A version of this story appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to the audio version of the newsletter by clicking on the same link.
The largest US banks reported relatively strong third-quarter earnings on Friday. But within these reports, investors found bad clues about the future of the housing market, underlining fear of an impending crisis.
What’s happening: JPMorgan ( JPM ) reported that third-quarter home loan income fell 34% from a year ago, while Wells Fargo saw a 52% decline over the same period. There were downfalls especially a rising interest rates causing a slowdown in mortgage demand. Citigroup ( C ) and Morgan Stanley ( MS ) also reported that mortgage loan growth was moderating.
As the Federal Reserve raised interest rates this year, mortgage rates also rose for the first time since 2002. Higher mortgage rates and high home prices could quickly lead to a pandemic housing boom, but the Federal Reserve thinks that’s a good thing.
“We’ve had a period of a red-hot housing market across the country,” Fed Chairman Jerome Powell told me in September. “What we need in the longer term is a better alignment of supply and demand so that house prices rise to a reasonable level … and people can afford housing again. We’ll probably have to do a correction to get back to that place.”
The prescription of what Powell referred to as a “difficult” housing correction has fueled concerns about another housing and financial collapse in 2008.
The data shows that the market is clearly in a slowdown mode.
Home sales fell for a seventh straight month in August and sales of existing homes – including single-family homes, townhomes, condominiums and co-ops – fell 19.9% from a year ago, according to a report from the National Association. real estate
House prices are still rising, but they are beginning to moderate. Prices increased by 15.8% in July compared to the previous year. That’s a smaller jump than the 18.1% growth seen in June, according to the S&P CoreLogic Case-Shiller Index. The difference of 2.3 points between those two months is the largest deceleration in the history of the index.
“This is the most severe downturn in the housing market since the housing market crash of 2008,” Redfin Chief Economist Daryl Fairweather said last month.
This is not 2008: Market conditions are very different from what they were in 2008. Analysts are telling home buyers and investors not to panic. And housing inventory remains low, preventing prices from falling as demand increases.
“There was a housing shortage of about 5 million units before the pandemic started. That shortage is not going away anytime soon,” Lawrence Yun, chief economist for the National Association of Realtors trade group, said in a report last month.
Homeowners locked into 30-year low-rate mortgages are also reluctant to sell their homes and switch to higher rates.
JPMorgan Chase CEO Jeremy Barnum said in response to a question on CNN Business Friday that he doesn’t “expect a major crash” in housing along the lines of what happened during the Great Recession of the late 2000s.
Home prices have skyrocketed over the past decade, leaving homeowners with a nice cushion, Barnum said.
Barnum also noted that lending standards have tightened over the past 14 years. The 2008 crisis was exacerbated by very lax supervision of the mortgage market.
Job and wage growth remain healthy, meaning homeowners can pay their mortgages and are not forced to sell their homes as they were during the Great Recession of 2008.
What’s next: Investors will look to housing starts data next week as an indicator of where the housing market is headed.
Kroger ( KR ) announced Friday plans to buy Albertsons in a nearly $25 trillion deal that could change the U.S. retail industry and affect the way millions of customers shop for groceries, colleagues Nathaniel Meyersohn and Jordan Valinsky reported.
The deal, expected to close in 2024, would combine two of the country’s largest supermarket chains and create one of the largest private employers. The two companies have 710,000 employees, nearly 5,000 stores and more than $200,000 billion in sales. Companies say they reach 85 million homes.
If completed, the deal would be one of the largest mergers in U.S. retail history: Amazon ( AMZN ) bought Whole Foods in 2017 for a downsized $13.7 billion, and would make the company America’s third largest retail chain by sales. . Its combined market share of the $1.4 trillion grocery industry would be 13.5%, according to Morgan Stanley, making it the second-largest retailer behind Walmart’s ( WMT ) 15.5% share.
The move also comes as businesses face higher costs and food inflation hits its highest level in decades. Prices in grocery stores continued to rise last month. The household food index, an indicator of grocery store prices, rose 0.7% in September compared to the previous month and 13% over the past year.
Kroger will buy Albertsons for $34.10, a roughly 30% premium over the grocery chain’s average stock price over the past month.
Both companies operate eleven food chains. Kroger operates Ralphs, Harris Teeter, Dillons, Fred Meyer and others, while Albertsons owns Safeway and Vons. The companies said they would split nearly 400 stores to form a new rival in a bid to win antitrust clearance.
Watch this space: The merger still needs Federal Trade Commission approval. Consumer watchdogs, unions and Democrats have already come out strongly against the deal. They say it would hurt consumers by raising prices and crowding out competition. It could also spur a new wave of consolidation in the industry among smaller companies trying to compete.
American consumers, struggling with decades of inflation, are starting to pull back on shopping amid the Federal Reserve’s aggressive rate hikes.
September retail sales were unchanged from the previous month, after rising a revised 0.4% in August. Economists had expected a 0.2% monthly rise, according to Refinitiv estimates.
The report showed that consumers spent less last month on cars, furniture, electronics, building materials, sporting goods and gas stations, reports colleague Alicia Wallace.
According to Moody’s Analytics, the typical American household spent $445 more per month in September to buy the same goods and services as it did a year ago.
“Inflation is expensive,” said Moody’s CEO Ryan Sweet.
Bank of America, Charles Schwab and BNY Mellon report third quarter earnings.
Coming later this week:
▸ The National Association of Realtors reports home sales for September.
▸ Third quarter earnings from Goldman Sachs, Johnson & Johnson, United Airlines, American Airlines, Tesla, AT&T, Verizon and Netflix.