Reversal Of Fortune: Yield Curve Drooping As 2022 Forecast To Be Slower Market For Housing

No, not the Klaus von Bulow type of “reversal of fortune” (when he killed his wife). I am talking about a reversal in fortune for America.

Let’s look at the 10Y-2Y Treasury curve. It typically falls below 0 basis points before every recession. Except the mini-COVID recession of 2020. But notice that the Treasury curve did not recover from the COVID recession as it typically did. More along the lines of 1984-1985.

Speaking of Reversal of Fortune, everything changed once Fed Chair Powell started to speak after Tuesday’s FOMC meeting.

Hmm. Midterm elections, possible Russian invasion of The Ukraine, further problems in China, etc. While The Fed Funds Future data implies that The Fed may raise their target rate 5 times over the coming year, we’ll see.

I happen to agree with Fannie Mae’s Doug Duncan who says that he is less bullish about the housing market in 2022.

If 2021 was a great year for the US housing market, 2022 faces “a new normal” marked by a slowing down of home price rises, job layoffs in the mortgage industry, and concerns over rising inflation and interest rate hikes, according to Douglas Duncan (pictured), Fannie Mae’s senior vice president and chief economist.

Duncan said “a shift” was underway in the market and the wider economy, which would result in far more moderate home price appreciation, expected to be between 7% and 7.5% this year due to the ending of fiscal and monetary stimulus.

“One of the elements of the shift is that you’re going to see house prices up, but not nearly as far as they were in the last two years because that was driven hugely by the fiscal and monetary stimulus (now) being removed,” he told MPA.

Ominously, he added that low interest rates “may never be seen again”. Or at least until Biden appoints more doves to The Federal Reserve Board of Governors.

The doves at The FOMC.