Son Of FLUBBER! Banks’ Liquidity Sources Threatened By Plans To Limit Home Loan Borrowing (18 Straight Weeks Of Negative Growth In Bank Credit, 5 Rate Cuts Priced In For 2024)

The Federal Home Loan Bank System (comprised of Federal Home Loan Banks or FLUBs) are a major source of American home loans and liquidity … at least until now.

US banks will need to find other ways to access liquidity if the Federal Housing Finance Agency follows through with its goal to limit depository institutions from borrowing from Federal Home Loan Banks.

According to a recently released report, the Federal Housing Finance Agency (FHFA) plans to propose rules that would curtail US banks’ borrowings from the Federal Home Loan Banks (FHLBs) to ensure they are not used as a “lender of last resort.” The announcement comes after the liquidity crunch in March spurred several banks to tap into the FHLB system, sending FHLB advances to a three-year high in the first quarter. During that quarter, when two large regional banks failed, FHLB advances totaled $804.39 billion, comprising 3.7% of banks’ total liabilities.

While totals have fallen since then, sitting at $602.62 billion, or 2.8% of total liabilities, in the third quarter, the FHFA is still seeking to impose limitations. Should the agency enact the new rules, banks’ liquidity options would be hindered. The FHFA wants Federal Reserve facilities to be used instead, but banks are reluctant to tap those because of the stigma attached to those sources, industry experts said.

“It is fair to argue that some banks have come to rely on FHLB funding as a crutch, and the ramp in lending to struggling banks during the mini-crisis in March is an area of continued debate,” Isaac Boltansky and Isabel Bandoroff of BTIG LLC wrote in a Nov. 11 note. “With that being said, there is still a clear stigma associated with tapping the Fed’s Discount Window and other facilities, which should be part of the conversation if the FHLB support will eventually be curtailed.”

Among the various rules the FHFA plans to propose is requiring that certain members have at least 10% of their assets in residential mortgage loans or equivalent mission assets, including assets that qualify as Community Financial Institution collateral, on an ongoing basis in order to stay eligible for FHLB financing.

The leading FLUB borrower? Columbus Ohio’s own JP Morgan Chase!

The problem is that bank credit growth has been contracting for several weeks now. 18th straight week of negative credit growth.

As FLUB advances decline with Fed balance sheet shrinkage.

Everything is beautful? Not really. 5 Fed rate hikes priced in for 2024.

Yes, its beginning to look a lot like rate cuts.

So we are seeing Son of FLUBBER. Except this Flubber is crashing and burning.

Goin’ Down! Recent Homeowners Lose Over $200 Per Day In Property Value (San Francisco Sellers Reported Biggest Losses, Memphis TN Leads In % Losses)

The US housing market is goin’ down!

While the Case-Shiller National home price index is rising again, it has been slowing since March 2022. This is happening as “the honey pot” (aka, M2 Money printing) growth is now negative. While real hourly compensation growth is slightly, the average rate of growth since April 1, 2021, is -2.1%. (Not exactly what Biden wants to broadcast as a feature of Bidenomics).

In the first couple of pandemic years, buyers swarmed the housing market to seize record-low mortgage rates with little regard to home prices. Many of them are now realizing that they may have bought a pig in a poke.

According to a recent report from Point2 Homes, many recently bought homes, particularly in the hottest regions, are deep in the red. On average, single-family homeowners have been shedding $223 in property value every day since they bought their homes last year.

Condo owners are faring even worse, losing up to $336 a day in San Francisco, or a stunning $122,500 a year.

“This double-blow market means that the most newly minted owners were first hit by the highest home prices in history, only to be cut off from building wealth by the current falling prices,” analysts wrote.

Some major markets are seeing massive net losses

Single-family homes in 16 cities examined in the analysis have faced price declines of over $10,000 over the past year.

Memphis saw the most significant single-family price plunge, as well as the second-largest decline in condo prices, which analysts say could be due to rising inventory in the city.

Condo prices in 37 cities are also weakening, including in New York and Oakland.

So, what does this mean for homeowners? Folks who shelled out plenty of cash last year to secure their deals are now grappling with depreciating property values, which means it’s harder to build equity.

And if they want to sell in today’s market, they risk reaping less for their homes than what they paid for them. Zillow reports new buyers won’t sell at a profit until they’ve spent over a decade in their homes.

In another report from Redfin, analysts estimated that more than 3% of homes sold at a loss between August to October this year. The median amount was recorded at around $40,000, although some properties lost up to six figures on the sale.

Again, San Francisco sellers reported the biggest losses, with 1 in 7 homeowners losing money on their sales. And Memphis TN leads in percentage loss at -17.1%!

There are a couple of factors that could be contributing to the Golden City’s housing woes, including the rise of remote work coupled with tech layoffs pushing residents to relocate to other areas.

“There are buyers out there, but they’re a lot more cautious and picky than they were when mortgage rates were low,” Redfin Premier real estate agent Andrea Chopp said in September.

“The Bay Area housing market was unsustainable before, so this correction is probably healthy, but the unfortunate thing is prices remain unaffordable for a lot of people—especially with rates now above 7%,” she said.

97% of sellers are in the money, though

It’s not all doom and gloom for sellers—at least not for those who’ve been residing in their homes for a long time and bought when prices were much lower than they are today.

In many markets, sellers have been reluctant to let go of their low mortgage rates and apply for a home loan at a much higher rate, and that’s keeping inventory tight and prices high.

In the three months ending July 31, 97% of sellers across the country sold for a profit, with the typical home selling 78.4%, or $203,232, more than the seller bought it for, says Redfin.

And while San Francisco has been reporting more losses than usual, the median homeowner is still reaping $625,500 more on their home sale compared to the original purchase price.

The Godfather of San Francisco property losses, California Governor Gavin Newsom.

Oh wait! That is Eddie Haskell from “Leave it to Beaver!”

Bidenflation! U.S. Households Are Spending an Extra $11,400 Annually to Afford Basics (Purchasing Power Of US Dollar Down -15.4% Under Biden, Home Prices UP 33.2%)

While members of the Biden Administration party at DC nightclubs, the rest of America are drinking Carlo Rossi wine (a favorite of mine in high school!) and eating Spam.

The average U.S. household needs an additional $11,434 per year to maintain the same standard of living due to record-high inflation under the Biden administration.

While hourly pay has increased, inflation has outpaced it.

Spending on basic survival needs like food, transportation, housing, and energy has increased, with households in the Mountain West facing the highest rates of inflation.

“We choose January 2021 as the base month because it was the last time inflation was within recent historical norms,” the report reads.

“Due to a combination of higher inflation rates and higher average household spending, inflation is imposing the highest monthly costs on families in the states of Colorado, Utah, and Arizona,” the report adds.

Families in Colorado and Washington, DC, are experiencing inflation costs higher than the national average.

Things are even worse in 2023 regarding inflation ravaging worker’s income. Over 60% of Americans reported that their wages were lagging well behind inflation.

Almost 2 in 3 workers got a pay increase this year — but say they lost ground to inflation.

Since January 2021, US purchasing power of the US Dollar is down a whopping -15.4% under Biden.

And home prices are up 33.2% under Biden, much of it due to The Feral Reserve money printing to fund Biden’s folicy initiatives. (I saw Biden claim he wrote the Inflation Reduction Act … the one thing we know is House legislation is written by an army of Congressional staffers, not El Presidente).

Home prices up 33.2% and purchasing power of US Dollar down -15.4% under Biden.

And like magic, Biden made $11,400 disappear from household income to pay for Bidenomics.

Foul Powell On The Prowl! Odds Of March Rate Cut Hits 80% As Gold Soars To All-time High (10Y Treasury Yield Drops Below 5%)

Foul Powell on the Prowl!

Despite Powell’s confusing messaging on inflation, the market is pricing in an 80% chance of a rate cut in March 2024.

The Fed’s dots plot shows the same thing: Fed target rate falling like a paralyzed falcon.

As gold soars to an all-time high.

The difference between California governor Gavin “Toothsome” Newsom and Leave it to Beaver’s Eddie Haskell is that Eddie Haskell was more sincere.

Down Payment Blues! Median Home Prices UP 20% Under Bidenomics, Making Homeownership Even More Unaffordable (Case-Shiller National Prices UP 33.2% Under Biden)

The US middle class has the Down Payment Blues! Or a case of housing being simply unaffordable.

Median home prices are up a whopping 20% under Biden and his signature Bidenomics, growing the economy from the inside-out (?) instead of top-down. Excuse me Joe, Bidenomics is pure top-down Soviet-style economic planning. Markets be damned! The end result? Housing is far more expensive under Biden as are down payments.

If we look at year-over-year (YoY), we can see the burst of Covid-related spending and M2 Money growth (green line) that surged in 2020/2021. And rising home prices followed shortly thereafter. But as M2 Money growth slows, median home price growth declined into negative growth. The only factor that is positive is real hourly compensation (red line). But that is barely above 0%.

If we look at The Fed’s balance sheet surge (much like a storm surge), you can see the 2020/2021 overreaction to Covid and the various government shutdowns (along with school shutdowns).

The problem is that The Fed is shrinking their balance sheet like Biden shuffles. Maybe The Fed is following Biden’s lead: slow walking, incoherent messaging. And with the Fed storm surge of 2020/2021, Case-Shiller national home price index is up 33.2% under Bidenomics. Good luck with that down payment if you are renting and want to become a homeowner.

Pending home sales crash is showing why government usually fails to deliver sensible outcomes.

After all, Biden (and his overlord Obama) are truly addicted to gov solutions. Which means they are doomed to fail, as most government policies do.

Highway To Hell! Unrealized Losses At US Banks Exploded In Q3 As US Teeters On Full-blown Recession, Thanks To Bidenomics

Bidenomics is America’s Highway To Hell!

Unrealized losses on securities held by US banks exploded by 22% in the third quarter.

Of course, unrealized losses don’t really matter — until they do.

This is yet more evidence that the financial crisis that kicked off last March continues to bubble under the surface.

Unrealized losses, primarily on US Treasuries and mortgage-backed securities rose by $126 billion in Q3 and now total $684 billion, according to the FDIC’s quarterly bank data release.

Current unrealized losses are only slightly below the record set in the third quarter of 2022. This reflects the fact that the FDIC took over three failed banks earlier his year and ate their unrealized losses when it sold the banks’ assets, thus wiping them from the books.

Unrealized looses on securities are divided between two accounting methods.

Unrealized losses on held-to-maturity (HTM) securities jumped by $81 billion to $391 billion.
Unrealized losses on available-for-sale (AFS) securities jumped by $45 billion to $293 billion.

It’s important to understand these are only paper losses. Ostensibly, the banks will hold these bonds until maturity and then will be paid their face value. If it plays out this way, there won’t be any real losses.

The problem is that these unrealized losses drastically decrease a bank’s liquidity. If it has to sell bonds in order to raise capital, the bank will experience significant losses. This is exactly what took down Silicon Valley Bank last March.

Here’s what happened.

SVB sold a large portion of its bond portfolio at a $1.8 billion loss. At the time, SVB CEO Greg Becke said the bank made the sale “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients.”

The bank bought the bonds when interest rates were low. As a result, the $21 billion available for sale (AVS) bond portfolio was not yielding above cash burn. Meanwhile, rising interest rates caused the value of the portfolio to fall significantly. The plan was to sell the longer-term, lower-interest-rate bonds and reinvest the money into shorter-duration bonds with a higher yield. Instead, the sale dented the bank’s balance sheet and caused worried depositors to pull funds out of the bank.

WolfStreet explained more generally how these “irrelevant” unrealized losses can suddenly become relevant.

Banks, via a quirk in bank regulations, don’t have to mark these securities to market value, but can carry them at purchase price. The difference between market value and purchase price is the ‘unrealized gain or loss’ that the bank must disclose in its quarterly financial filings, so that we the depositors can see them and get spooked by them and yank our money out, us billionaires and centimillionaires first, on the two fundamental principles of investing: 1, he who panics first, panics best; and 2, after us the deluge.”

The Federal Reserve set up a bailout program to allow banks to deal with this problem. Instead of selling bonds at a loss, cash-strapped banks can go to the Fed’s Bank Term Funding Program (BTFP) and borrow against them “at par” (face value). This allows banks to use these undervalued assets to raise cash (at least temporarily) without realizing big losses on their balance sheets.

As unrealized losses rise, banks continue to tap into this bailout program more than nine months after the crisis kicked off.

Total outstanding loans in the BTFP program jumped by just over $5 billion in November alone.

In effect, the Fed managed to paper over the financial crisis with this bailout program.

It basically slapped a bandaid on it. But it has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.

Remember, the US is on the cusp of a REAL recession, thank to Bidenomics.

The spread between real GDP and real Gross Domestic Income (GDI) just hit an all-time high. Even higher than The Great Recession of 2009.

Might as well have AC/DC’s Angus Young as US Treasury Secretary instead of tone-deaf Janet Yellen.

Yellen singing “Highway To Beijing.”

Inflation Re-animator? Freddie Mac House Price Index Increased in October to New High; Up 6.0% Year-over-year (YoY), Austin Tx Biggest Loser Along With Idaho

Despite The Fed’s attempts at cooling inflation down to 2%, we are seeing a re-animation of price increases. this time with home prices.

On a year-over-year basis, the Freddie Mac National FMHPI was up 6.0% in October, from up 5.1% YoY in September. The YoY increase peaked at 19.1% in July 2021, and for this cycle, bottomed at up 0.9% in April 2023. …

Austin TX is the big loser, down -11.2% from peak. Followed by Idaho (largely people escaping from Newsomland (California) and speculators. The sixth leading area is Lake Havasu AZ.

As of October, 7 states and D.C. were below their previous peaks, Seasonally Adjusted. The largest seasonally adjusted declines from the recent peak were in Idaho (-4.5%), Utah (-2.7%), D.C. (-2.0%), and Nevada (-1.6%). Nevada, Idaho and Utah are now known as the Mild, Mild, West due to sagging home prices.

For cities (Core-based Statistical Areas, CBSA), here are the 30 cities with the largest declines from the peak, seasonally adjusted. Austin continues to be the worst performing city.

Speaking of inflation and The Fed, Biden claiming he lowered inflation is laughable if it wasn’t so sad. It is all The Fed. And their timidness is shrinking their balance sheet is contributing to persistent inflation.

So, yes, inflation is growing again. This time it is persisent and growing.

Why Is US GDP Growth So Strong? Bidenomics Is About BIG Government Spending (+4.7%), Not Consumer Spending (Highway To Hell!)

US Real GDP grew at a whopping 5.2% (revision) in Q3.

But was it organic growth or simply The Federal Government funding the defense and green energy industies with trillions in spending?

One factor has been government spending which grew an unsustainably 4.7% in real terms over the last year. Outside the pandemic, this is one of the fastest rates in decades and works at a cross purpose with monetary policy objectives.

Bidenomics is code for massive Federal spending (and debt) to fund Federal priorities: wars in Ukraine, Israel and likely involvement around Taiwan. And the costly switch to green energy (but not nuclear, for some reason).

If the US economy growing simply to function as a war machine and wealth transfer mechanism from the middle class to the 1%, we are on the Highway To Hell. Personal consumption contributed 2.44% to the bottom line GDP print in Q3, down from the pre-revision number of 2.69% but well above Q2’s 0.55%.

Hammer Time! New Home Sales Hammered In October As Homebuilders Hit The Wall, Prices Plunge -17.6% YoY

Hammer time!

With existing home sales collapsing to their lowest SAAR since 2010, new home sales are the only pillar left holding up any hope in the US housing market. However, with housing affordability at its lowest since at least the early 1980s, (and homebuilder sentiment slumping as mortgage rates rose), it’s no surprise that analysts expected new home sales in October to tumble 5.0% MoM (after their unexpected 12.3% surge in September).

As a reminder, The Mortgage Bankers Association’s index of home-purchase applications tumbled to 120 – the lowest level since 1995 – as mortgage rates hit 8% for the first time in 23 years in October.

Source: Bloomberg

So, it should be no surprise that new home sales were even worse than expected, plunging 5.6% MoM (and making it even worse, the 12.3% MoM jump in Sept was revised down to +8.6%)…

Source: Bloomberg

The trend of downward revisions continues…

The New Home Sales SAAR of 679k is flat from April (that was below all economists’ forecasts)…

Source: Bloomberg

It appears the homebuilders finally hit their wall eating the gap between these two lines was just not sustainable…

Source: Bloomberg

And as we noted previously, homebuilders can’t be filling this gap either – between the current 30Y mortgage rate and the effective rates that borrowers are currently paying on their home loans – (i.e. subsidizing new home sales) forever…

Source: Bloomberg

The median new home price fell 17.6% y/y to $409,300; average selling price at $487,000

That is the lowest median price since Aug 2021, catching back down to existing home prices…

Source: Bloomberg

Is Powell winning his war on affordability? Or crushing the middle class’s main source of wealth? Or is it Hammer Time??

Sundown? Volume of CMBS Delinquency Increased 49.4% During 10 Months Through October (Office Sector Delinquency Rate UP 261% Over 10 Months)

Is it sundown for the US commercial real estate market?

According to Trepp, the volume of CMBS delinquency increased 49.4% during 10 months through October.

Looking for more? This piece has been taken from Trepp and Commercial Real Estate Direct’s Q3 2023 Quarterly Data Review. Access the magazine here.

The volume of CMBS loans that are classified as delinquent increased by 49.4% during the 10 months through October to $27.91 billion. That volume amounts to 5.07% of the $601.98 billion universe tracked by Trepp. In contrast, delinquencies at the end of last year amounted to 3.03% of the $616.15 billion universe then extant.

Office Sector Drives Increase in Delinquency Volumes

The driver of the increase was the office sector, which had a 261% increase in delinquency volumes over the 10-month period through October. A total of 199 loans with a balance of $9.59 billion, or 5.91% of all CMBS office loans were at least 30 days late with their payments, as of the end of October. At the end of last year, 115 loans with a balance of $2.65 billion, or 1.63% of office loans, were delinquent.

The sector’s prospects are unlikely to improve as office occupancy rates have declined in most of the country’s major markets. That’s been driven by a substantial pullback in demand from office-using tenants.

Hit especially hard have been loans with floating coupons that are maturing and need interest-rate cap agreements in place before they qualify for term extensions. Those rate caps have skyrocketed in price in lockstep with interest rates.

On the residential side, The Fed is helping drive mortgage payments through the roof!