Why Corporate Bankruptcies rose in 2023 – According to S&P Global Intelligence there were 591 corporate bankruptcies in 2023, which is the highest number since 2011 if you remove the notable Covid outlier of 2020. Many of these bankruptcies were Chapter 11 which is aimed at restructuring a firm and not totally shutting down (something basically every airline has done). Bankruptcy attorneys have been expecting this surge for a while as the economy is cyclical – when companies borrow a lot during low interest rate environments for expansion it can become impossible to refinance when interest rates rise. Some economists predict higher bankruptcy rates in 2024 as ‘corporate zombies’ are on the rise – firms that don’t make enough money to pay the interest on their debt - in 1990 zombies were 1.5% of publicly traded companies vs. 10% today.
Mortgage Rates remained unchanged this week as the price of Mortgaged Backed Securities (MBS) moved sideways and remained at their best levels since May. Rates are up approximately 0.25% from this time last year.
Home Values – the Case Shiller Home Price Index, the gold standard in appreciation as it indexes values on individual homes over time, showed that home prices increased 0.6% in October and are up 4.8% from this time last year. Prices are at a new all-time high since July. The FHFA house price index which indexes home price appreciation on single-family homes with conforming loan amounts (different than the Case Shiller as it does not include any cash sales or jumbo loans) showed that prices rose 0.3% in October and are up 6.3% year over year. This index is also at a new record high.
Future Home Values - the Fannie Mae & Pulsenomics Home Price Expectations Survey, which pools over 100 housing experts across industry & academia, estimates that home prices will increase 2.4% next year and 25% over the next 5 years. These aggregated estimates tend to undershoot appreciation – the most recent survey showed 2023 appreciation at 3.3% which was revised to 5.9% in the latest report. The most pessimistic quartile anticipates 10% growth over five years while the most optimistic anticipates 40% growth. Nearly 50% of respondents believe we will be in a recession by the first half of next year, which would cause a decline in mortgage rates and consequently an increase in home values.
Jobs – the number of people filing for unemployment for this first time increased by 12,000 to 218,000. Employers continue to hold onto workers. Continuing claims (folks who continue filing for unemployment benefits after their initial claim) rose 14,000 to 1.875M, one of the highest readings since November 2021. This shows weakness in the job market.