Energy costs in Europe are 10 times higher than the norm… not only are house prices not expected to crash, they are climbing… the war on affordability is crushing consumers
The situation in Europe is alarming – and getting worse.
Of Bloomberg:
UK households were told on Friday that their electricity and gas bills would rise by 80% from October 1.
The so-called energy price cap has been set at £3,549 ($4,189) a year, down from £1,971 over the past six months and £1,277 last winter…
… The problem goes beyond simply increasing costs. Increasingly, the words “emergency” and “shortages” are being used, with participants focusing on when, rather than if, a crisis will arise.
And it comes from Reuters:
No more ironing, limited use of the oven and showering at work – Europeans are trying to reduce their energy consumption but the bills keep climbing.
As wholesale gas and electricity prices rise, millions of people in Europe are now spending a record amount of their income on energy, the data shows.
The European gas price benchmark has exploded by 550% in the past 12 months.
At these prices, Britons are expected to spend an average of 10% of all their income on gas and electricity bills.
It’s not just the UK
According to the International Energy Agency (OUCH), gas prices for households in most major European economies have now passed the peak of previous crises, dating back to the 1970s.
The magnitude of these increases is staggering. On that note, here’s Bloomberg:
Benchmark electricity prices in Germany for next year topped 800 euros ($800) per megawatt-hour, nearly 10 times higher than the same time last year.
The one-year-old French power exceeded 1,000 euros for the first time.
UK daily electricity is trading at 10 times its two-decade average.
Look for mass social unrest as we head into the cold winter months
Of Business day:
Europe faces a major social test ahead of winter as it juggles growing discontent fueled by soaring energy prices and pressure to meet climate targets as Russia’s war in Ukraine drags on.
UK grassroots group ‘Don’t Pay UK’ is calling on people to boycott energy bills from October 1, while the union-backed ‘Enough is Enough’ campaign has launched a series of rallies and shares in mid-August calling for wage increases. , rent caps, cheaper energy and food, and taxes on the rich.
A worsening cost of living crisis across Europe has already seen workers in France, Spain and Belgium go on strike in the public transport, health and aviation sectors, demanding higher wages to help them cope with soaring inflation…
… Next winter is set to be rife with social unrest, warned Naomi Hossain, a professor of development policy at the American University of Washington who studies fuel, energy and hunger riots.
Hossain goes on to note that a conservative estimate is that 10,000 such protests have taken place worldwide since November, with more expected.
She added: “If I was a politician, I would be really worried.”
All signs point to Europe deteriorating into recession
A few weeks ago in the DigestWe have highlighted another recessive influence on Europe: the drying up of the Rhine, and its painful consequences on trade and supply/demand balances.
US investors need to be aware of these issues, because if/when Europe falls into recession, the pain will not be confined to “there”. Many American investors will feel it here.
Of our past Digest:
If Europe falls into a deep recession that hurts the European consumer…and if the euro continues to weaken against the dollar due to different central bank policies…then US investors with high overseas exposure need to s expect contagion.
Nearly 30% of S&P 500 market-weighted sales are international. And in our Digest a few weeks ago, we highlighted many widely held stocks with huge international exposure.
Some examples include Tesla, Alphabet, Netflix, Meta, Qualcomm, Aflac, and Schlumberger.
Here is our bottom line, which we can double given the growing energy crisis in Europe:
Look at your portfolio today. If your stocks have more global exposure than you’re comfortable with, it’s time to do some pruning. The international situation is not going in the right direction.
Meanwhile, here at home, mortgage rates have reversed and jumped higher
At this time last year, the 30-year fixed rate mortgage stood at 2.87%.
When the Fed started raising rates, mortgage rates skyrocketed, peaking at 6.11% in mid-June.
But over the past two months, mortgage rates have fallen, in part for the same reason stock prices have risen — the belief that the worst is behind us and the Fed is about to turn noticeably dovish.
Influenced by this optimistic sentiment, the 30-year fixed rate mortgage fell to 5.13% in mid-August.
But ahead of last Friday’s central bank symposium in Jackson Hole, Wyoming, the market had become jittery. Traders were concerned that Federal Reserve Chairman Jerome Powell was getting hawkish (which he did).
Based on these fears, the 30-year mortgage climbed back to around 5.8% last week.
As I write Monday morning, Forbes reports that the rate has now pushed even higher to 5.91%.
This jump essentially offsets the slight decline in home prices that potential buyers have seen in recent weeks.
Looking back, the explosion in the cost of homeownership over the past year has been breathtaking. To get an idea of this, you have to see it visually.
The table below is from Redin. It shows the growth in homebuyer mortgage payments since 2015. We see the effect of rising listing prices and growing mortgage rates.
Source: Redfin / MLS data
The housing market has come to a standstill.
Of Fortune:
On an annual basis, new home sales and existing home sales are now down 17.4% and 20.2%, respectively. While single-family housing starts and mortgage purchase applications in July were 18.5% and 18.4% lower than levels reached a year ago.
Simply put: a fifth of the real estate business has just been razed.
The question is, “Where does the market – and house prices – go from here?”
Zillow has just updated its 12-month outlook and expects U.S. home prices to rise just 2.4%, down from a projected 7.8% rise published a while ago. barely a month.
And yes, although this forecast is lower, do not miss the takeaways – house prices are actually going ascend.
Of CNBC:
Despite talk of a “housing recession,” don’t hold your breath waiting for house prices to suddenly drop anytime soon. In fact, prices are expected to rise through 2023, according to several real estate forecasts.
After noting that the median price of an existing home in the United States fell from a record high of $413,800 to $403,800 last month, CNBC keep on going:
House prices are expected to rise another 11% for 2022, followed by 2% in 2023, according to NAR’s latest forecast.
Last Friday, Federal Reserve Chairman Jerome Powell said:
Although higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also cause hardship for households and businesses.
That’s part of what this pain feels like. You could call it “the war on affordability”.
Frankly, this is a war that consumers are losing.
Before I wrap up, a quick illustration of this war on affordability
Electric vehicles are our future.
But for many Americans today, they are financially out of reach — even with the government-funded incentives under the Inflation Reduction Act.
That reality became even more acute last Thursday when Ford announced it was raising the starting price of its Mustang Mach-E electric crossover by more than $8,000 on select models.
Of CNBC:
… The increases — ranging from $3,000 to $8,475, depending on model and battery — are due to “significant increases in material costs, continued pressure on key supply chains, and rapidly changing market conditions”. …
Starting prices for the 2023 Mustang Mach-E will now range from approximately $47,000 to $70,000, rising from approximately $44,000 to $62,000 for the 2022 model year. Prices exclude taxes and fees shipping/delivery.
It comes after Ford raised the price of its electric F-150 earlier this month.
This happens across the industry. Other automakers dramatically raising prices for their electric lineup include General Motors, Rivian, Lucid and Tesla.
Now, that doesn’t diminish our enthusiasm for investing in the EV sector. We expect huge returns from top tier EV games this decade. We point you to the research of our own Luke Lango who has documented tremendous opportunities here.
But it reminds us that in the short term, the headwinds are increasingly blowing against the American consumer.
However, this is the path Powell chose. As we noted in last Friday’s Digest, let’s hope he can stop the pain before it gets out of hand.
Have a good evening,
Jeff Remsburg
Energy costs in Europe are 10 times higher than the norm… not only are house prices not expected to crash, they are climbing… the war on affordability is crushing consumers
The situation in Europe is alarming – and getting worse.
Of Bloomberg:
UK households were told on Friday that their electricity and gas bills would rise by 80% from October 1.
The so-called energy price cap has been set at £3,549 ($4,189) a year, down from £1,971 over the past six months and £1,277 last winter…
… The problem goes beyond simply increasing costs. Increasingly, the words “emergency” and “shortages” are being used, with participants focusing on when, rather than if, a crisis will arise.
And it comes from Reuters:
No more ironing, limited use of the oven and showering at work – Europeans are trying to reduce their energy consumption but the bills keep climbing.
As wholesale gas and electricity prices rise, millions of people in Europe are now spending a record amount of their income on energy, the data shows.
The European gas price benchmark has exploded by 550% in the past 12 months.
At these prices, Britons are expected to spend an average of 10% of all their income on gas and electricity bills.
It’s not just the UK
According to the International Energy Agency (OUCH), gas prices for households in most major European economies have now passed the peak of previous crises, dating back to the 1970s.
The magnitude of these increases is staggering. On that note, here’s Bloomberg:
Benchmark electricity prices in Germany for next year topped 800 euros ($800) per megawatt-hour, nearly 10 times higher than the same time last year.
The one-year-old French power exceeded 1,000 euros for the first time.
UK daily electricity is trading at 10 times its two-decade average.
Look for mass social unrest as we head into the cold winter months
Of Business day:
Europe faces a major social test ahead of winter as it juggles growing discontent fueled by soaring energy prices and pressure to meet climate targets as Russia’s war in Ukraine drags on.
UK grassroots group ‘Don’t Pay UK’ is calling on people to boycott energy bills from October 1, while the union-backed ‘Enough is Enough’ campaign has launched a series of rallies and shares in mid-August calling for wage increases. , rent caps, cheaper energy and food, and taxes on the rich.
A worsening cost of living crisis across Europe has already seen workers in France, Spain and Belgium go on strike in the public transport, health and aviation sectors, demanding higher wages to help them cope with soaring inflation…
… Next winter is set to be rife with social unrest, warned Naomi Hossain, a professor of development policy at the American University of Washington who studies fuel, energy and hunger riots.
Hossain goes on to note that a conservative estimate is that 10,000 such protests have taken place worldwide since November, with more expected.
She added: “If I was a politician, I would be really worried.”
All signs point to Europe deteriorating into recession
A few weeks ago in the DigestWe have highlighted another recessive influence on Europe: the drying up of the Rhine, and its painful consequences on trade and supply/demand balances.
US investors need to be aware of these issues, because if/when Europe falls into recession, the pain will not be confined to “there”. Many American investors will feel it here.
Of our past Digest:
If Europe falls into a deep recession that hurts the European consumer…and if the euro continues to weaken against the dollar due to different central bank policies…then US investors with high overseas exposure need to s expect contagion.
Nearly 30% of S&P 500 market-weighted sales are international. And in our Digest a few weeks ago, we highlighted many widely held stocks with huge international exposure.
Some examples include Tesla, Alphabet, Netflix, Meta, Qualcomm, Aflac, and Schlumberger.
Here is our bottom line, which we can double given the growing energy crisis in Europe:
Look at your portfolio today. If your stocks have more global exposure than you’re comfortable with, it’s time to do some pruning. The international situation is not going in the right direction.
Meanwhile, here at home, mortgage rates have reversed and jumped higher
At this time last year, the 30-year fixed rate mortgage stood at 2.87%.
When the Fed started raising rates, mortgage rates skyrocketed, peaking at 6.11% in mid-June.
But over the past two months, mortgage rates have fallen, in part for the same reason stock prices have risen — the belief that the worst is behind us and the Fed is about to turn noticeably dovish.
Influenced by this optimistic sentiment, the 30-year fixed rate mortgage fell to 5.13% in mid-August.
But ahead of last Friday’s central bank symposium in Jackson Hole, Wyoming, the market had become jittery. Traders were concerned that Federal Reserve Chairman Jerome Powell was getting hawkish (which he did).
Based on these fears, the 30-year mortgage climbed back to around 5.8% last week.
As I write Monday morning, Forbes reports that the rate has now pushed even higher to 5.91%.
This jump essentially offsets the slight decline in home prices that potential buyers have seen in recent weeks.
Looking back, the explosion in the cost of homeownership over the past year has been breathtaking. To get an idea of this, you have to see it visually.
The table below is from Redin. It shows the growth in homebuyer mortgage payments since 2015. We see the effect of rising listing prices and growing mortgage rates.
Source: Redfin / MLS data
The housing market has come to a standstill.
Of Fortune:
On an annual basis, new home sales and existing home sales are now down 17.4% and 20.2%, respectively. While single-family housing starts and mortgage purchase applications in July were 18.5% and 18.4% lower than levels reached a year ago.
Simply put: a fifth of the real estate business has just been razed.
The question is, “Where does the market – and house prices – go from here?”
Zillow has just updated its 12-month outlook and expects U.S. home prices to rise just 2.4%, down from a projected 7.8% rise published a while ago. barely a month.
And yes, although this forecast is lower, do not miss the takeaways – house prices are actually going ascend.
Of CNBC:
Despite talk of a “housing recession,” don’t hold your breath waiting for house prices to suddenly drop anytime soon. In fact, prices are expected to rise through 2023, according to several real estate forecasts.
After noting that the median price of an existing home in the United States fell from a record high of $413,800 to $403,800 last month, CNBC keep on going:
House prices are expected to rise another 11% for 2022, followed by 2% in 2023, according to NAR’s latest forecast.
Last Friday, Federal Reserve Chairman Jerome Powell said:
Although higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also cause hardship for households and businesses.
That’s part of what this pain feels like. You could call it “the war on affordability”.
Frankly, this is a war that consumers are losing.
Before I wrap up, a quick illustration of this war on affordability
Electric vehicles are our future.
But for many Americans today, they are financially out of reach — even with the government-funded incentives under the Inflation Reduction Act.
That reality became even more acute last Thursday when Ford announced it was raising the starting price of its Mustang Mach-E electric crossover by more than $8,000 on select models.
Of CNBC:
… The increases — ranging from $3,000 to $8,475, depending on model and battery — are due to “significant increases in material costs, continued pressure on key supply chains, and rapidly changing market conditions”. …
Starting prices for the 2023 Mustang Mach-E will now range from approximately $47,000 to $70,000, rising from approximately $44,000 to $62,000 for the 2022 model year. Prices exclude taxes and fees shipping/delivery.
It comes after Ford raised the price of its electric F-150 earlier this month.
This happens across the industry. Other automakers dramatically raising prices for their electric lineup include General Motors, Rivian, Lucid and Tesla.
Now, that doesn’t diminish our enthusiasm for investing in the EV sector. We expect huge returns from top tier EV games this decade. We point you to the research of our own Luke Lango who has documented tremendous opportunities here.
But it reminds us that in the short term, the headwinds are increasingly blowing against the American consumer.
However, this is the path Powell chose. As we noted in last Friday’s Digest, let’s hope he can stop the pain before it gets out of hand.
Have a good evening,
Jeff Remsburg
