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.
Under President Biden, inflation has soared and The Federal Reserve claims that they want to extinguish the inflation fire by tightening monetary policy … resulting in rising mortgage rates. Under Biden, mortgage purchase applications are DOWN -41.5% while mortgage rates are UP 96%.
(Bloomberg)The US mortgage industry is seeing its first lenders go out of business after a sudden spike in lending rates, and the wave of failures that’s coming could be the worst since the housing bubble burst about 15 years ago.
There’s no systemic meltdown coming this time around, because there hasn’t been the same level of lending excesses and because many of the biggest banks pulled back from mortgages after the financial crisis. But market watchers nonetheless expect a string of bankruptcies broad enough to trigger a spike in layoffs in an industry that employs hundreds of thousands of workers, and potentially an increase in some lending rates. More of the business is now controlled by independent lenders, and with mortgage volumes plunging this year, many are struggling to stay afloat.
Please note that mortgage purchase applications are DOWN -41.5% under Biden while mortgage rates are UP 96%.
Margin Calls Many other lenders have seen the value of their loans drop, said Scott Buchta, head of fixed-income strategy at Brean Capital, an independent investment bank. The Federal Reserve has tightened rates by 2.25 percentage points this year in an effort to tame inflation, and 30-year US mortgage rates have surged above 5% for government-backed loans. That’s close to their highest levels since the financial crisis, from around 3.1% at the end of last year.
That’s beaten down the value of home loans made just a few months ago. A mortgage made in January and not eligible for government backing could have traded in early August somewhere around 85 cents on the dollar. Lenders usually try to make loans worth somewhere around 102 cents to cover their upfront costs.
For a lender whose loans dropped to 85 cents, the losses can be debilitating, even if they aren’t realized yet. On top of that, business is broadly plunging. Overall mortgage application volume has plunged by more than 50% this year, according to the Mortgage Bankers Association. These business conditions are spurring banks that provide lines of credit known as warehouses to make margin calls and cut credit.
“The warehouse lenders in this industry seem to be extremely on top of things in this downturn, unlike in ‘08,” said bankruptcy attorney Mark Power, who is representing creditors in the First Guaranty bankruptcy. “They are making margin calls quickly.”
Banks have emergency funding they can tap in times of crisis, which can often allow them to stay afloat in hard times. But not always: emergency financing from the Federal Reserve is usually only available for solvent institutions with a chance of recovering. In the last downturn, so many banks had so many soured loans and struggling assets of all kinds that hundreds failed. Nonbanks went bust as well.
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.
Real estate investment trusts (REITs) are an interesting asset class, allowing investors to purchase shares in large-ticket assets like multi-family properties or shopping centers. But given the changing landscape due to online shopping (aka, the Amazon effect), Covid economic shutdowns, etc., REITs should be having a hard time. But aren’t. How come?
Covid economic shutdowns definitely took its toll on retail shopping centers, as an example. And you can see the plunge in the NAREIT All equity index in early 2020. But the NAREIT All-equity index rallied … until The Federal Reserve started tightening their loose monetary policy. Note that as the implied O/N rate rose (orange line), REIT shares declined.
But as the WIRP implied O/N rate settled (pink box), the NAREIT index began to climb again. It is clear that REITs, like other equities, benefit from Fed easing. But how long will The Fed continue tightening?
As of this morning, The Federal Reserve is anticipated to raise their O/N rate to 3.738% by March 22, 2023. Then begin lowering their target rate … again.
Sadly, REITs, like other equity investments such as the S&P 500 index, are sensitive to The Fed’s easing/tightening. Look for REITs to struggle as The Fed tightens, then rally as The Fed eases again.
Here is the (in)famous Hindenburg Omen. Notice how the Hindenburg Omen alarm bells (yellow and red dots) have been silenced by The Fed. But as The Fed tightens (at least until March ’22), we may see the Hindenburg Omen flashing again. Call it the Powellburg Omen.
The NCREIF property index had a decline in the Covid-outbreak era (early 2020) and you can see a slight slowdown in the NCREIF index as The Fed started tightening to fight inflation.
Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 12, 2022.
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 18 percent lower than the same week one year ago.
The Refinance Index decreased 5 percent from the previous week and was 82 percent lower than the same week one year ago.
The National Association of Home Builders Market Index slipped into darkness … that is, dropped below 50 to 49 in August as The Federal Reserve continues to tighten its uber-loose monetary policy, resulting in rising mortgage rates.
Note the plunge in the NAHB market index as mortgage rates began rising.
The US Empire State Manufacturing Survey General Business Conditions, that is. It just crashed and burned (-31.3) in August, the lowest reading since The Great Covid Shutdown and before that The Great Recession.
The inverted US Treasury yield curve (10Y-2Y) is beginning to make sense.
The 2020 Covid outbreak led to a massive (and generally awful) reaction. There were economic shutdowns that caused extensive damage (particularly to small firms), but it was the massive overreaction by The Federal government in terms of Covid relief and The Federal Reserve’s expansion of the money supply that caused considerable damage.
One truly horrific chart is that of M1 Money and M1 Money Velocity (M1/GDP). M1 Money surged with Covid driving M1 Money Velocity down to levels never seem before.
The broader measure of money, M2, isn’t as dramatic, but we also see that M2 Money VELOCITY has plunged to levels never seen before.
What does low money velocity indicate? Simply put, The Fed is printing trillions of dollars, but GDP isn’t moving much. But that won’t stop Congress from spending (and using The Fed to buy its debt).
So, here we sit. This morning, the US Treasury yield curve (10Y-2Y) remains inverted. This AM, the curve inverted another -.591 basis points to -42.725, a sign of impending recession.
Yes, we are living through Jay Powell’s famous chili episode where money velocity is near historic lows and we have an inverted yield curve.
BTW, congratulations to Will Zalatoris (aka, Happy Gilmore’s caddy) for his first PGA Tour victory at the FedEx St. Jude Championship!
Politicians like to (falsely) take credit for things, such as Biden bragging about gasoline prices declining. Bear in mind that regular gasoline prices were $2.88 when Biden was inaugurated as President, rose to over $5 a gallon in June and now have declined to $3.98 for which Biden is taking credit. So, regular gasoline prices are still up 34% under Biden. Ouch!
But other rates and prices are dropping too. Bankrate’s 30yr mortgage rate started at , broke the 6% plane on June 21, 2022 only to drop to 5.53% on Friday. CRB’s foodstuffs price index started at 370.58 on Biden’s inauguration as President, rose to 606.71 on May 17, 2022 then retreated to 561.32 on Friday, August 13th. Even headline inflation (CPI YoY) is cooling … slightly.
You can see the recent declines in mortgage rates, gasoline and food prices (pink box) that corresponds to a shrinking of the US M2 Money stock growth. M2 Money is still growing at torrid pace (8.5% YoY) almost back to pre-Covid stimulypto levels of 6.8% YoY. So shrinking M2 Money growth is helping reduce mortgage rates and inflation, food/gasoline prices.
Instead of trying to remove Fed stimulus even more, Biden and Congress passed the “Inflation Reduction Act” which will barely scratch inflation and raises taxes across the board (despite Biden’s promise that no one making under $400,000 will see a cent of increase taxes). And Biden’s preposterous promise ignores the inflation tax which has been severe and still growing at 8.5% YoY. Not 0% as Biden and Harris claimed.
But wait for winter as food, gasoline and heating prices start to soar again.
My favorite dim-witted explanation of inflation belongs to Democrat Representative Pramila Jayapal who recently claimed that “inflation is a theoretical word that economists use.” Like the brilliant Milton Friedman???
Confounded Interest - Anthony B. Sanders 
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