The US housing market is facing stress thanks to The Federal Reserve’s “war on inflation.” As The Fed starts trimming its excess ballast and M2 Money growth YoY slows to the lowest since Pre-Covid, we are seeing housing markets like San Francisco beginning to experience declines in home prices.
According to Redfin, Oakland California is leading the nation in terms of declining sales prices at -15.1% over a 3 month period. Followed by Silicon Valley and San Jose at -12.7%. San Francisco is in third place at -11.2% (I will ignore Lake Havasu AZ since it is teeny but does have one of the London Bridges) and Austin TX is in 5th place at -9.7%.
As The Fed takes away the massive monetary punch bowl, mortgage rates have risen to the highest since November 2008. And with the withdrawal of monetary stimulus (raising Fed Target Rate), mortgage purchase applications have declined.
Here is a photo of The Federal Reserve fighting the housing and mortgage market.
The monetary noose tightens on the housing and mortgage markets.
Mortgage applications decreased 0.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 2, 2022. They are now the lowest since 1999.
The Refinance Index decreased 1 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 3 percent compared with the previous week and was23 percent lower than the same week one year ago.
At least the percentage of adjustable rate mortgages (ARMs) remained the same at 8.5%.
For the sake of the housing and mortgage market, somebody stop Powell and The Gang from tightening!
Joe Biden is the king of malaprops. But his press secretary is just as bad as her boss. Recently, she said that under Biden, there were 10,000 million jobs created. Better known as 10 BILLION jobs created. Not bad, considering that the total population of the US is 333 million. THAT is a hot labor market! /sarc
But seriously, the US U-3 unemployment rate is 3.7% in August, the lowest since Donald Trump was President and BEFORE the Covid outbreak. The Covid economic shutdown saw a surge in the unemployment rate to 14.7% in April 2020 that begat a huge spike in M2 Money growth (22% YoY in May 2022 (green line). Only now is M2 Money growth returning to Trump-era growth rates.
But as The Federal Reserve removes its hefty monetary stimulus, it is unlikely that the unemployment rate will remain low.
In defense of Biden’s press secretary, the US economy saw 10.247 million jobs added under Biden (although while technically correct, even MSNBC wouldn’t give Biden credit for job creation in his first several months as President. Check that. They probably would.
April 2020 saw a decline in US jobs of -20.493 million jobs thanks to the Covid economic shutdowns. BUT with the M2 Money surge, we saw +12.1 million jobs added between May and November 2020 under Trump. Then the US elected China Joe (or Beijing Biden) as President.
The economic shutdowns due to Covid were an economic disaster for millions. But the surge in M2 Money (supporting the various Federal spending programs and inflation) explains the surge in jobs added, not economic wizardry of Biden.
For some reason, Biden and his press secretary failed to mention that inflation is so bad that REAL average hourly earnings YoY are declining at a 3% pace.
And not surprisingly, job growth has accrued to big corporations and not small businesses.
(Bloomberg)Investors who might be looking for the world’s biggest bond market to rally back soon from its worst losses in decades appear doomed to disappointment.
The US employment report on Friday illustrated the momentum of the economy in face of the Federal Reserve’s escalating effort to cool it down, with businesses rapidly adding jobs, pay rising and more Americans entering the workforce. While Treasury yields slipped as the figures showed a slight easing of wage pressures and an uptick in the jobless rate, the overall picture reinforced speculation the Fed is poised to keep raising interest rates — and hold them there — until the inflation surge recedes.
Swaps traders are pricing in a slightly better-than-even chance that the central bank will continue lifting its benchmark rate by three-quarters of a percentage point on Sept. 21 and tighten policy until it hits about 3.8%. That suggests more downside potential for bond prices because the 10-year Treasury yield has topped out at or above the Fed’s peak rate during previous monetary-policy tightening cycles. That yield is at about 3.19% now.
Then we have Bankrate’s 30-year mortgage rate soaring on Fed intervention expectations.
Inflation? US inflation is near its highest in 40 years and the USDollar Plain Vanilla Swap was at 0.50 when Biden first took office as President and is now 3.371 (quite an increase!).
Here is an interesting chart of FNCL 2% Agency MBS.
Thanks to Federal Reserve increases in their target rate, the 30-year mortgage rate has risen above 6%.
What drives me crazy about The Fed is their failure to removed monetary stimulus following the financial crisis of 2008 when they dropped their target rate to 25 basis points (0.25%) and began assets purchases (orange line). The Fed raises their target rate only once during Obama’s Presidency but then raised rates 8 times after Trump was elected President.
Now we are seeing The Fed NOT shrinking their balance sheet in a meaningful way. However M2 Money growth YoY (green line) has slowed to 5.2%.
While it is a good thing that The Fed is FINALLY reducing some of the monetary stimulus in place since 2008, the bad thing is that mortgage rates are rising rapidly.
The Fed’s quantheads are predicted to resume easing in March 2023.
When we look at tomorrow’s US jobs report, it is important to acknowledge that 1) The Federal Reserve has not yet removed the Covid stimulus (green line) and 2) the ADP payroll jobs added was only 132k in August while non-farm payrolls jobs added in July was 528k. That is quite a spread!
(Bloomberg)The hotly anticipated US jobs report has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand.
Friday’s report is one of the last marquee releases Fed officials will have in hand before the mid-September policy meeting to help them decipher a complex economic and inflationary puzzle.
Forecasts call for a healthy, yet more moderate 298,000 gain in August payrolls and for the unemployment rate to hold steady at 3.5%, matching the lowest in five decades. Solid wage growth is also expected amid a persistent mismatch between labor demand and supply.
Such figures, in conjunction with a blowout July employment print, improving consumer sentiment figures and a surprise pickup in job openings, could be enough to push the Fed to raise borrowing costs by 75 basis points, extending the steepest interest-rate hikes in a generation to curb an inflation surge.
As of this morning, Fed Funds futures data is still pointing to The Fed Funds Target rate rising from 2.50% to around 4% by the March FOMC meeting. That is still a large jump of another 150 basis points anticipated.
When inflation is so bad that REAL wage growth is negative (-3.31% YoY), I would hardly call that a strong economy for the middle class and low-wage workers.
We also see that REAL home price growth (existing home sales median price YoY – CPI YoY) has slowed to only 2.23% YoY in July.
As The Fed tightens, it is only growing to get worse.
The ADP National Employment Report SA Private Nonfarm Level Change printed this morning confirming what most of us already knew … the US economy is slowing if not already in recession.
The ADP jobs added grew by only 132k in August as The Fed’s M2 Money growth slowed.
Since The Federal Reserve and Federal government overstimulated the economy when Covid surfaced in early 2020, The Fed’s balance sheet expanded to near $9 TRILLION which helped existing home sales median price YoY hit 25.2% in May 2021 but falling to 10.8% YoY in July 2022 as The Fed tightened rates.
It will be a monetary inferno if The Fed decides to actually unwind its $9 trillion balance sheet.
Confounded Interest - Anthony B. Sanders 
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