New York Rent is Boomin'

Good Afternoon,

We say that especially to those living in NYC this summer. The average rent for an apartment in Manhattan set an all-time record this June, topping $5,000/month. We're keeping you all in our thoughts and prayers.

This week, we're diving into everything jobs and housing as well as the heated debate over whether the Fed can engineer a soft landing.

In the News

It's been another interesting week. Kalshi markets are split on whether the job market will remain robust and are betting that the housing market will remain hot. Markets are also continuing to expect that the Fed will take a dovish stance come September.

Update: this morning's jobs report was HOT with 528,000 new jobs in July alone. Congrats to those who took the over.

Playing Whack-A-Mole

The Fed's aggressive rate hikes to rein in inflation have hit tech companies hard, as layoffs and hiring freezes are rampant across the sector.

This week, Robinhood announced they were slashing their workforce by 23%. Though this may seem like great news to the retail traders who were burned by the brokerage in 2020, Robinhood's reduction in headcount is a somber metaphor for the job market as a whole.

Google, Meta, Apple, Netflix, and Amazon have all announced plans to slow down hiring for the rest of 2022. Pandemic darlings OpenSea and GoPuff cut over 10% of their staff in June and July. The list of tech companies who have dramatically reduced their workforce this summer (Coinbase, Rivian, Oracle, Redfin, Carvana) goes on and on.

The pressure to cut headcount hasn't been confined to just tech. Yesterday, Credit Suisse announced it was weighing cutting thousands of jobs in an effort to cut its overall cost base by $1 billion. With investment banking revenue down over 43% to start 2022, many expect other banks on the street to follow suit.

Yet despite these big-name layoffs, the July jobs report came in way above expectations. We are living in a weird time where the economy seems both great and terrible all at once.

Data released by the U.S. labor department showed that the number of people applying for unemployment aid reached its highest point in six months last week. The monthly Job Openings and Labor Turnover Survey (JOLTS) also showed that the number of U.S. job openings fell sharply in June, plunging to its lowest point since September of 2021.

Layoffs are high. Unemployment aid applications are high. And yet, new hires are high too. Weird times in the economy.

Reunion in NYC

If your friend from Manhattan has asked to crash on your couch for a few nights recently, you're probably not alone.

The average monthly rent for an apartment in Manhattan has hit at an all-time high. Average rent prices have swelled by 29% in 2022, with vacancies in the city also hitting an all-time low. There are currently only 6,400 apartments available in Manhattan, down 43% from 2021.

This has been propelled by a mass return of individuals back to NYC, after flocking from the city at the outset of the COVID-19 pandemic. This return has primarily been fueled by young, working professionals, who have come back for the city's nightlife and lively atmosphere.

Kalshi markets are predicting that the NYC housing market has yet to cool off, forecasting a 62% chance that the average rent in NYC will rise by at least 1.5% in July and a 91% chance it will rise by at least 1%.

In addition to being a brutal year for Manhattan residents, 2022 has been a tough year for U.S. home-buyers. The median price for a single-family home in the United States surged to over $450,000 in June, after already jumping over 20% between May of 2020 to May of 2021.

This sharp rise was spurred by high demand for homes during the COVID-19 pandemic and supply-chain issues, issues that added nearly $19,000 to the cost of a new home in 2022.

The housing market has begun to cool, with home prices declining at a record pace in June. This is due to the recent hikes in rates by the Fed, which have sent mortgage rates up and priced many home-buyers out. 

Kalshi markets are predicting a 52% chance that the average price of a U.S. single-family home rose by at least 1% in July and a 10% chance that the average price ticked up by 1.5%.

The State of the Economy

Although there is no Fed data this week, the debate between how the Fed's strategy will impact inflation and unemployment rages on.

Earlier this week, James Bullard, the head of the St.Louis Federal Reserve, released a paper outlining why he believes the Fed will be able to engineer a "soft landing".

A soft landing is basically a fancy way of saying that the Fed will be able to rein in inflation without plunging the economy into a recession. Historically, not many have been able to achieve such a feat.

In a recent speech in NYC, Bullard stated that "modern central banks have more credibility than their counterparts in the 1970s." Bullard made this point to outline this his belief that today's Fed will be able to tame inflation without causing a large spike in unemployment, despite the fact that previous administrations have struggled to do so.

This view was sharply refuted by economists Olivier Blanchard and Larry Summers, who blasted the paper as having "misleading conclusions, errors, and factual mistakes." Summers argued that in order to bring inflation down, it is "highly unlikely" there will not be a "painful spike" in unemployment.

Kalshi markets predict that there is just a 16% chance the Federal Reserve will be able to engineer a soft landing (<4% unemployment and <7% inflation) by January of 2023. Kalshi markets are predicting that the outcome of high inflation and low unemployment is most probable for the U.S. economy, forecasting it at a 28% chance.

Lit's Pick

For this week's Lit's Pick, we are buying the "Yes" for a 75+ bps hike in September for $0.56. Your move, J Pow.

That's all for today, have a great weekend!

Forecasts powered by Kalshi

As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.

As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.