Home Prices in U.S. Cities Rise by Lowest Rate in Almost Four Years As Fed Unwinds Its Balance Sheet (Vegas Fastest Growing, DC Slowest)

Yes, US home price growth continues to slow as The Federal Reserve continues to unwind its bloated balance sheet.862767_cshomeprice-release-0129

(Bloomberg) — Home prices in 20 U.S. cities rose in November at the slowest pace since early 2015, decelerating for an eighth straight month as buyers balk at the ever-receding affordability of properties.

The S&P CoreLogic Case-Shiller index of property values increased 4.7 percent from a year earlier, down from 5 percent in the prior month, and below the median estimate of economists, data showed Tuesday. Nationally, home-price gains slowed to a 5.2 percent pace.

Sure enough, US housing has gotten quite expensive (although not Singapore, Hong Kong or London expensive). But the interesting story is … look at house price growth when The Fed enacted QE3, their third round of asset purchases. Then look at house price growth when The Fed began unwinding its bloated balance sheet.

csyoynov19.png

Let’s see what happens if The Fed continues its unwind.

On a metro level, Las Vegas (still recovering from the horrid collapse in house prices in the late 2000s) was the YoY leader … again. Followed by Phoenix, rising from the housing ashes of the housing bubble of the 2000s.

cswinner

The slowest growing metro areas? Once again, Washington DC has the slowest growth rate followed by Chicago. And then New Yawk (or New York).

 

The “Sanders Polynomial” Update: Mortgage Purchase Applications And Mortgage Rates (The Raising Of Credit Standards And Demise Of Non-vanilla ARMs Since Financial Crisis)

Back in 2010, bank analyst Chris Whalen wrote this piece for Zero Hedge entitled “The Sanders Polynomial or Why “Esto se va a poner de la chingada””.

Yes, things got ugly for the residential mortgage market following the mortgage purchase application bubble that peaked around 2005. If you fit a non-linear curve to MBA Mortgage Purchase Applications, you can see a polynomial peaking in 2005.

sanderspolynomial

Here is the updated chart. Mortgage purchase applications have started to rise again since 2010, but at a much slower pace. And there is no polynomial since 2010, just a nice linear increase.

mbAPudated.png

But the mortgage market has fundamentally changed since 2005-7.  First, the volume of adjustable rate mortgages (blue line) has declined to under 10% of all mortgage applications. Second, the number of mortgage originations under 620 (also known as “subprime” is far below the levels seen in 2003-2007. Also, the number of non-vanilla ARMs (like pay-option and Limited Documentation ARMs) have reduced greatly.

mba620

So when the narrator at the end of the movie “The Big Short” said that nothing has changed,  that was fundamentally incorrect. As you can see, ARMs and subprime have essentially vanished.  Here is a chart of The Big Short period (in red) and notice that mortgage lending truly did change.

bbubblee

Also, a non-banker lender, Quicken Loans, is the second lending originator after Wells Fargo.  My how times have changed.

But are lender credit standards too high? Or are lenders and investors low riding credit?

How about a spoonful of extra credit box expansion?

But let’s not turn back the credit clock too far!!

gsdad

 

 

Fed Dead Redemption II: Fed Officials Weigh Earlier-Than-Expected End to Bond Portfolio Runoff

First, the expectations for furthering tighening of The Fed Funds Target Rate are near zero, at least according to WIRP.

wirp012519.png

Now, according to Nick Timiraos at the Wall Street Journal, Federal Reserve officials are close to deciding they will maintain a larger portfolio of Treasury securities than they’d expected when they began shrinking those holdings two years ago, putting an end to the central bank’s portfolio wind-down closer into sight.

shrink

The Fed indeed may slow the unwind of its balance sheet which is primarily allowing Treasury Notes and Treasury Bonds to mature. Agency MBS are expected to mature at later dates.

fedholdings012519

So, The Fed may, at their next meeting, adjust their redemption schedule.

qt calendar nomura jan 19 2019

And alter their redemption caps.

fed redemptions max

Clearly, The Fed is trying to keep interest rates from rising too quickly. Good luck with that! It could be that The Fed has run out of ammo.

Case in point? Recent Fed Balance sheet reductions correspond to LOWER 10-year Tteasury yields and 30-year mortgage rates.

fedratge.png

Here is The Fed’ image of itself and “the savior” Ben Bernanke. But here is the reality.

feddead.jpg

 

US Initial Jobless Claims Hits Lowest Level In 50 Years (Since ’69), But Money Velocity Remains Poor Since Financial Crisis

The good news? US initial jobless claims chimed in at 199k, the lowest since 1969.

jobless50

Beating the expectation of 218k jobless claims.

foreijc.png

The bad news? Despite the excellent employment news, M2 Money Velocity (GDP/M2) still has not recovered from The Great Recession and global financial crisis.

velom2

The Clinton/Gteenspan “miracle” was a combination of reducing M2 Money stock growth to near zero while GDP boomed after the 1990 recession. Unfortunately, such a miracle is unlikely in to today’s over-stimulated low-interest rate world.

To use a Clue analogy, Greenspan/Bernanke/Yellen/Powell did it with a printing press on Wall Street. Perhaps Fed Chair Jerome Powell is REALLY Colonel Mustard!!

6a0266290b04db233da63b6d57a6eb1b

 

 

Treasury Yield And Dollar Swaps Curve Remain Kinked (So Many Uncertainties, So Little Time)

One day it looks like China and the US are making progress in trade talks, the next day there is no progress. Just like Brexit — on one day, off another. Then there is the Federal Reserve: will they continue raising their target rate and unwinding their balance sheet? Will the Democrats controlled House try to impeach Trump for putting ketchup on his steaks? And “The Wall.” Same old, same old. So many uncertainities.

Hence it is not a surprise that the US Treasury yield and US Dollar Swaps curve remain “kinked”. That is, inverted in the short-end of the respective curves.

swapskinky

It is difficult to keep one’s head on straight with all the uncertainties in the global markets.

headskater

Quantitative Frightening? VIX 1Y Implied Volatility Declines To Lowest Level Since 2014 As Fed Lets Balance Sheet Unwind

There is a lot of fear and uncertainty in financial markets: the US Federal government shutdown, May’s Brexit defeat, trade anxiety with China, postponement of Nancy Pelosi’s entourage 7-day excursion to Brussels, Egypt, and Afghanistan, the Mexican border wall, etc.

But given all the fear and uncertainty in financial markets, the VIX 1-year implied volatility has actually been declining … and its decline coincides with The Fed’s Quantitative Frightening (QF) or the shrinking of The Fed’s balance sheet.

vixbal

Quantitative frighening or numbness?

chilax.png

 

China’s Central Bank Now Has World’s Largest Balance Sheet As $1.1 TRILLION Is Injected Into Markets Via Repos (Curves Kinked)

China’s central bank, the People’s Bank Of China, now has the world’s largest balance sheet topping even the European Central Bank (ECB). Only The Federal Reserve is shrinking its balance sheet … for now.

pbocv

The PBOC has injected almost $1.1 trillion in the market over the past two days.

pbocrepoinnj

One of the impacts of the balance sheet expansion and repo injections is a reduction in the volatiilty of Chinese stocks. Better known as “numbing volatility.”

chinastockbol

On the sovereign side, China’s yield and swaps curves are kinked.

chinakinks

Central bank interfernce in markets seem to be never ending.

Greet the 1970s with the new victories of revolution and production, 1970. From a private collection.

Bubble Trouble? Household Net Worth Rising Faster Than GDP (Debt Bubbles In Canada, Australia And China)

The Federal Reserve’s zero interest rate policy (ZIRP) and quantitative easing (QE) helped to rebuild US household net worth. But it was rebuilt with asset bubbles that invariably burst.

assetprgdp

And courtesy of Kevin Smith at Crescat Capitalm here is a chart of asset bubbles and household/corporate debt as percentage of GDP. The most vulnerable? Canada, China and Australia.

globalb

Canada, Australia and China represent 3 of the lowest 5 countries in terms of % of stocks with negative annua free cash flows.

nf

Shrimp on the barbie, mate?

funny-pictures-230

Bye Bye Theresa? Britain’s PM May Loses Brexit Vote By 432 To 202 (Disturbance In The Force)

I detect a disturbance in The Force after Great Britain’s Therese May lost the Brexit vote by a whopping 432-202.

The USD Dollar Swap curve is now even more kinked  and the GBPUSD forward curve looks like it hit a wall.

gbpforwae

It is almost as if the Brexit “fears’ have gone away.

gbpusd

popunfreed

Is this Bye Bye Theresa?

Meanwhile, Nigel Farage and UKIP are singing “What’s the matter with UK Socialists?”

US Home Prices NOT Expected To Exceed Inflation For First Time Since Survey Created (According To Consumer Survey)

For the first time since the New York Federal Reserve began its monthly Survey of Consumer Expectations more than five years ago, respondents see parity between short-term home-price growth and overall inflation. U.S. housing-market expectations one-year ahead worsened for the sixth straight month in December, edging down 0.05 point to a median 3 percent, while that for inflation remained about unchanged at 3 percent. The bank’s internet-based survey uses a rotating panel of approximately 1,300 household heads.

parity