Hot, Hot, Hot! Mortgage Purchase Applications UP 6% WoW, Refi Applications DOWN -3.1% WoW As Fed Keeps Massive Covid Stimulus In Place (AEI Home Price Index UP 17% YoY In May)

Although mortgage rates have been rising quite fast, The Fed’s balance sheet is only being reduced quite slowly, leading to a continuation of the hot, hot, hot housing market.

But the expectation of Fed rate hikes is causing mortgage rates to soar and borrowers are trying to get buy housing before The Fed chokes off rates.

Mortgage applications increased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 17, 2022.

The seasonally adjusted Purchase Index increased 8 percent from one week earlier. The unadjusted Purchase Index increased 6 percent compared with the previous week and was 10 percent lower than the same week one year ago.

The Refinance Index decreased 3 percent from the previous week and was 77 percent lower than the same week one year ago.

The American Enterprise Institute (AEI) national home price index for May 2022 averaged 17.0%, down from 17.5% a month ago but up from 15.3% a year ago.

So, the housing market remains hot, hot, hot but not mortgage refi applications. But Powell and Company will likely choke-off purchase applications as well.

WTI Crude Oil Futures Breaks $110 Barrier As Crack Spread UP 535% Under Biden (Diesel Fuel UP 121%)

The US is a movin’ on up to the high side … of energy prices.

Today, WTI crude oil futures broke through the $110 barrier.

The WTI Crude crack spread, the differential between the price of crude oil and petroleum products extracted from it, is up 535% under President “I HATE OIL!” Biden and diesel fuel is up 121%.

WTI crude is up 1% today.

“Crack? I thought crack was something that Hunter did!” – Joe Biden

Mr Freeze! Existing Home Sales Drop -3.39% MoM In May, Median Price Growth At 14.8% YoY, Inventory Rises Slightly As Fed Stimulus Continues

Rising energy prices, rising home prices, rising mortgage rates, declining hope.

But as The Federal Reserve begins to withdraw it Covid stimulus, existing home sales declined -3.39% in May from April.

But like Covid itself, The Fed’s outrageous monetary stimulus is still in place, helping caused median home prices to rise 14.8% YoY. And inventory for sale is rising, but still remains low.

Jointly, Treasury Secretary Yellen and Fed Chair Powell are “Mr Freeze.”

Cleveland Ohio? 5 Of The Top 10 Foreclosure Zip Codes As Home Prices Rise 31.5% Since Covid Stimulypto (Q2 Real GDP Falls To 0% Growth)

How crazy was The Federal Reserve’s overreaction to the government shutdowns surrounding the Covid epidemic? While most analysts talk about California, I am going to discuss … Cleveland Ohio as an example of how The Fed can destroy markets.

The Case-Shiller home price index for Cleveland rose 31.5% since January 2020 just before The Fed unleashed its massive monetary stimulus on an unsuspecting city.

But as The Fed starts to tighten monetary policy after Yellen’s too loose for too long policies followed by Powell, foreclosure rates are soaring in Cleveland. In fact, according to Attom Data, 5 of the top 10 zip codes with the worst foreclosure rates in May 2022 were in Cleveland.

Of course, Cleveland is much like much of the rust belt (except Columbus Ohio). The rust belt is losing population along with heavy tax states like New York and Illinois. Destination states? Texas, Florida, the Carolinas and Tennessee.

Then at the national level, Atlanta Fed’s GDPNow real-time tracker fell to 0% growth.

Winter Is Coming 2! Mortgage Rates Hit 6%, Gasoline Prices Hit $5, Inflation Continues To Rage (Taylor Rule Implies 22.10% Target Rate, Only At 1.75%)

Where is Stanford’s John Taylor when we need him?

Even since the housing bubble burst and ensuing financial crisis on 2007-2008, The Federal Reserve under Ben “The Savior!” Bernanke, Janet Yellen and Jerome Powell let their zero/low interest rate policies be too low for too long that anyone with common sense knew would lead to serious problems when The Fed was forced (this time by inflation) to end the massive OVER monetary stimulus. We are now living through The Great Reset of the US economy.

Since Biden was sworn-in as President (or El Presidente) in January 2021, 30-year mortgage rates are up 108% to 6%, regular gasoline prices are up 108% to $5 a gallon nationally. Inflation is up to 8.6% YoY.

Bernanke, Yellen and Powell did not follow any rule per se, just a “seat of the pants” panic button approach. Using the Mankiw specification of the Taylor Rule model, the Fed Funds target rate should be 13.25% based on CORE PCE. Notice starting in 2014, The TR suggested target rate started to be higher than the actual Fed target rate. And since the Covid monetary blast of 2020, the gap between the Taylor Rule and Fed target rate (red area) has grown to near the highest level in history. Even now Mohamed A. El-Erian, Chief Economic Advisor at Allianz, is starting to admit that The Fed’s ZIRP policies are beginning to hurt.

But if we use total inflation rather than core inflation, the measure that picks up the actual pain that Americans are feeling from rising gasoline prices and mortgage rate, we get a Fed Target rate of 22.10%. Since The Fed’s current target rate is only 1.75%, The Fed has “Room To Move.”

And in a painful. bad way.

Bernanke, Yellen and Powell must think that The Taylor Rule is the New Jersey ham pork roll.

Winter Is Coming … For Mortgage Markets! Monthly Mortgage Payments SOAR As Fed Tightens Noose On Economy

We’ve got a line on The Federal Reserve. They don’t seem to care about housing and the mortgage market.

Monthly mortgage payments are soaring as home prices soar AND mortgage rates soar.

Mortgage rates have soared with Fed noose tightening.

Something has to give. Otherwise, winter is coming.

The theme song of The Federal Reserve thinking that rising prices can be tamed by raising rates is “Dear Mr Fantasy.”

Alarm! US Industrial Production Slows To 0.2% In May, Lower Than Expected As Fed Tightens The Monetary Noose (It’s NOT Always Sunny In Philadelphia)

Alarm!

As The Federal Reserve tightens the monetary noose (Fed Chair Powell said Fed ‘acutely focused’ on returning inflation to 2%), the US economy is slowing. In fact, May’s Industrial Production report is half of what was expected. Industrial production declined to 0.20% MoM versus the expected 0.4%. At the same time, capacity utilization rose slightly to 79%., but still below expectations.

Mortgage rates are rising rapidly, but the growth has cooled slightly as the economy cools.

Bitcoin is getting demolished by The Fed’s reaction to inflation.

And “It’s Not Always Sunny In Philadelphia.” Since the Philadelphia Fed’s Business General Conditions has dropped into negative territory with, among other things, The Fed’s monetary tightening. And they’ve only just begun (no Carpenters’ songs!).

Here is Phil Hall’s article on housing and The Federal Reserve’s noose tightening. US housing starts dove -14.4% MoM as mortgage rates soared.

If the Biden Administration and Federal Reserve jointly produced a dating site …

But its most central banks too. Look at German home prices against the ECB’s balance sheet

US Recession Odds At 71.7%, NASDAQ Tanks -4%, Fed Dots Plot Sags (I Couldn’t Sleep At All Last Night)

I couldn’t sleep at all last night … after The Fed cranked up their target rate 75 basis points.

The odds of a recession grew to 71.7% as The Fed hikes rates.

Over the next 24 months, the probability of a US recession is 98.5%.

The NASDAQ index tanked -4% today on the fallout from yesterday’s Fed actions.

Do I detect a trend in The Fed’s latest Dot Plot??

So, will The Fed continue to go head-over-heels on monetary tightening?

Opening Hell! The Morning After The Fed’s 75 BPS Rate Increase, 10Y Treasury Yield Spikes +11.5 bps, S&P 500 E-mini Down -1.8% (US Housing Starts Plunge -14.4% MoM In May)

Like in the movie The Poseidon Adventure, we can all sing “The Morning After.”

On the heels of The Fed’s 75 basis point surge in the target rate, the US Treasury yield jumped +11.5 BPS as of 8:30 AM EST. The S&P 500 E-mini futures contract is down -1.8%.

As investors brace for a recession, mortgage rates dropped to 6.03%.

Gasoline prices remain near $5 per gallon, diesel prices are near $6 per gallon and The Fed’s massive balance sheet is still in force.

On the housing front, US housing starts plunged -14.4% MoM in May, the biggest decline under Biden.

While housing starts were down -14.4% MoM in May, single-family detached home were down only -9.16%. It was 5+ unit (multifamily) starts that were down -26.83% MoM.

Good morning peeps! Reality is dawning after the market surge yesterday after investors celebrated that The Fed could have raised rates even more.

Fed Raises Target Rate By 75 Basis Points To 1.75% Despite Negative Q2 GDP Forecast

Sometimes I wonder if The Federal Reserve Board of Governors pays attention to economic news. For example, the Atlanta Fed’s GDPNow forecast for Q2 was released today at -0.002%. So what does The Fed do? They raised their target rate by 75 basis points to 1.75%.

Apparently, The Fed has chosen to fight inflation rather than help the economy.

The Fed has chosen poorly.