Heartaches By The Number! Under Biden, Mortgage Refi Applications Down -82.4%, Purchase Applications Down -7.5% And Mortgage Rates Up+80.7% (Fed FINALLY Begins Removing Stimulus!)

Heartaches By The Number … for American households and mortgage lenders as The Federal Reserve begins FINALLY removing monetary stimulus.

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 May 27, 2022.

The Refinance Index decreased 5 percent from the previous week and was 75 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 14 percent lower than the same week one year ago.

Under Biden, mortgage refi applications are down -82.4%, purchase applications are down -7.5% and mortgage rates are up +80.7%.

Then we have this headline: “Fed Starts Experiment of Letting $8.9 Trillion Portfolio Shrink”

The Fed is capping monthly runoff at $47.5 billion — $30 billion for Treasuries and $17.5 billion for mortgage-backed securities — until September. Those thresholds will then double to a combined $95 billion. That compares to a peak of $50 billion a month when the Fed performed the exercise starting in 2017.

As expectation of Fed rate hikes increase, mortgage rates have soared like Tom Cruise’s Super Hornet aircraft from Top Gun: Maverick climbing over the steep mountain.

And mortgage rates are up a bit today.

Meanwhile, The Federal Reserve begins shrinking their balance sheet for the first time since Yellen and company started shrinking it under Trump.

March Madness! Case-Shiller National Home Price Index Soars To +20.55% YoY In March (Fastest In History) As Fed Keeps Monetary Stimulus In Place

Yes, its the housing market’s version of “March Madness!”

The Case-Shiller National Home Price Index for March was released this morning and it was a doozy. The Case-Shiller National home price index YoY accelerated to a whopping +20.55%.

And at +20.55%, it is the fastest price growth in history! Even the peak of the infamous 2000s housing bubble was only +14.51% in September 2005.

Why do we have historic highs in home price growth? The Federal Reserve’s monstrous Covid stimulus (green line) is still in place.

Washington DC is the slowest growing metro area in the US while Tampa FL, Phoenix AZ, Miami FL and Dallas TX are all above 30% YoY.

Let’s see what happens when The Fed FINALLY removes its Covid stimulus as mortgage rates rise.

Remember, Janet Yellen (who left monetary stimulus in place for too long under Obama) is now US Treasury Secretary.

Fed Carrying $330B In Unrealized Losses On Its Assets As of Q1 (Purchasing Power Of US Dollar And M2 Money Velocity Collapsing Like Dying Star)

Yikes! One of the unmentioned costs of Fed monetary tightening is the one to US taxpayers.

Fed carrying $330B in unrealized losses on its assets according to Q1 financial statement. Which US tax payers are on the hook.

Adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.

This makes the Ukrainian relief bill of $30 billion look like chump change. Although it is about the same amount as Biden’s student loan forgiveness plan which would about to $321 billion.

Nobody spends other peoples’ money like politicians and now The Federal Reserve. Who are also DC-based politicians.

And yes, the purchasing power of the US Dollar and M2 Money Velocity (GDP/M2) appear to be collapsing like a dying star.

The Fed Is Pitting Wall Street Against Main Street, Investor Share Of Home Purchases Soars (How Far Will The Fed Go With “Tightening”?)

The Federal Reserve has been signaling a tightening of its loose monetary policy (essentially loose since the housing bubble burst of 2008 and the ensuing financial crisis). It is still loose as The Fed hasn’t really trimmed its massive balance sheet yet and has just raised it target rate to 1%.

So, potential home owners have to pay 5.10% for a 30-year fixed-rate mortgage while the effective Fed Funds rate, the rate at which banks lend to each other, is a measly 0.83%. This puts consumers at a relative disadvantage to large Wall Street firms that are gobbling up houses at an accelerated rate.

RealtyTrac has a Attom-sourced table of investor purchases of housing from Q3 2021, before The Fed started helping to crank-up mortgage rates for consumers.

With the US housing market slowing (thanks to The Fed’s signaling of monetary tightening), the question now is how far will The Fed go in its “War on Inflation!”?

You can see a major cause of inflation in the US since 2000: Federal spending and Federal (public) debt. During The Great Recession of 2008-2009, we saw inflation (CPI YoY) collapse into negative territory as Federal spending and debt soared. But the mini-recession of 2020 caused by the Covid governments shutdowns led to TWO surges in Federal spending and debt: Covid relief followed by the infrastructure spending bill. Combined with Biden’s anti-fossil fuel executive orders and massive splash of Federal spending in to the economy, we have inflation soaring.

If surges in Federal spending (requiring surges in Federal debt) have gone away (except for $40 billion in Ukrainian relief and Biden’s possible student loan cancellation of $10,000 that will cost an estimated $321 billion … and help drive up college tuitions even further), we may be over the “twin gorgings” of the Covid spending spree. This alone may result is a decline in the inflation rate.

Where do we sit today with the REAL neutral rate? The REAL Fed Funds Target Rate (upper bound) is -4.41%. It was in positive territory during the Trump years. But then Covid struck.

So, we sit here today with Fed Monetary policy “loose as a goose.” And Wall Street investors “drunk as a skunk” on Fed Stimulus.

No wonder Wall Streeters like to go “Down To The Nightclub!” The Fed still has not taken the monetary stimulypto away, but have taken it away for consumers buying housing.

Good News! Flexible Price Inflation Cools To … 20%, Export Prices Cool To 18% YoY As Jerome “Slowhand” Powell Reappointed As Fed Chairman (Taylor Rule Suggests Fed Rate Of 13.89%)

The US Senate yesterday confirmed the reappointment of Jerome “Slowhand” Powell as Federal Reserve Chairman.

The good news? Atlanta Fed’s Flexible CPI YoY cooled to 20% in April. The bad news? Flexible prices are still growing at 20% while wages are growing at 5.5% YoY.

On the export front, export prices are cooling and were at 18% YoY in April, down slightly from March. Import prices cooled to 12% YoY as The Federal Reserve has slowed asset purchases.

I would have preferred President Biden appoint a serious Federal Reserve Chairman liked Stanford University’s John Taylor (of Taylor Rule fame). In his honor, here is the Mankin version of the Taylor Rule which calls for a Fed Funds Target Rate of 13.89% while the current Fed Funds Target Rate under Powell and the Gang is … 1%.

Call it the Powell Boogie. At a very slow speed.

Powell is indeed “Slowhand.”

April Inflation “Cools” To 8.3% YoY, But Food Up 9.4%, Gasoline Up 43.6%, Shelter Up Only 5.1%? (Real Avg Weekly Earnings At -3.4% YoY)

April’s inflation numbers are out and, at first glance, inflation seems to be cooling from 8.5% YoY in March to 8.3% YoY.

But the headline inflation numbers do not accurately reflect the pain and suffering of American households. Food is up 9.4% YoY and gasoline is up 43.6% YoY.

The strange way the BLS measure “shelter” shows that housing only grew at 5.1% YoY. That’s odd since home price growth is almost 20% YoY and rent growth is near 20%.

Runaway home prices and rents are especially painful given that inflation is destroying the purchasing power of the dollar for consumers. Real average weekly earnings YoY are at -3.4% YoY.

Hence, the purchasing power of the US Dollar keeps eroding.

Good luck out there with inflation still roaring, and food/housing/energy prices soaring.

Here is a photo of American children trying to create energy from flying a kite made from progressively devalued US currency.

Beat The Heat! Mortgage Purchase Applications RISE 5% From Previous Week As Homebuyers Scramble To Beat The Fed’s Monetary Tightening

Yes, homebuyers are jumping into a generally slowing housing market to “beat the heat.” That is, beat The Fed’s monetary tightening.

Mortgage applications increased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 6, 2022.

The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 8 percent lower than the same week one year ago.

The Refinance Index decreased 2 percent from the previous week and was 72 percent lower than the same week one year ago.

Beat the Heat!! Or Beat The Fed!!

As least inflation came in slightly cooler in April at 8.3% YoY. While housing (own or rent) is rising at over 2x CPI.

Morning Update! S&P 500 Futures UP, Mortgage Rates UP To 5.57%, Apartment Rents UP 20% YoY, WTI Crude Down -1.76%

At least S&P 500 futures are up this morning, an opportunity to buy the dip.

But on the housing front, we see that mortgage rates have pieced the 5.50% barrier and is now at 5.57%.

On the rent side, apartment rents are growing at 19.3% YoY for both Class A and Class B units.

Commodities are down this AM. WTI Crude is down -1.71%, iron ore is down -4.06% and nickel is down -6.29%.

Whoops! After a positive futures reading before opening, the Dow is down near a full percentage point, but the NASDAQ is almost breakeven for the day.

And the 10-year Treasury yield is down 8.6 bps.

As The Boss sang, “We’re going down.”

Cooler Kings! As Biden Keeps Going Green And Fed Raises Rates, Everything Is Cooling (Mortgage Rates UP, Venture Capital Down 53%, Stocks Crushed, Etc)

The Biden Administration and The Federal Reserve together should be called “The Cooler Kings” in that their policies are putting a Big Chill on the mortgage market and equities.

Mortgage rates are skyrocketing thanks to the Federal Reserve.

The 30-year fixed-rate mortgage averaged 5.27% for the week ending May 5, according to data released by Freddie Mac FMCC, -1.62% on Thursday. That’s up 17 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.

House price growth to wage growth is below the all-time high, but remains above housing bubble levels of 2005-2007.

The Refinitiv Venture Capital Index is down 53% since November ’21 as The Fed cranks up interest rates.

Well, at least commodities are soaring under “The Cooler Kings.” Pretty much everything else is sucking wind.

Home prices are actually falling in some cities, like Toledo Ohio, Detroit Michigan, Rochester NY, and Pittsburgh PA. Even La-La Land (Los Angeles CA) is seeing a drop in median listing price since 2021 of -5.0%.

The question, of course, is whether The Federal Reserve will back off its plans to aggressively raise interest rates in lieu of crashing stock market, venture capital, and possibly home prices.

This is Scorcher VI: Global Meltdown.