Speaker 1>again you can. I mean there are small fields that

0:12:23.800 --> 0:12:26.840
<v Speaker 1>can still be extracted, and you can get some tie

0:12:26.880 --> 0:12:30.040
<v Speaker 1>back projects which are pretty quick, so say within a year,

0:12:30.080 --> 0:12:32.400
<v Speaker 1>you could get oil out. But these are small volumes.

0:12:32.400 --> 0:12:36.080
<v Speaker 1>You're talking about maybe forty barrels per day rather than

0:12:36.200 --> 0:12:38.280
<v Speaker 1>hundreds of thousands of barrels per day, which is what

0:12:38.320 --> 0:12:40.720
<v Speaker 1>we need, if anything, we probably need in the millions

0:12:40.720 --> 0:12:43.280
<v Speaker 1>of barrels per day. For that, you need a sustained

0:12:43.320 --> 0:12:47.000
<v Speaker 1>investment program. And you know, particularly the UK not see

0:12:47.120 --> 0:12:50.240
<v Speaker 1>is a declining asset. No Way, on the other hand,

0:12:50.280 --> 0:12:54.479
<v Speaker 1>actually has much better prospects, so it's not that lucrative

0:12:54.520 --> 0:12:57.720
<v Speaker 1>to necessarily invest. But having said that, there are still

0:12:57.760 --> 0:13:01.640
<v Speaker 1>assets which oil majors of here could extract oil from.

0:13:01.679 --> 0:13:04.040
<v Speaker 1>And if the tax incentive is right, I think the

0:13:04.080 --> 0:13:06.240
<v Speaker 1>world needs that oil, and they would be more than

0:13:06.320 --> 0:13:09.839
<v Speaker 1>keen to develop that, except of course that there are

0:13:09.840 --> 0:13:12.600
<v Speaker 1>E s G pressures on them as well, So that

0:13:12.760 --> 0:13:15.760
<v Speaker 1>is always going to be their tension whether shareholder doesn't

0:13:15.760 --> 0:13:18.439
<v Speaker 1>necessarily want them to invest in oil and gas regardless

0:13:18.440 --> 0:13:21.360
<v Speaker 1>of the tax structure and readA. How much is this

0:13:21.480 --> 0:13:23.920
<v Speaker 1>an issue of getting the oil out of the ground

0:13:23.960 --> 0:13:26.520
<v Speaker 1>and how much is this an issue of refining it

0:13:26.720 --> 0:13:29.079
<v Speaker 1>that people can use it to power their cars and

0:13:29.160 --> 0:13:33.480
<v Speaker 1>their homes. Well, it's a great question because we've got

0:13:33.480 --> 0:13:36.200
<v Speaker 1>shortages in both right now. Of course, we're not investing

0:13:36.280 --> 0:13:38.559
<v Speaker 1>enough in the upstream. That's been a trend for the

0:13:38.640 --> 0:13:41.280
<v Speaker 1>last eight years. In fact, on our database, we've not

0:13:41.440 --> 0:13:44.760
<v Speaker 1>invested much more than four billion dollars each year for

0:13:44.800 --> 0:13:48.320
<v Speaker 1>the last pretty much eight years. And since last year,

0:13:48.559 --> 0:13:52.480
<v Speaker 1>China changed his policy around refining and product exports, and

0:13:52.520 --> 0:13:56.000
<v Speaker 1>we've closed about three million barrels per day of refineries

0:13:56.040 --> 0:13:58.360
<v Speaker 1>in the West, mostly in the West UM, so we

0:13:58.440 --> 0:14:01.160
<v Speaker 1>are very short of refining capall city. We have a

0:14:01.200 --> 0:14:04.240
<v Speaker 1>few refineries starting up in the next couple of years

0:14:04.360 --> 0:14:07.120
<v Speaker 1>and even back off of this year, but not nearly

0:14:07.240 --> 0:14:09.640
<v Speaker 1>enough to meet demands. So we are constrained on both sides,

0:14:09.640 --> 0:14:11.719
<v Speaker 1>but right here, right now, I'd say we are more

0:14:11.760 --> 0:14:15.160
<v Speaker 1>constrained on refineries. Um, so the oil you and I

0:14:15.160 --> 0:14:18.439
<v Speaker 1>would consume, that's more constrained than actually the crude oil

0:14:18.520 --> 0:14:20.680
<v Speaker 1>side of things, which in itself is a challenge with

0:14:20.680 --> 0:14:24.080
<v Speaker 1>opex spe capacity load. I mean, all of this comes

0:14:24.080 --> 0:14:26.880
<v Speaker 1>together in a taxic brew, if you will, that only

0:14:26.960 --> 0:14:30.760
<v Speaker 1>raises costs for consumers and continues to do so despite

0:14:31.000 --> 0:14:34.680
<v Speaker 1>wobbles in the actual crude market. How much I understand

0:14:34.680 --> 0:14:37.000
<v Speaker 1>that perhaps they're not going to see oil companies produced

0:14:37.080 --> 0:14:39.920
<v Speaker 1>more as a result of the tax it's being proposed

0:14:39.960 --> 0:14:42.640
<v Speaker 1>in the United Kingdom, However, how much does it just

0:14:42.920 --> 0:14:45.120
<v Speaker 1>give cash to be able to offset the costs for

0:14:45.200 --> 0:14:47.760
<v Speaker 1>people who are going to only see those costs climb.

0:14:50.480 --> 0:14:52.360
<v Speaker 1>The challenge is going to be how are you going

0:14:52.360 --> 0:14:55.880
<v Speaker 1>to make this a global um solution? Right? Because oil

0:14:55.880 --> 0:14:57.880
<v Speaker 1>markets are global, and I think part of the problem

0:14:57.880 --> 0:15:00.640
<v Speaker 1>politicians in the West have is that the always trying

0:15:00.640 --> 0:15:03.560
<v Speaker 1>to come up with local solutions. Even the US is

0:15:03.600 --> 0:15:07.080
<v Speaker 1>talking about potentially limiting diesel exports. That's just not going

0:15:07.120 --> 0:15:10.760
<v Speaker 1>to work because ultimately both crude and product markets are very,

0:15:10.840 --> 0:15:13.920
<v Speaker 1>very global. So we have to acknowledge that oil and

0:15:14.000 --> 0:15:18.040
<v Speaker 1>gas demount continue to grow very, very sharply, particularly in Asia,

0:15:18.080 --> 0:15:20.360
<v Speaker 1>and even you know right now China is not even growing.

0:15:20.400 --> 0:15:23.000
<v Speaker 1>So imagine when China does come out of its zero

0:15:23.000 --> 0:15:25.800
<v Speaker 1>COVID policy, the impact it's going to have um and

0:15:25.840 --> 0:15:29.280
<v Speaker 1>we need to therefore facilitate enough investment across the board,

0:15:29.280 --> 0:15:31.480
<v Speaker 1>not just an oil and gas, but also in renewables

0:15:31.520 --> 0:15:34.760
<v Speaker 1>to meet that energy demand. Otherwise, like you say, there

0:15:34.840 --> 0:15:36.360
<v Speaker 1>is only going to be one thing that the cost

0:15:36.480 --> 0:15:40.120
<v Speaker 1>goes up. It is pretty simple, demand and supply. I'm

0:15:40.160 --> 0:15:44.240
<v Speaker 1>reading an unfair question, and this goes back to and

0:15:44.280 --> 0:15:47.360
<v Speaker 1>the experience of the United States and a quote windfall

0:15:47.480 --> 0:15:50.640
<v Speaker 1>profit tax, which many people would suggest with just a

0:15:50.720 --> 0:15:54.760
<v Speaker 1>flat and excise tex over the already elevated text as

0:15:54.800 --> 0:15:57.640
<v Speaker 1>they were already paying because they were making more money.

0:15:58.120 --> 0:16:01.280
<v Speaker 1>And read to say, if the United States affects a

0:16:01.400 --> 0:16:05.640
<v Speaker 1>British equivalent in a win for profits tax, what does

0:16:05.680 --> 0:16:10.320
<v Speaker 1>that do to a gallon of gas? Well, I'll say

0:16:10.360 --> 0:16:13.280
<v Speaker 1>this much. I think at least producers we speak to

0:16:13.320 --> 0:16:16.240
<v Speaker 1>in the US have said the administration has considered it

0:16:16.240 --> 0:16:19.520
<v Speaker 1>and probably probably still is. You will see US shail

0:16:19.560 --> 0:16:23.160
<v Speaker 1>production fall because again, what's the incentive Much like in

0:16:23.200 --> 0:16:26.800
<v Speaker 1>the UK, what's the incentive in the US to continue

0:16:26.800 --> 0:16:29.240
<v Speaker 1>producing if you're just going to be taxed? And if

0:16:29.280 --> 0:16:32.560
<v Speaker 1>that happens, then crew prices go up even further. Refining

0:16:32.720 --> 0:16:35.960
<v Speaker 1>was already constrained, so you know, gasline prices are already high,

0:16:36.040 --> 0:16:38.320
<v Speaker 1>and of course it's going to make matters worse, but

0:16:38.520 --> 0:16:43.080
<v Speaker 1>the crew price will definitely rise. I'm read twenty seconds.

0:16:43.240 --> 0:16:45.400
<v Speaker 1>Whereas gas prices, where are they going to go in

0:16:45.440 --> 0:16:49.600
<v Speaker 1>the United States through the remainder of this year? Um,

0:16:49.640 --> 0:16:51.720
<v Speaker 1>we think it's going to continue to go higher. You've

0:16:51.760 --> 0:16:55.600
<v Speaker 1>got Memorial Day driving season and it's starting up, and yes,

0:16:56.280 --> 0:16:59.040
<v Speaker 1>inflation is high, but this is the first time in

0:16:59.040 --> 0:17:01.440
<v Speaker 1>a couple of years where there are no restrictions and

0:17:01.680 --> 0:17:03.640
<v Speaker 1>people are going to be driving and flying as well.

0:17:03.720 --> 0:17:06.680
<v Speaker 1>So both gasoline and jet fer prices will continue to rise.

0:17:07.840 --> 0:17:09.680
<v Speaker 1>And we're just saying thank you so much for joining

0:17:09.720 --> 0:17:18.679
<v Speaker 1>us with energy aspects. Our last section in Davos and

0:17:18.720 --> 0:17:21.159
<v Speaker 1>the cars. As we know we can't afford anything in

0:17:21.359 --> 0:17:23.640
<v Speaker 1>Davos to buy a rent, we might as well talk

0:17:23.680 --> 0:17:27.720
<v Speaker 1>to Jonathan Miller or Jonathan Miller joins as president and

0:17:27.840 --> 0:17:30.679
<v Speaker 1>CEO of Miller, Samuel To tell us when the housing

0:17:30.760 --> 0:17:34.879
<v Speaker 1>is gonna crack in America, John Miller, you would suggest

0:17:34.960 --> 0:17:38.439
<v Speaker 1>we're starting to see an EBB. Is that because people

0:17:38.560 --> 0:17:43.840
<v Speaker 1>can't afford the rent, they can't afford the mortgages. Yeah,

0:17:44.080 --> 0:17:48.359
<v Speaker 1>I think we're approaching a peak. One of the I

0:17:48.400 --> 0:17:51.440
<v Speaker 1>think rising mortgage rates are probably one of the best

0:17:51.440 --> 0:17:55.320
<v Speaker 1>things that is happening to housing. In many ways, low

0:17:55.400 --> 0:17:59.520
<v Speaker 1>mortgage rates are making housing less affordable because it has

0:17:59.560 --> 0:18:02.639
<v Speaker 1>a blow a rated supply, whether in the rental market

0:18:02.720 --> 0:18:06.600
<v Speaker 1>or the or the purchase market. We're seeing I cover

0:18:06.640 --> 0:18:10.119
<v Speaker 1>about forty different housing markets across the US, and the

0:18:10.240 --> 0:18:13.040
<v Speaker 1>rate the market share of bidding wares right now is

0:18:13.080 --> 0:18:17.720
<v Speaker 1>anywhere from twenty five to sev of all closed sales activity.

0:18:17.800 --> 0:18:21.600
<v Speaker 1>That is not a sustainable condition. We need more inventory.

0:18:22.760 --> 0:18:25.600
<v Speaker 1>Tell us about the mortgage rate right now. Are the

0:18:25.720 --> 0:18:30.639
<v Speaker 1>people that did short term mortgages at lower, lower, lower rates?

0:18:30.680 --> 0:18:33.119
<v Speaker 1>Are they already in trouble given that we now have

0:18:33.560 --> 0:18:40.480
<v Speaker 1>higher and higher rates, So it clearly places more pressure

0:18:40.520 --> 0:18:43.600
<v Speaker 1>on them. Given how much prices have gone up over

0:18:43.600 --> 0:18:46.760
<v Speaker 1>the last year, we're looking at, you know, depending on

0:18:46.800 --> 0:18:53.359
<v Speaker 1>the metric around UH this next year two more like

0:18:53.520 --> 0:18:58.600
<v Speaker 1>nine and probably three to four percent the following year,

0:18:58.680 --> 0:19:02.760
<v Speaker 1>even with the rate hikes. Um. All this is because

0:19:02.960 --> 0:19:07.679
<v Speaker 1>there is limited supply. There's a firm underpinning. Uh. You know,

0:19:07.720 --> 0:19:12.040
<v Speaker 1>there's this isn't financial engineering exercise that we had during

0:19:12.080 --> 0:19:17.359
<v Speaker 1>the bubble. Credit conditions are still tighter than you know,

0:19:17.480 --> 0:19:22.000
<v Speaker 1>historic norms and uh and actually that's a that's really

0:19:22.520 --> 0:19:26.159
<v Speaker 1>driving pushing some people into the rental market, which is

0:19:26.280 --> 0:19:30.080
<v Speaker 1>making it even less affordable. Jonathan, how much is this

0:19:30.160 --> 0:19:33.560
<v Speaker 1>a story of private investors and investment firms buying up

0:19:33.600 --> 0:19:35.879
<v Speaker 1>a lot of the single family homes and removing a

0:19:35.920 --> 0:19:40.840
<v Speaker 1>lot of supply. I think that certainly it's a factor, uh,

0:19:41.040 --> 0:19:45.400
<v Speaker 1>you know, and it becomes more apparent when you're already

0:19:45.480 --> 0:19:48.840
<v Speaker 1>in a situation right now where inventory is about a

0:19:48.920 --> 0:19:52.600
<v Speaker 1>third is one third of what it should be for

0:19:53.000 --> 0:19:56.639
<v Speaker 1>a normal, stable market. But I also think it's overhyped

0:19:57.400 --> 0:20:01.439
<v Speaker 1>as a contributing factor. I think the bottom line is

0:20:01.480 --> 0:20:05.520
<v Speaker 1>that rates have been too low for too long. Um.

0:20:05.720 --> 0:20:08.280
<v Speaker 1>And you know, you have to think of inventory. Is

0:20:08.320 --> 0:20:13.280
<v Speaker 1>this living, breathing organism that takes time to recover, and

0:20:13.480 --> 0:20:16.600
<v Speaker 1>it has it hasn't had a chance, and that's causing

0:20:16.640 --> 0:20:20.960
<v Speaker 1>price growth that's just you know, likes that we've never seen.

0:20:21.760 --> 0:20:24.159
<v Speaker 1>And Jonathan, this is the distinction as people talk about

0:20:24.280 --> 0:20:27.320
<v Speaker 1>five plus percent mortgage rates and the idea that the

0:20:27.359 --> 0:20:30.479
<v Speaker 1>actual number of sales is slowing, the prices still are

0:20:30.520 --> 0:20:33.919
<v Speaker 1>going up. When do we see prices peaked, Jonathan? And

0:20:34.000 --> 0:20:37.880
<v Speaker 1>how high do mortgage rates have to go? So I

0:20:37.880 --> 0:20:41.520
<v Speaker 1>I think that pricing isn't gonna So I think it's

0:20:41.520 --> 0:20:44.800
<v Speaker 1>more about the rate of growth that we're seeing. You know,

0:20:44.880 --> 0:20:47.000
<v Speaker 1>we've been seeing in the last year a rocket ship

0:20:47.160 --> 0:20:51.920
<v Speaker 1>basically straight up. I think we're going to see a moderation. Uh.

0:20:52.040 --> 0:20:55.119
<v Speaker 1>You know, look, affordability is followen by half since the

0:20:55.200 --> 0:20:58.760
<v Speaker 1>end of the year. Mortgage rates are up two. I

0:20:58.760 --> 0:21:02.199
<v Speaker 1>mean that's a that's a rapid sudden change, uh, and

0:21:02.320 --> 0:21:06.600
<v Speaker 1>that's gonna slow down transactions. What's interesting is before the

0:21:06.680 --> 0:21:10.040
<v Speaker 1>rape growth, sales are already falling, but it was because

0:21:10.080 --> 0:21:14.600
<v Speaker 1>inventory had collapsed and was restraining sales activity. Now it's

0:21:14.640 --> 0:21:19.080
<v Speaker 1>a combination of both. Jonathan Miller too short of visit.

0:21:19.119 --> 0:21:22.320
<v Speaker 1>Thank you so much for joining this morning with Miller. Samuel.

0:21:22.640 --> 0:21:26.400
<v Speaker 1>This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

0:21:26.520 --> 0:21:29.840
<v Speaker 1>us live weekdays from seven to ten am Eastern on

0:21:29.960 --> 0:21:34.200
<v Speaker 1>Bloomberg Radio and on Bloomberg Television each day from six

0:21:34.320 --> 0:21:39.160
<v Speaker 1>to nine am for insight from the best in economics, finance, investment,

0:21:39.320 --> 0:21:44.320
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0:21:44.440 --> 0:21:48.240
<v Speaker 1>Apple podcast, SoundCloud, Bloomberg dot com, and of course, on

0:21:48.359 --> 0:22:00.080
<v Speaker 1>the terminal. I'm Tom Keene, and this is Bloomberg h