December Existing Home Sales Growing At 22.24% YoY While Inventory Crashes To All-time Low (Best Year Since 2006 And The Housing Bubble!)

December’s existing home sales numbers are out for December 2020. The numbers are 6.76 million SAAR existing home sales, growing at 0.7% MoM. But on a YoY basis, existing home sales grew at 22.24%.

The troubling chart, and the chart that HUD, Fannie Mae and Freddie Mac should play close attention to, is existing home sales inventory and existing home sales median price. Inventory has plunged to an all-time low while median price fell slightly from its all-time high.

It will be tough for HUD and the GSEs to increase affordable housing (as promised by Biden) with roaring home price growth, a severely limited supply of housing available and low M2 Money Velocity.

How can the Biden administration increase “affordable” housing? Loosening credit standards is the obvious (and economically dangerous) way. Eradicate local zoning (to help relieve the supply constraint)? The Federal Reserve is already printing money at a breakneck pace, but that is helping drive home prices up and not helping low income households.

I suggest that the Biden Administration think carefully about trying to solve this supply problem rather than simply calling for a cavalry charge from The Federal Reserve and Treasury.

Addendum: Median price of EHS is growing at housing bubble highs.

Let’s see if the foreclosure moratorium impacts the available supply after Covid disappears.

US Housing Starts Rise 1,669K In December (+5.8), 5+ Starts Down -15.22% (Give Me A V!)

The last housing starts data under President Trump was a winner. Housing starts rose 1,669k units in December (a 5.8% increase). The fastest pace since 2006. Building permits were up 4.5%.

The housing starts were largely 1-unit (+11.97%) and not apartments (5+ unit starts fell -15.22%).

Of course, declining mortgage rates helped drive December housing starts.

Gold, Silver Rise As Dollar Pares Back, S&P 500 Gains, Russell 2000 (10Y Treasury Yield Drops)

Gold and silver rose today as the US Dollar weakened on the US Presidential inauguration day.

S&P 500 index (white) gains as the Russell 2000 (yellow) explodes at opening and then pffft.

Meanwhile, the 10Y Treasury yield sank as the prospect of Janet “Go Big” Yellen sank in.

Yellen: “Who me?”

Fed’s Bazooka Enriches Top 20% Of Earners, Not Bottom 80%

The Federal Reserve’s bazooka fired by Jerome Powell back in March helped to stimulate the stock market while helping to lower mortgage interest rates. Until recently.

The problem is that 20% of earners own nearly all the stocks held by US households. So a surge in the S&P 500 index really only helped the top 20% of earners.

The Covid recovery has been very uneven with low wage workers (e.g., hospitality and restaurant workers) remain worse off than before Covid struck. Only high wage workers are ahead.

The Biden/Harris administration will attempt to help low wage workers by more than doubling the Federal minimum wage to $15 dollars per hour.

Overall, roughly 2% of all U.S. workers who are paid hourly earn $7.25 or less, government data show. Hiking the national minimum to $15 an hour by 2025 would lift 1.3 million workers above wages that put them below the poverty line, according to the nonpartisan Congressional Budget Office.

But as businesses attempt to cope with a doubling of the minimum wage by raising prices to consumers or seek ways to substitute mechanization for labor (capital/labor substitution), the number of households lifted out of poverty may be overstated.

Take Creator in San Francisco, for example, that makes hamburgers by machine. A great way to minimize labor costs.

We shall see if Biden’s $15 minimum wage works. Along with Powell’s bazooka.

Fear! Inflation Expectations Grow To 2.11% As Fed Prints (Bitcoin Backs Off High As US Dollar Rallies)

President-elect Joe Biden is scaring the world to death with his $11 trillion spending fantasy coupled with his $2 trillion Covid stimulus package. And The Federal Reserve has a lot of printing to do to pay for Biden’s spending fantasies (that Speaker Pelosi will undoubtedly approve). All has led to US inflation expectations to rise to 2.11%.

Bitcoin has finally backed-off its meteoric rise just as gold has backed-off its meteoric rise back in July.

Bitcoin rose with Fed money printing but backed-off as money printing slowed. Note: The rapid rise in money printing was pre-Biden and largely due to Covid and government shutdowns.

Bloomberg Galaxy was down 7.5% on Friday while Bitcoin is down slightly today. ZCash is the big loser today with Monero as the only gainer.

But with Biden’s prodigious appetite for spending other people’s money, we can see fear in the eyes of taxpayers.

US Industrial Production At -3.58% YoY With Capacity Utilization At 75.54% (Both Improving), Stock Market Declines On Biden’s $1.9 TRILLION Stimulus

Enter Biden/Harris.

President elect Joe Biden is touting a $1.9 trillion Covid relief package once he is seated.

Today’s industrial production reading for December show IP improving from -5.41 YoY in November to -3.58% YoY in December. Capacity utilization increased from 73.39% in November to 74.54% in December. So, Biden is inheriting an improving economy.

Meanwhile, equity markets are down across the board.

The aid package includes $415 billion to bolster the response to the virus and the rollout of COVID-19 vaccines, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities particularly hard hit by the pandemic.

Stimulus payment checks would be issued for $1,400 – on top of the $600 checks delivered by the last congressional stimulus legislation. Supplemental unemployment insurance would also increase to $400 a week from $300 a week now and would be extended to September.

$2,000 per person? Why not $2 million per person now that Democrats control the White House AND Congress? US Federal debt is about $27.8 trillion and rising fast. That is $222,191 per taxpayer.

Why are both Yellen and Powell frowning?

US 30Y Fixed Mortgage Rates Tick Up To 2.79% As 10Y Treasury Yields Rise (Treasury Vol Remains Low As Yield Curve Steepens)

Freddie Mac’s 30-year mortgage survey rate ticked-up to 2.79% in the latest reading.

The US Treasury 10-year yield has been rising since August.

Treasury volatility remains low.

The US Treasury yield curve is steepening to around 100.

Here we go loop de loop. As interest rates rise.

Biden’s team explores ways to oust Fannie-Freddie regulator, Mark Calabria (replace with Wharton’s Susan Wachter?)

President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator (Mark Calabria), a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.

One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations.

Well, there are only so many options to increase affordable housing that are in the realm of reason: 1) increase loan-to-value ratios on purchase (insured mortgages) and 2) lower the credit score required. Fannie and Freddie already have a sizeable affordable housing mission. so short of shutting down Fannie and Freddie, and expanding the FHA (aka, SUPER HUD), Fannie and Freddie may be cajoled into expanding their affordable housing mission.

After the housing market crash (and ensuring financial crisis), lenders and government insurance companies reduced the mortgage originations by low credit score borrowers. Yet home prices started to grow again despite the lack of originations by low credit score borrowers. In fact, the FHFA purchase only home price index YoY is almost back to the housing bubble peak of 2005.

Something is missing from the above chart. Jay Brinkmann (former Chief Economist for the Mortgage Bankers Association) and Alex Pollock (R Street) disagree about what is missing from the chart. I think that the omitted variable is The Federal Reserve’s balance sheet (purchase of Treasuries and Agency Mortgage-backed Securities).

Home price growth corresponds to changes in The Fed’s balance sheet, particularly in surges in the balance sheet (QE3, Covid).

It’s also an historic imbalance of housing supply and demand, exacerbated by low interest rates helped by The Federal Reserve’s policies.

Granted, the demand is driven by historically low interest rates, but it’s also driven by demographics, as a large number of Millennials are reaching prime home buying age. (Thanks to Rick Sharga!)

Wharton’s Susan Wachter is likely the replacement for Cato’s Mark Calabria to be the US housing finance Mandarin.

Why Did December’s Jobs Report See 5.1% YoY In Average Hourly Earnings? Just Ask Restaurant Workers And State Governors (And Mayors)!

December’s jobs report was grim. It was not surprising given the various government shutdowns in California, Virginia, New York, etc.

The biggest loser in the December jobs added was … leisure and hospitality.

Hey bartender! And just like that, governors and mayors made your jobs disappear.

So the 5.1% YoY growth in likely due to lower-wage workers like restaurant and bar workers losing their jobs. Thanks to economic lockdowns by governors like NY’s Cuomo and California’s Newsome.

And don’t forget shutdown Mayors like Chicago’s Lori Lightfoot!