Bank Earnings, Why Consumers Are 'Roughed Up' & Real Estate Trends

Morgan Stanley

Across the shows: 5 speakers in other episodes, 5 bullish and 0 bearish calls, past 30 days

• Sri Natha Rajan · Bloomberg NewsBullish

  Morgan Stanley's wealth management is a strong, steady profit engine; its record inflows point to strength.

  Rajan says Morgan Stanley reported $232 billion in net new assets this quarter, more than double the roughly $111 billion analysts expected. Flows from IPO shares like the SpaceX offering drove much of it. He adds that wealth management carries about a 30 percent pretax margin and provides steady revenue. He describes it as a core part of the bank's transformation under James Gorman and Ted Pick, and says it works closely with the investment bank.

  “This quarter Morgan Stanley reported $232,000,000,000 in net new assets. What was the analyst estimate? $111,000,000,000 [...] more than double what analysts had been expecting.”at 4:26

US housing

• Jonathan Miller · Miller Samuel Inc.

  Luxury housing is strong, driven by Wall Street wealth and equity drawdowns, while lower price tiers lag.

  Miller says Wall Street money flows to the upper half or third of the housing market. Lower-priced buyers depend more on mortgage rates. Equity drawdowns are fueling strength in the luxury market in New York metro, the West Coast and certain other markets.

  “Well, it goes to the upper half or upper third of the housing market. The lower you go in price, the more dependent consumers are on mortgage rates. Equity drawdowns are fueling tremendous strength in the luxury market.”at 25:40

• Jonathan Miller · Miller Samuel Inc.

  Market is too fixated on mortgage rates; rate volatility, not the 7.5% level, is stalling buyers.

  Miller argues the market overemphasizes mortgage rates as the main driver of housing health. The bigger issue is volatility: buyers procrastinate because they cannot pin down the current rate, which keeps changing. He calls the 7.5 percent level not crazy high, relative to the pandemic. The problem is the chaos and the rates being an 'economic unforced error', not the level itself, and he expects that to end.

  “I think we're overly obsessed with mortgage rates, sort of the determinant of health of the housing market... they're basically procrastinating to make a decision because they can't get their arms around the current rate.”at 26:05

• Jonathan Miller · Miller Samuel Inc.

  AI-driven tech boom lifts San Francisco home prices, but Seattle lacks that boost; housing is market-dependent.

  Miller contrasts San Francisco with Seattle. San Francisco's tech sector switched to AI and housing prices there are up about 20 percent over the last year. Seattle's tech sector has not made that switch, and it faces layoffs, tech unemployment and fewer job-driven relocations. He concludes that tech-hub housing depends on the local market, and a tech location is not automatically safe during the AI boom.

  “Now we have the tech sector in the last couple of years switching to AI, but that's not happening in Seattle. So it's very market dependent.”at 27:14

• Jonathan Miller · Miller Samuel Inc.

  Inventory is the key housing metric; Northeast and Midwest are short of supply, Sunbelt has the most.

  Miller says social media makes it look like every market is flooded with supply, but regionally it is a mixed picture. The Northeast and Midwest are devoid of supply. The Sunbelt has the most, but inventory growth there has stalled, and the West sits in between. He concludes inventory is the most important metric in housing and has been since the pandemic.

  “inventory is the most important metric in housing right now and has been coming out of the pandemic.”at 28:34

• Jonathan Miller · Miller Samuel Inc.

  Flood risk is not priced into coastal homes yet; flood-prone waterfront is being turned into luxury housing.

  Miller says there is no recognition of flood-zone risk in housing values. He expects this to become a problem in about thirty years, though not immediately. In areas repeatedly threatened by flooding, such as the South Shore of Long Island, formerly middle-class waterfront lots are being redeveloped into luxury housing rather than repriced for risk.

  “So right now, there's no recognition of sort of flood zone risk... that's gonna be a problem in thirty years, maybe not immediately.”at 32:15

• Bess Freedman · Brown Harris Stevens

  New York's high-end housing market is strong, boosted by Wall Street profits and bonuses, while affordability lags.

  Freedman says the New York City market is strong, especially at the high end, and business is better than last year. She cites Wall Street profits of about $90 billion and bonuses near $60 billion this year. Discretionary spending is up, so the rich keep getting richer. She describes two markets: strong luxury discretionary spending and an affordability crisis elsewhere.

  “the market is actually really strong in New York City, particularly at the high end of the market... Wall Street, it's supposed to make something like 90,000,000,000 this year, and bonuses are gonna be something like 60,000,000,000.”at 33:35

• Bess Freedman · Brown Harris Stevens

  US faces a roughly 5 million home shortage; supply, not mortgage rates alone, is the core housing problem.

  Freedman says the real issue is supply, and the US is about 5 million homes in deficit. Buyers are adjusting to rates that are still historically pretty low. She ties the shortage to the way younger generations now expect to buy later or never, which she sees as a generational shift in homeownership.

  “And the real issue, as Jonathan said, is supply. We are [5,000,000] homes in deficit in [the] United States.”at 34:22

• Bess Freedman · Brown Harris Stevens

  Zoning reform is the key lever for housing affordability; local politics blocks supply, and it needs solving.

  Freedman argues the main obstacle is state and local, since legislators must be persuaded and zoning must change. She cites New York's City of Yes zoning reform under Mayor Adams as proof this works. She calls for politicians to focus on housing affordability before the midterms. She says NIMBY opposition means this will not be solved soon without cooperation.

  “The challenge is state and local. You have to get past the legislators, and you need to change the zoning... mayor Adams was successful in getting the city of Yes passed, and we got more zoning in New York City.”at 35:13

• Bess Freedman · Brown Harris Stevens

  Wages can't keep pace with home prices, so buying a home is unaffordable for young people today.

  Freedman argues that young people's wages have not kept up with what they would need to pay to buy a home, so homeownership is out of reach for them. She backs this with evidence that many of her daughter's friends rely on their parents to pay rent, which she presents as a sign of how tough the environment is for young people.

  “Their wages can't even keep up with what they would have to pay to buy a home. This is not affordable today for them. They can't pay their rent.”at 36:09

• Bess Freedman · Brown Harris Stevens

  More people should buy rather than rent, since renting means throwing money away and missing equity.

  Freedman argues that renters are effectively throwing money away, while buying builds equity and economic security. She says that renting only makes sense for someone who will be in a market temporarily, but that people who plan to stay in one place should buy if they can. She notes that many people cannot afford to buy, which she sees as the core problem.

  “I wish that more people were buying versus renting because you're literally... throwing your money out the window... if you plan to live in a place, if you can, ideally, you wanna buy something and build equity.”at 37:29

• Bess Freedman · Brown Harris Stevens

  Private listing networks hide days-on-market data and should be banned; they harm fair housing and affordability.

  Freedman says private listing networks hide key information such as days on market, which buyers would want to know. She argues this makes the market opaque, like other countries' markets, and that it hurts fair housing and affordability. She says investigations are underway and that the networks should not be allowed to exist.

  “That's why we've been raising alarm bells and saying, look, this is not helpful... this is a policy or platform that is super dangerous to fair housing, to affordability, to everything that matters, and we should not allow these private listing networks to exist.”at 39:05

• Scarlet Fu · Bloomberg

  Excess parking requirements limit housing supply; cities should build more homes rather than parking.

  Fu argues that the US has too much parking and too little housing, and that this is a contributing factor to limited housing supply. She cites the thesis of a book she has not yet read, and points to city rules that require new developments to include a minimum number of parking spaces. She concludes that the country does not need so many cars and parking spaces, and needs more homes.

  “lots of parking, and under housed. That's another contributing factor to the fact that we have limited supply... We don't need to have so many cars and so much parking. We need more homes.”at 39:43

US jobs & labor market

• Tom Porcelli · Wells Fargo

  Real wages are negative and consumers are struggling, with no near-term relief in sight.

  Porcelli argues the consumer is struggling on a real earnings basis. Wages are behind inflation whether you look at the ECI or simple average hourly earnings. Tom Keene's chart shows the ECI (wages plus benefits) in negative real territory after a post-COVID rebound. Porcelli says the wages-only component is worse, meaning the negative real wage story is even more pronounced. He does not expect the squeeze to end imminently.

  “Yeah. Look. I think that the consumer right now from a real wage perspective, it's obviously looking pretty rough for them at this juncture. [...] We're behind inflation. I mean, the consumer is really struggling from a real earnings perspective, and the truth is... I don't really see that going away imminently.”at 14:34

• Tom Porcelli · Wells Fargo

  Labor market is weaker than the unemployment rate suggests, with low worker confidence shown by the quit rate.

  Porcelli says the unemployment rate, around 4 to 4.5 percent for the past year, is not the right gauge. He points to a quit rate of 1.92 percent, the lowest since 2015, and a low labor differential as evidence of little worker confidence. He compares it to 2015, a jobless recovery. He concludes labor is generally okay on the headline but weaker underneath.

  “I mean, the quit rate is [1.92] percent. I mean, you have to go back to 2015 to see a lower quit rate.”at 17:46

Banks

• Sri Natha Rajan · Bloomberg News

  Big six US banks' combined profit is near $200B by end-2026, up from $86B a decade ago.

  Rajan ran the numbers: the big six US banks earned a combined $86 billion ten years ago and will get within 'kissing distance' of $200 billion by the end of 2026. Margins have expanded and revenue has grown. He argues banks are a proxy for consumer health, corporate health and market activity, and all three have been strong for them.

  “Ten years ago, the big six US bank combined profitability was $86,000,000,000. At the end of 2026, we're going to get within kissing distance of $200,000,000,000.”at 9:18

US consumer

• Tom Porcelli · Wells Fargo

  Wealth effect from 401(k) and investment gains keeps consumers spending despite negative real wages.

  Porcelli concedes real wages are struggling, but says households still see positive gains in their 401(k) and investment accounts and home equity. That wealth effect emboldens people to spend and dip into savings. The consumer is 'roughed up' beneath the surface, but Wells Fargo's consumption forecast is unchanged because the wealth effect is still supporting spending.

  “the reality is there's still a wealth effect in place. The reality is people still look at their four zero one ks statements... and they see that they're looking pretty positive.”at 15:42

US Treasuries & yields

• Tom Porcelli · Wells Fargo

  Rise in Treasury yields is real and benign if driven by good reasons; yields have found a new floor.

  Porcelli says the rise in yields is real and there is a new floor under them. He cautions equity investors that a rise in yields is not bad in itself; the reason matters. He argues most of the rise has been for good reasons despite some quirks, so he does not see it as a warning sign.

  “I think the rise in yields is real. I think there's a new floor underneath yields... yields rising in and of itself is not a bad thing. It's the reason that matters.”at 21:20

US state & local policy

• Jonathan Miller · Miller Samuel Inc.

  Cutting property taxes would centralize control and leave local governments dependent on state funding.

  Miller says it is odd to cut property taxes, which fund police, fire, EMS and some schools. Those costs have to be paid from somewhere else. Cutting them means local governments lose control over how property taxes are spent. The money becomes centralized, and a municipality must go to the state capital to beg for its share, as in Florida.

  “maybe property taxes go down, but essentially local governments lose control of how the property taxes are spent and to become centralized.”at 30:41