Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Today’s jobs report was terrible despite the sheer number of jobs added. Why? They were all part-time jobs.
And on that “all part-time jobs” report, the US 10-year Treasury yield rose to 4.38%.
Which means that mortgage rate will follow upwards. All based on part-time job growth.
Bizarro World! Unfortunately, the Federal government and Federal Reserve think they are Superman. But only in Bizarro World.
Bidenomics is really about insane money printing after Covid and the installation of Biden as President. Biden and The Federal Reserve are both pushin’ too hard. Biden to fundamentally change the US and The Fed trying to cope with the inflation reaction. With Covid and then Biden’s selection as President, Federal outlays exploded (blue line) and remain elevated under Biden. To help finance the (outrageous) spending The Federal Reserve massively increased the M2 Money supply (green line). Now, The Fed has withdrawn some of the excessive monetary stimulus, but there is a staggering amount monetary stimulus still swimming around the economy like a Great White Shark.
The problem with Federal policies (energy, government spending, government debt) is that there are unpredictable factors that undo the best laid plans of mice and men. And rats such as crop blights and changes in consumer habits.
A good example is the Strategic Petroleum Reserve, which can be drained if craven politicians want to manage oil and gasoline prices for political purposes. Unfortunately, the promise of replenishment is made difficult by rising crude oil prices. The Biden admin cancels plan to refill emergency oil reserve amid high prices (some caused by factors such as war, often caused by government).
In fact, spot crude is up 73% under Biden. Partly, because of Biden’s promised war on fossil fuels and international disasters like war, blights, etc. This is why I cringe when I hear politicians and “economists” discuss why inflation will fall.
On the food side, we have cocoa prices rising 136% under Biden. Again, not predictable when policies were being made. Combine crop blights were rising transportation costs and DC, we have a problem! But this is one reason why The Fed, etc, focus on core inflation (excluding energy and food prices).
There are many examples of rising prices and how they hurt consumers, particularly middle-class and low wage workers.
How did The Federal Reserve react to the inflation Biden helped create? They raised The Fed Funds Target Rate (Upper Bound) by 2,100% to combat Bidenflation. Freddie Mac’s 30-year mortgage rate is up 156% helping to crush homeownership aspiration for younger households.
And then we have Congress/Biden shoveling more than $10 billion in subsidies to Intel, even though Intel has an incentive to develop chips using borrowed funds and Intel retained earnings. But why put your shareholders at risk in case the chip gamble doesn’t payoff. Just shift the risk to US taxpayers!
Bidenomics is also a Highway To Hell for commercial real estate. Let’s say real estate is thunderstruck under Bidenomics.
The rising supply of office space is due to a combination of surging remote and hybrid work that forces companies to reduce corporate footprints. Also, companies are exiting imploding progressive cities and high-taxed blue states for red ones while downsizing space. In the report, office tower vacancies rose to a record 19.8%, up from 19.6% in the fourth quarter of 2023.
Even with the increase, there is an eerily calm across the commercial real estate sector. This comes as the Federal Reserve’s interest rate hiking cycle is higher for longer, indicating that the pain train is nearing (perhaps after the presidential election).
“The office stress isn’t quite done yet,” Thomas LaSalvia, Moody’s head of commercial real estate economics and one of the authors of the report, told Bloomberg in an interview. He noted recent positive economic indicators stave off a “perfect storm in the office sector.”
“There are spots of light and there are spots of extreme darkness,” LaSalvia said, adding, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.”
The high office vacancy rate continues to be terrible news for landlords and developers eager to fill their buildings, and the Fed’s hiking cycle has made refinancing very challenging.
Last month, Goldman’s Vinay Viswanathan penned a note explaining how “office mortgages are living on borrowed time.”
Viswanathan said there have been no major fireworks in CRE tower debt because the debt is being “extended and modified rather than refinanced,” which “mitigates a default wave and a sharp pick-up in losses on CRE loan portfolios.”
Yes, both residential and commercial real estate are thunderstruck under Bidenomics.
The Federal Reserve has created America’s version of India’s caste system. At the top of the neo American caste system are bankers and the political donor class. The top 1%. The other 99% are losing ground to the Brahmin Banker Class.
In 1913, Woodrow Wilson and his progressives promised that the Federal Reserve would avert both depressions and inflation, while preventing the wealthy from controlling America’s financial markets at the expense of the poor, the new untouchable class.
More than a century later, it’s clear that was all a lie, and the Fed has helped create a permanent American underclass (political untouchables). The Fed was designed to transfer wealth from the American people to the government, mostly through the hidden tax of inflation. But this process has prevented countless American families from being able to save and get ahead, because their savings are constantly losing value.
As you can see, the Brahmin Banker class (top .1% of net worth) are beating the socks off the bottom 50% of the new American caste system. This problems has greatly accelerated under Biden’s Reign of Error.
For two decades, the Fed kept interest rates artificially low to help finance massive government spending. When that spending reached unprecedented heights in 2020, the Fed intervened more drastically than ever, creating trillions of dollars and devaluing the currency.
Thus began an unparalleled transfer of wealth that continues to this day, and which has driven a wedge between different groups of Americans.
The painful inflation of the last three years has increased prices throughout the economy, distorting the signals that prices are supposed to convey to buyers and sellers. For example, the cost to own a median-price home today has doubled since January 2021, but it’s still the same house.
This phenomenon represents the monetization of housing, where a dwelling becomes a much better store of value than the currency, even if the real value of the house hasn’t improved.
Likewise, Americans’ earnings have increased substantially over the last three years, but not in the most meaningful sense—that is, what they can buy. Instead, the opposite has happened, and today’s larger incomes buy less.
What would have been a decent salary in 2019 is no longer enough to even get by in many places, and it’s certainly not enough to ever fulfill the American dream of homeownership.
A family earning the median household income can afford a median-price home in only a handful of major metropolitan areas in the entire country. In many cities, the cost to own a median price home exceeds the take-home pay from the median household income. Even if you didn’t spend a dime on other necessities such as food, you still wouldn’t have enough for your mortgage payment.
It’s truly a condemnation of the status quo when even those with seemingly high incomes cannot afford a typical house.
Worse, as prices continue marching upward, people can save less, making it harder to accrue a sufficient down payment. Even by the time a family reaches their goal, home prices have increased again, and they’re back on the hamster wheel, trying to save for an even larger down payment.
Meanwhile, inflation is steadily, though silently, taxing away the real value of the family’s savings as they sit in the bank.
This has left countless Americans as perpetual renters, with almost an entire generation of young people giving up on having the standard of living that their parents had. An artificial chasm has been constructed between those who already own capital, like housing, and the remaining Americans who can only borrow such assets, as they do by renting.
Similarly, many of those struggling to afford sharply increased rents are going deeply into debt to keep a roof over their head while those who locked in a mortgage with a fixed interest rate before both home prices and interest rates exploded have shielded themselves from one of the largest drivers behind the cost-of-living increases of the last three years.
Many homeowners could not afford to buy their same home today. The monthly mortgage payment on a median-price home has doubled since January 2021. Thus, even if two families have identical incomes, the one that bought a home three years ago has a nearly insurmountable advantage over the other family trying to do so today.
The Fed’s monetary manipulations have financed trillions of dollars in federal budget deficits, but they’ve also created a permanent American underclass, something antithetical to the Founders’ vision for the country.
Class mobility is at the heart of the American dream, and the Fed has turned it into a nightmare.
I was not comforted when I saw that Biden claims he had no idea who issued an pro-trans Executive Order for a Trans Awareness Day on Easter Sunday. Hey man, you are The President and have no idea who issued Executive Orders????
Here is a photo of Joe Biden with “Doctor” Jill on Easter Sunday flanked by Fed Chair Jerome Powell and Jared Bernstein (whom I once debated in Washington DC).
Update: KJP confessed that it was Obama who created the Trans Day of Awareness back in 2009 (although strangly not enacted until this part Easter Sunday).
Jerome Powell and The Federal Reserve have to make a decision about tightening monetary policy or loosening it. It’s a Presidential election year and The Fed will probably do what is necessary to support The Biden Administration’s re-election. But let’s look at the various conflicting economic indicators that are causing confusion at The Fed.
First, the Federal Reserve’s preferred gauge of inflation wasn’t hotter than expected in February, which could keep a mid year interest rate cut on the table.
The year-over-year change in the so-called “core” Personal Consumption Expenditures index — which excludes volatile food and energy prices — clocked in at 2.8% for the month of February.
That was in line with economist expectations and down from 2.9% in January. Core prices rose 0.3% from January to February, which was also in line with expectations and down from 0.5% in the previous month.
The new PCE reading could be an encouraging development to some Fed officials who raised questions in recent months about the persistence of inflation after some hotter-than-expected numbers at the start of 2024.
“Core services inflation is slowing and will likely continue throughout the year,” Jeffrey Roach, chief economist for LPL Financial, said in a note.
“By the time the Fed meets in June, the data should be convincing enough for them to commence its rate normalization process. But where we sit today, markets need to have the same patience the Fed is exhibiting.”
Some Fed officials have been cautioning investors to be patient about the pace of rate cuts.
Fed Governor Chris Waller, for example, said Wednesday that he is in no hurry to cut and needs to see at least a couple months of better data before he has enough confidence that an easing of monetary policy will keep inflation on its path down to the Fed’s 2% target.
“There is no rush to cut the policy rate,” Waller said in a speech in New York.
But gasoline prices are still far higher than when Biden took control.
Well, Fats Waller, let’s look at other data.
Second, Bank credit growth is finally back in positive territory even though the 10Y-2Y yield curve slope remains negative. So this is a mixed signal.
Third, there is the terrible jobs reports where all jobs created in the US were part-time and full-time jobs declined. Hardly a positive sign for the economy.
Fourth, on the housing front, the 30-year mortgage rate is up 156% under Biden’s Reign of Error. Rate cuts would be helpful for reducing mortgage rates.
Fifth, commercial real estate. The NBER states that approximately 44% of office loans may have negative equity. They estimate that a 10% to 20% default rate on commercial real estate (CRE) loans, similar to levels seen during the Great Recession, could result in additional bank losses of $80 to $160 billion. They emphasize the impact of interest rates, noting that none of these loans would default if rates returned to early 2022 levels. With around $1 trillion in maturing CRE loans this year, higher interest rates could lead to challenges in refinancing, especially for office spaces facing high vacancy rates and declining valuations.
Finally, we have Citi’s economic surprise index (blue line) which is positive at 30.70 despite The Fed already having raised their target to the highest level since 2000 before the Iraq War/9-11 recession.
So, what’s it going to be? Rate cuts, rate hikes or hold still??
Hey, at least Joe isn’t eating ice cream while driving his gas-guzzling Chevy Corvette.
Part of the Bidenomics “plan” is not only green-energy spending, but plenty of freebies to gather voters from the masses. Like the $214 TRILLION in unfunded liabilities promised to the masses in the form of entitlements like Social Security, Medicare and Medicaid (why did they demand that all US citizens be forced to buy healthcare insurance, then give free healthcare to illegal immigrants??). In any case, each citizen is on the hook for $636,000!
What about the national debt with Ice Cream Joe at the helm? It has exploded in growth.
Not only has it gotten boring to be ahead of the curve by almost half a year, but pretty much every possible warning that could be said about the exponential increase in the US debt has been – well – said.
And yet, every now and then we are surprised by the latest developments surrounding the unsustainable, exponential trajectory of US debt. Like, for example, the establishment admitting that it is on an unsustainable, exponential trajectory.
That’s precisely what happened overnight when in an interview with the oh so very serious Financial Times (which has done everything in its power to keep its readers out of the best performing asset class of all time, bitcoin), the director of the Congressional Budget Office, Phillip Swagel, issued a stark warning that the United States could suffer a similar market crisis as seen in the United Kingdom 18 months ago, during former Prime Minister Liz Truss’s brief stint leading Britain – which briefly sent yields soaring, sparked a run on the pound, led to an immediate restart of QE by the Bank of England and a bailout of various pension funds, not to mention the almost instant resignation of Truss – citing the nation’s “unprecedented” fiscal trajectory.
The striking words from the head of the CBO, best known perhaps for publishing doomer debt/GDP projection charts such as this one…
… warned of the dangers of the U.S. facing “what the U.K. faced with former prime minister Truss — where policymakers tried to take an action, and then there’s a market reaction to that action”, comes as US government debt continues to break records, fueling concerns about the burden that places on the economy and taking a toll on America’s credit rating.
As a reminder, in September 2022, Truss roiled markets as she pressed for significant tax cuts, including changes lessening the tax burden on wealthier individuals without offsets, as well as other economic measures. The budget proposal spurred a major selloff of British debt, forcing U.K. interest rates to decades-long highs and causing the value of the pound to tank. While Truss defended her agenda as a means to spur economic growth, she stepped down as prime minister after less than two months on the job following the market revolt to her administration.
Meanwhile, it was up to the Bank of England to bail everyone out: the central bank intervened in the market, pledging to buy gilts on “whatever scale is necessary” with Dave Ramsden, a senior official at the central bank, saying at the time that “were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.”
Needless to say, by bringing up the catastrophic rule of Truss, who for at least a few days tried to impose a regime of fiscal and monetary austerity which immediately blew up the UK bond market and led to an instant market crisis, Swagel is admitting that there is nothing that can be done to reverse the growth of US debt and to make what is already an exponential chart less exponential. Quite the opposite, in fact.
And while Swagel said the U.S. is “not there yet,” he raised concerns of how bond markets could fare as interest rates have climbed. Specifically, he warned that as higher interest rates raise the cost of paying its creditors, on track to reach $1 trillion per year in 2026, bond markets could “snap back.”
Well, we have some bad news, because if one calculates total US interest on an actual, annualized basis… we don’t have to wait until 2026, we are there already and then some.
Indeed, it seems like it was just yesterday when everyone was talking about US debt interest surpassing $1 trillion (and more than all US defense spending). Well, hold on to your hats, because as of this month, total US interest is now $1.1 trillion, and rising by $100 billion every 4 months (we should probably trademark this before everyone else steals it too).
According to the CBO, US government debt is set to keep rising. “Such large and growing debt would slow economic growth, push up interest payments to foreign holders of US debt, and pose significant risks to the fiscal and economic outlook,” it said in a report last week. “It could also cause lawmakers to feel more constrained in their policy choices.”
Only that will never happen, because a politician who is “constrained” in their policy choices – one who doesn’t feed the entitlements beast in hopes of winning votes (while generously spreading pork for friends and family) – is a politician who is fired.
Perhaps afraid he would sound too much like ZeroHedge, the CBO director left a glimmer of hope, saying that the nation has “the potential for some changes that seem modest — or maybe start off modest and then get more serious — to have outsized effects on interest rates, and therefore on the fiscal trajectory.” But we doubt even he believes it.
In the CBO’s long-term budget outlook report released last week, the budget agency projected the national deficit would rise “significantly in relation to gross domestic product (GDP) over the next 30 years, reaching 8.5 percent of GDP in 2054.” Which of course, is laughable: the US deficit is already at 6.5% of GDP – a level that traditionally implied there is a major economic crisis – and yet here we are, with unemployment *reportedly* at just 3.8%. Said otherwise, the US deficit will – with 100% certainty – hit 8.5% of GDP during the next recession which will likely be triggered as soon as Trump wins the November election.
The budget scorekeeper attributed the projected growth to rising interest costs, as well as “large and sustained primary deficits, which exclude net outlays for interest.” In short, everything is already going to hell to keep “Bidenomics” afloat, but when you also throw in the interest on the debt, well.. that’s game over man.
Socialists, and other liberals who are only good at spending other people’s money and selling debt until the reserve currency finally breaks, quickly sprung to defense of the debt black hole that the US economy has become.
Bobby Kogan, senior director of federal budget policy at the communist-leaning Center for American Progress think tank, pointed to improved deficit projections in recent years, as well as forecasts from the CBO he said “don’t project anything that looks like a panic.”
“If someone were thinking about, ‘Should I panic or should I not panic?’ I would just say, ‘hey, the underlying situation has gotten better, right?’” Kogan said, adding “there’s been lower, long-term projected deficits in the Biden administration.”
Instead of responding, we will again just show the latest CBO debt forecast chart and leave it up to readers to decide if they should panic or not.
What Kogan said next, however, was chilling: “You either should have been worried a long time ago, or you should be less worried now,” he said. “Because we’ve been on roughly the same path for forever, but to the extent that it’s different, it’s better.”
Actually no, it’s not better. It much, much worse, and the fact that supposedly “serious people” are idiots and make such statements is stunning because, well, these are the people in charge!
But he is certainly right that “you should have been worried a long time ago” – we were very worried, and everyone laughed at us, so we decided – you know what, it’s not worth the effort, may as well sit back and watch it all sink.
And now bitcoin is at a record $72,000 on its way to $1 million and gold is at a record $2,200 also on its way to… pick some nice round number…. in fact the number doesn’t matter if it is denominated in US dollars because very soon, the greenback will go the way of the reichsmark.
And just to make sure that nothing will ever change, even after the US enters the infamous Minsky Moment, shortly after the close we got this headline::
Because when nobody dares to tell the truth, why should anything change?
When asked about disastrous out of control spending and debt, Biden and Schumer broke into song: “Let it ride!”
Back in mid-December, after the Fed’s first, and very shocking, dovish pivot when just two weeks after Powell said it had been “premature” to speculate on rate cuts the Fed suddenly changed its mind (despite very strong economic reports in the interim) and unexpectedly revealed it had been “discussing a timeline to start rate cuts”…
… in the process, sparking the biggest market meltup in a decade, we explained that there was no mystery behind the Fed’s sudden change of heart: it had everything to do with Biden’s woeful performance in the polls.
… maybe what that happened in the past two weeks had nothing to do with economic data, the state of the US consumer, or how hot inflation is running and everything to do with… phone calls from the increasingly angry White House, the same White House which after seeing the latest polling data putting Biden at the biggest disadvantage behind Trump despite the miracle of “Bidenomics” decided to pull its last political level, and had a back room conversation with the Fed Chair, making it very clear that it is in everyone’s best interest if the Fed ends its tightening campaign and informs the market that rate cuts are coming. It certainly would explain why despite keeping the 2026 projected fed funds rate unchanged at 2.875%, the Fed just as unexpectedly decided to pull one full rate cut out of the non-election year 2025 and push it into the pre-election 2024.
Three months later, when Powell again shocked the world with yet another exceedingly dovish press conference, this time pushing the S&P to all time highs as it became increasingly clear the Fed has raised its inflation target to 3% or more, as we first discussed in “There Goes The Fed’s Inflation Target: Terminal Rate To Rise 100bps To 3.5% And More” and as Bloomberg confirmed today in “Powell Ready to Support Job Market Even If Inflation Lingers“, there was again some confusion, most notably from the likes of Jeff Epstein BFF Larry Summers who tweeted:
I don’t know why @federalreserve is in such a hurry to be talking about moving towards the accelerator. We’ve got unemployment, if anything, below what they think is full capacity. We’ve got inflation, even in their forecast, for the next two years above target. We’ve got GDP growth rising if anything faster than potential. We have financial conditions, the holistic measure of monetary policy, at a very loose level.
… to which we again replied that there is a very simple reason why the Fed is “moving toward the accelerator” and it again had to do with the fact that Biden approval rating is now imploding, so much so that even Time magazine has stepped in with an intervention.
But while once upon a time such a cynical, hyperbolic, and apocryphal view would have been relegated to the deep, dark corners of the financial blogosphere (duly shadowbanned and deboosted by the likes of such Democratic party stalwarts as Google, of course), that is no longer the case and in his latest note, SocGen’s in-house permaskeptic, Albert Edwards confirmed our view that the biggest driver behind the Fed’s decision making in recent months is neither the economy, nor the market, but rather the November presidential election, to wit:
The widening inequality chasm in this US election year will be a real issue for policy makers. What will the Fed do? Traditionally, the Fed would not pivot rates policy to cushion inequality, which is usually addressed by fiscal policy. But growing inequality has been a key issue ever since the 2008 Global Financial Crisis triggered a backlash against ‘The Establishment’ – most evident in the rise in popularism (although many, including myself, believe that the loose money/tight fiscal policy mix was primarily responsible).
Might the unfolding inequality crisis force the Fed to bow to intense political pressure to cut rates faster and deeper? I think that is entirely plausible. Indeed we on these pages have previously observed, somewhat cynically, that Powell’s recent ‘surprise’ December 2023 dovish pivot came exactly at a time when Donald Trump was pulling ahead in the polls – link. But it would be a diehard cynic who could contemplate that the Fed, as part of ‘The Establishment’, would balk at the thought of Trump winning in November and juice up the economy to try and lower the odds of such an outcome. (I am that cynic.)
To be fair, we find it remarkable that Edwards – a long-tenured and respected veteran of the SocGen macro commentariat – would confirm our own observations. We doubt he is the only one, of course, but the others are far more afraid of losing their jobs, at least for now.
What we find less remarkable is that Edwards – whose job is to track down gruesome and painful ways for the market to die a miserable death – has done just that again and this time, in the aftermath of the BOJ’s long overdue exit from NIRP, ETF buying and Yield Curve Control, predicts that it is now only a matter of time before the YCC that was spawned in Japan will soon shift to the west.
Edwards starts off by observing what has long been a “foolproof” signal of imminent recession: BOJ tightenging:
Market sentiment is now especially vulnerable to weak economic data because, as we pointed out last week, it seems everyone (and their dog) has left their recessionary worries far behind. But as my favorite bear, David Rosenberg, pointed out this week, recent weak retail sales, housing starts, and industrial production data might be setting us up for a negative US Q1 GDP print. Let’s see how the Fed reacts to that. And if you want one reliable predictor of a global recession, @PeterBerezinBCA notes that “In the history of modern finance, no single indicator has done a better job of predicting when the next global recession will start than when the Bank of Japan starts raising rates. Foolproof!”
He then recaps last week’s main event, namely that after almost a decade, Japan finally exited negative interest rates and Yield Curve Control (YYC), primarily on the back of soaring (nominal, not real) wage gains: “Rengo, Japan’s largest trade union confederation, announced last Friday that its members have so far secured pay deals averaging 5.28%, far outpacing the 3.8% squeezed out a year ago — itself the highest gain in 30 years (see Bloomberg here and SG Economist Jin Kenzaki’s analysis of this data and the BoJ’s move here).“
Of course, the problem in Japan is not that nominal wages are surging: it is that in real terms they are crashing, as the next chart clearly shows, and is why the BOJ will have to dramatically tighten – certainly much, much more than the laughable “dovish hike” it delivered last week which sent the yen plunging to a multi-decade low and inviting even more imported inflation – to avoid total collapse in Japan’s economy as it gradually accelerates toward hyperinflation:
Of course, Japan can not actually tighten as that would instantly vaporize the economy and the bond market of a country whose central bank owns Japanese JGBs accounting for well more than 100% of GDP. But at least Japan has something goign for it: as Edwards notes, “the OCED estimates that interest on US debt amounts to 4½% of GDP, compared to only 0.1% of GDP for Japan (link). Hence the cyclically adjusted primary (ex-interest) deficit data show Japan as the most profligate borrower (see right hand chart). But the US still has to pay that interest somehow.” In other words, when adding interest payment, “it is the US that has been running the largest deficits since the 2008 GFC – bigger than even Japan (see left hand chart).”
Which brings us to Edwards’ punchline: “decades of excessively loose monetary policy has allowed governments to ruin their fiscal situations to the point that public debt to GDP ratios are on wholly unsustainable trajectories. Just look at the CBO’s projections for the US here. Yet with an ever-intensifying populist backlash against high levels of inequality, I can only see one way out of this mess for western economies. Nothing less than Financial Repression including Yield Curve Control – yes, the very same YCC that Japan has just abandoned.”
For those who may not have been around back in the 1940s when the US – and the Federal Reserve – was the first developed nation to utilize YCC to kickstart the US economy at a time of record debt to GDP, here is a quick primer from the SocGen strategist: “Financial Repression essentially entails holding interest rates below the rate of inflation for a lengthy period to allow debt to be ‘burned off’. This is a tried and trusted way for governments to wriggle free from excessive debt (eg the US after WW2). The leading economic historian Russell Napier explained how this works in an informative 2021 interview with The Market NZZ – link.”
And indeed, it was only a few years ago, just before the pandemic sparked a stimulus flood of epic proportions, that western policy makers were switching to average inflation targeting and stating that they would run economies hot to create that higher inflation (they got it but not because of AIT). That was the first notable attempt to shift toward Financial Repression, but as Edwards notes, “unfortunately they were too successful and let the rampant inflation cat out of the bag.”
Which brings up the $64 trillion question: “Do the Fed and ECB really want inflation to return to pre-pandemic inflation lows?” Well, with global debt now about 7x higher in just the 21st century, and fast approaching $100 trillion, meaning it will all have to be inflated away somehow…
… Edwards’ answer is: “Not in my view.” And so while western economists deride Japan for its YCC policies, Albert says “that is where I think the US and Europe are heading as intractable government deficits drive up bond yields. During the next crisis, don’t be surprised to see yet more Japanification of western central bank policy. Plus ça change.” And don’t be surprised if the dollar – while appreciating against the rest of the world’s doomed currencies in the closed fiat-system loop – hyperdevalues against such finite concepts which mercifully remain out of the fiat system, such as gold and crypto.
And wage inflation remains around 5%.
The woes for the mortgage market continue under President Magoo.
Mortgage applications decreased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 15, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 1.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 14 percent lower than the same week one year ago.
The Refinance Index decreased 3 percent from the previous week and was 3 percent lower than the same week one year ago.
Between The Fed’s announcement of rate changes and The Biden Crime hearings in DC (where Hunter of course failed to appear), there is plenty to keep us occupied.
How bad is Bidenomics for the American middle class? We know that inflation is far higher under China/Ukraine Joe (even with those awful looking Hoka shoes), but the pain that is being felt is attrocious.
Home shoppers today need to make more than $106,000 to comfortably afford a home. That is 80% more than in January 2020, showing how the math has changed for hopeful buyers, who are more often partnering with friends and family or “house hacking” their way to homeownership.
A monthly mortgage payment on a typical U.S. home has nearly doubled since January 2020, up 96.4% to $2,188 (assuming a 10% down payment).
Home values have risen 42.4% in that time, with the typical U.S. home now worth about $343,000. Mortgage rates ended January 2020 near 3.5%, keeping the cost of a home affordable for most households that could manage the down payment. At the time of this analysis, mortgage rates were about 6.6%.
In 2020, a household earning $59,000 annually could comfortably afford the monthly mortgage on a typical U.S. home, spending no more than 30% of its income with a 10% down payment. That was below the U.S. median income of about $66,000, meaning more than half of American households had the financial means to afford homeownership.
Now, the roughly $106,500 needed to comfortably afford the mortgage payment on a typical home is well above what a typical U.S. household earns each year, estimated at about $81,000.
For a household making the median income, it would take almost 8.5 years before they would have enough saved to put 10% down on a typical U.S. home, about a year longer than it would have in 2020. It’s no wonder, then, that half of first-time buyers say at least part of their down payment came from a gift or loan from family or friends.
With the cost of a mortgage rising, most millennial and Gen Z buyers say the ability to rent out all or part of a home for extra cash is very or extremely important. Cobuying with a friend or relative is another way to help with affordability, something 21% of last year’s buyers reported doing. Long-distance movers are also targeting less expensive and less competitive metros.
Metro areas where a buyer could comfortably afford a typical home with the lowest income are Pittsburgh ($58,232 income needed to afford a home), Memphis ($69,976), Cleveland ($70,810), New Orleans ($74,048) and Birmingham ($74,338). The only major metros where a typical home is affordable to a household making the median income are Pittsburgh, St. Louis and Detroit.
There are seven markets among major metros where a household’s income must be $200,000 or more to comfortably afford a typical home. The top four are in California: San Jose ($454,296), San Francisco ($339,864), Los Angeles ($279,250) and San Diego ($273,613). Seattle ($213,984), the New York City metro area ($213,615) and Boston ($205,253) complete the list.
Methodology
Quarterly median household income is taken from the American Community Survey (ACS) and Moody’s Analytics through 2022. Present-day estimates use quarterly changes in the Employment Cost Index provided by the Bureau of Labor Statistics (BLS) to chain ACS income to the current day.
Years to save for a 10% down payment is the number of years it would take the median household to save for a 10% down payment on a typical home in their metro, assuming a 5% annual savings rate.
Income needed to afford a home with 10% down is defined as the income needed to afford the total monthly payment on the typical home. The total monthly payment is based on the monthly mortgage payment, insurance, property taxes, and annual maintenance costs of the home.
Of course, tech town San Jose and San Francisco lead the nation in income needed to afford a typical home in a market. Los Angeles and San Diego are third and fourth, followed by Seattle. Pittsburgh PA has a lowest income to afford a home, probably because they signed Russell Wilson AND Justin Fields at QB.
Nike has made a pair of shoes fitting Biden’s international image.
Households have too much debt, thanks to trying to cope with Bidenomics and Bidenflation.
And much of the debt burden falls on the middle class.
Serious auto delinquencies are on the rise.
And lowest earners saw the biggest increase in credit card delinquenices.
And who voters prefer as of today? Trump on interest rates and personal debt.
In addition to the absurd idea of removing title searches for government-guaranteed mortgages (now rely on attorney opinions), the Biden Administration is considering a homebuyer tax credit … that likely won’t help much.
And if you want to see which lenders have the largest concentrations of commercial real estate (CRE) loans, BankOZK takes the cake as the most concentrated lender.
The more the Biden Administration tries to “help” make housing more affordable, paradoxically makes housing even MORE unaffordable.
Confounded Interest - Anthony B. Sanders 
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