The US housing market is facing stress thanks to The Federal Reserve’s “war on inflation.” As The Fed starts trimming its excess ballast and M2 Money growth YoY slows to the lowest since Pre-Covid, we are seeing housing markets like San Francisco beginning to experience declines in home prices.
According to Redfin, Oakland California is leading the nation in terms of declining sales prices at -15.1% over a 3 month period. Followed by Silicon Valley and San Jose at -12.7%. San Francisco is in third place at -11.2% (I will ignore Lake Havasu AZ since it is teeny but does have one of the London Bridges) and Austin TX is in 5th place at -9.7%.
Joe Biden is the king of malaprops. But his press secretary is just as bad as her boss. Recently, she said that under Biden, there were 10,000 million jobs created. Better known as 10 BILLION jobs created. Not bad, considering that the total population of the US is 333 million. THAT is a hot labor market! /sarc
But seriously, the US U-3 unemployment rate is 3.7% in August, the lowest since Donald Trump was President and BEFORE the Covid outbreak. The Covid economic shutdown saw a surge in the unemployment rate to 14.7% in April 2020 that begat a huge spike in M2 Money growth (22% YoY in May 2022 (green line). Only now is M2 Money growth returning to Trump-era growth rates.
But as The Federal Reserve removes its hefty monetary stimulus, it is unlikely that the unemployment rate will remain low.
In defense of Biden’s press secretary, the US economy saw 10.247 million jobs added under Biden (although while technically correct, even MSNBC wouldn’t give Biden credit for job creation in his first several months as President. Check that. They probably would.
April 2020 saw a decline in US jobs of -20.493 million jobs thanks to the Covid economic shutdowns. BUT with the M2 Money surge, we saw +12.1 million jobs added between May and November 2020 under Trump. Then the US elected China Joe (or Beijing Biden) as President.
The economic shutdowns due to Covid were an economic disaster for millions. But the surge in M2 Money (supporting the various Federal spending programs and inflation) explains the surge in jobs added, not economic wizardry of Biden.
For some reason, Biden and his press secretary failed to mention that inflation is so bad that REAL average hourly earnings YoY are declining at a 3% pace.
And not surprisingly, job growth has accrued to big corporations and not small businesses.
(Bloomberg)Investors who might be looking for the world’s biggest bond market to rally back soon from its worst losses in decades appear doomed to disappointment.
The US employment report on Friday illustrated the momentum of the economy in face of the Federal Reserve’s escalating effort to cool it down, with businesses rapidly adding jobs, pay rising and more Americans entering the workforce. While Treasury yields slipped as the figures showed a slight easing of wage pressures and an uptick in the jobless rate, the overall picture reinforced speculation the Fed is poised to keep raising interest rates — and hold them there — until the inflation surge recedes.
Swaps traders are pricing in a slightly better-than-even chance that the central bank will continue lifting its benchmark rate by three-quarters of a percentage point on Sept. 21 and tighten policy until it hits about 3.8%. That suggests more downside potential for bond prices because the 10-year Treasury yield has topped out at or above the Fed’s peak rate during previous monetary-policy tightening cycles. That yield is at about 3.19% now.
Then we have Bankrate’s 30-year mortgage rate soaring on Fed intervention expectations.
Inflation? US inflation is near its highest in 40 years and the USDollar Plain Vanilla Swap was at 0.50 when Biden first took office as President and is now 3.371 (quite an increase!).
Here is an interesting chart of FNCL 2% Agency MBS.
When we look at tomorrow’s US jobs report, it is important to acknowledge that 1) The Federal Reserve has not yet removed the Covid stimulus (green line) and 2) the ADP payroll jobs added was only 132k in August while non-farm payrolls jobs added in July was 528k. That is quite a spread!
(Bloomberg)The hotly anticipated US jobs report has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand.
Friday’s report is one of the last marquee releases Fed officials will have in hand before the mid-September policy meeting to help them decipher a complex economic and inflationary puzzle.
Forecasts call for a healthy, yet more moderate 298,000 gain in August payrolls and for the unemployment rate to hold steady at 3.5%, matching the lowest in five decades. Solid wage growth is also expected amid a persistent mismatch between labor demand and supply.
Such figures, in conjunction with a blowout July employment print, improving consumer sentiment figures and a surprise pickup in job openings, could be enough to push the Fed to raise borrowing costs by 75 basis points, extending the steepest interest-rate hikes in a generation to curb an inflation surge.
As of this morning, Fed Funds futures data is still pointing to The Fed Funds Target rate rising from 2.50% to around 4% by the March FOMC meeting. That is still a large jump of another 150 basis points anticipated.
As inflation burns the US middle class and low wage workers, The Federal Reserve reaffirmed at Jackson Hole that they are the NEW Smoky The Bear (only The Fed can fight inflation fire!) But of course, Federal spending and energy policies can drive up prices too.
Having said that, the 2-year Treasury yield and 30yr mortgage rate are rising rapidly.
The Fed is trying to cool demand by raising rates after lax monetary policy since late 2008.
While the US 2-year Treasury yield is up only slightly today, the Eurozone is seeing their 2-year sovereign yields spiking by 11-15+%.
At The Fed continues to tighten to fight inflation, pending home sales in July crashed and burned. That is, pending home sales fell -22.5% in July as M2 Money growth slowed
If I was still teaching at Ohio State or Chicago, I would ask the students if they see the relation between M2 Money growth and pending home sales.
US mortgage applications just hit the lowest levels in 22 years, January 2000 as The Federal Reserve continues monetary tightening to combat Bidenflation.
Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 19, 2022. The Refinance Index decreased 3 percent from the previous week and was 83 percent lower than the same week one year ago.The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 21 percent lower than the same week one year ago.
MBA mortgage applications just declined to their lowest level in 22 years (January 2000) as The Fed has begun raising rates to fight inflation caused by 1) excessive monetary stimulus since late 2008, 2) Biden’s green energy policies driving up transportation costs, 3) distortionary Federal spending (e.g., Covid relief, infrastructure bills and now green energy/IRS spending by Biden/Pelosi/Schumer).
Here is the data summary for the latest MBA applications report.
Fed Chair Jerome Powell shrinking The Fed’s balance sheet.
Dear Mr. Fantasy, play us a tune, something to make us all happy (like hitting 2% inflation WITHOUT crashing the economy). Do anything take us out of this gloom (caused by The Fed, Biden’s energy policies and Federal spending). Sing a song, play guitar, Make it snappy. Or in the case of housing, make it crappy.
(Bloomberg) — Federal Reserve Bank of Richmond President Thomas Barkin said the central bank was resolved to curb red-hot inflation, even if that meant risking a US economic recession.
“We’re committed to returning inflation to our 2% target and we’ll do what it takes to get there,” Barkin said Friday during an event in Ocean City, Maryland. He said that this could be achieved without a “tremendous decline in activity” but acknowledged that there were risks.
“There’s a path to getting inflation under control but a recession could happen in the process,” he said.
The US central bank hiked interest rates by 75 basis points in July for the second straight month as policy makers tackle inflation that’s running near 40-year highs. Fed officials speaking in recent days have said more rate increases are needed, but they are still deciding how big to move at their next policy meeting.
St. Louis Fed President James Bullard, one of the most hawkish policy makers, on Thursday urged another 75 basis-point move while Kansas City’s Esther George struck a more cautious tone.
Well, The Fed (aka, Der Kommissars) let the monetary stimulus blow out of control since 2000.
With the 2001 recession, The Fed crashed the target rate (white line) causing home price growth (blue line) to soar. Then The Fed decided that the economy was overheated and cranked up their target rate. This sudden rise in The Fed’s target rate helped to slow/crash housing prices. Resulting in … a frantic decrease in the target rate (late 2007- late 2008) and the adoption of asset purchases of Treasury Notes/Bonds and Agency Mortgage-backed Securities in late 2008.
The Bernanke/Yellen “loose as a goose” policies from late 2008 to Feb 2018 created a total mess. Bernanke/Yellen raised the target rate only one before Trump was elected President, and 8 times AFTER Trump was elected. And Yellen’s Fed began to let the balance sheet shrink a bit before Covid struck in early 2020. And with Covid came another massive expansion of The Fed’s Balance Sheet WHICH HAS NOT YET BEEN WITHDRAWN (despite Fed talking heads saying it would be reduced).
Here we sit with The Fed NOW trying to extinguish inflation (yellow line) by raising their target rate (white line) but NOT shrinking the balance sheet (orange line).
Wonder why this is a horrible homeless problem in the US, particularly in California? While Stanford University has an excellent study of the causes of California’s homeless problem, there is another cause of homelessness … The Federal Reserve’s insane monetary policies since late 2008. The Case-Shiller National Home Price Index is 65% higher in May than during the calamitous home price bubble of 2005-2007, helping to exacerbate the homeless problem.
One of the many problems created by the reckless Bernanke/Yellen/Powell monetary policies is the M2 Money Velocity is near an all-time low making a return to “easy money policies” far more difficult.
I won’t post any photos of the homeless encampments in Los Angeles since it is very sad. But here is a photo of the Dunder-Mifflin paper company “office” on Saticoy Street. The point is that thanks to The Federal Reserve’s loose monetary policies, housing is unaffordable for millions of households forcing many to live on the streets.
Figure 2: Median Rent for a Two-Bedroom Apartment, California, 2022
And a point of trivia. The Office’s Charles Miner (played by the GREAT Idris Elba) was allegedly hired from Saticoy Steel. The Dunder-Mifflin paper company site was on Saticoy Street in sunny LA, not Scranton PA.
Good luck to The Federal Reserve in combating inflation without causing a recession.
In honor of Wolfgang Peterson who passed away yesterday, the Director of the classic WWII movie “Das Boot!” …. ALARM!
Sales of previously owned US homes fell for a sixth straight month in July in the latest indication of how high borrowing costs and waning demand are propelling the housing market’s rapid decline. In fact, existing home sales fell -19% YoY in August.
Contract closings fell 5.9% in July to an annualized 4.81 million, the weakest since May 2020, figures from the National Association of Realtors showed Thursday. The median estimate called for 4.86 million in a Bloomberg survey of economists. Sales fell 22.4% from a year ago on an unadjusted basis.
The nearly 26% decline in previously owned home sales since January marks the steepest six-month plunge in records back to 1999 and underscores a housing market that’s reeling from elevated mortgage rates and prices. The industry is also experiencing a slowdown in construction, and more buyers are backing away from deals.
Weaker demand has led to a pickup in inventory, which may help to cool home prices in coming months.
The median price of existing home sales growth fell to 10.55% YoY as M2 Money growth slows.
Confounded Interest - Anthony B. Sanders 
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