Mortgage rates in the U.S. rose for a third straight week, reaching the highest point in almost two years.
The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.
Rates tracked a jump in yields for 10-year Treasuries, which climbed to levels not seen since early 2020, before the pandemic roiled financial markets. Signs point to borrowing costs rising further as the job market improves and the Federal Reserve steps up its efforts to tame inflation.
That would increase the burden on homebuyers who are already stretching to afford a purchase. Rates for 30-year mortgages tumbled to a record low of 2.65% a little more than a year ago.
Cheap loans have helped fuel a housing rally that’s still running hot even as home prices soar out of reach for many Americans.
But wait! The REAL 30-year mortgage rate (nominal 30-year rate – CPI YoY) is -3.59%.
Lael Brainard, Biden’s nominee to be Vice Chairman of The Federal Reserve, has been one of the “inflation is transitory” crowd. US Senator Toomey is questioning Brainard in today’s hearing. From Toomey’s opening statement:
Last year, Governor Brainard repeatedly insisted that inflation was transitory. We have now had nine consecutive months where inflation has been more than two times the Fed’s 2% target. That makes it pretty clear that inflation is not transitory. Yesterday’s CPI release of 7.0%—the highest in 40 years—confirms that.
Inflation is a tax that is eroding Americans’ paychecks every day. Even though wages are growing, inflation is growing faster and causing workers to fall further and further behind.
At least the REAL mortgage rate is negative!
I hope Senator Toomey shows Brainard this chart of “transitory” negative wage growth.
Negative wage growth and negative REAL mortgage rates. What a total mess!
Yesterday’s inflation report was the worst in 40 years. But at least today’s Producer Price Index Final Demand is down slightly from November. But PPI Final Demand YoY is still roaring at 9.7%.
The producer price index for final demand increased 0.2% from the prior month and 9.7% from a year earlier, Labor Department data showed Thursday. The annual advance was the largest in figures back to 2010.
Excluding the volatile food and energy components, the PPI climbed 0.5% in December and was up 8.3% from a year earlier.
Too much Federal government spending, too much Fed monetary stimulus, Omicron helping created labor shortages, etc. But the real killer has been ENERGY prices. Note that natural gas, gasoline and WTI crude oil were falling in November/December helping to slow PPI growth by a smidge. BUT energy prices are skyrocketing in January. So … look for higher PPI in January.
Here is the painting by Thomas Hart Benton that drove “Brokeback Biden” to try to destroy fossil fuel production. Or at least this is Washington DC’s idea of what Oklahoma and Texas are like.
(Bloomberg) — The Federal Reserve will likely raise interest rates four times this year and will start its balance sheet runoff process in July, if not earlier, according to Goldman Sachs Group Inc.
Rapid progress in the U.S. labor market and hawkish signals in minutes from the Dec. 14-15 Federal Open Market Committee suggest faster normalization, Goldman’s Jan Hatzius said in a research note.
“We are therefore pulling forward our runoff forecast from December to July, with risks tilted to the even earlier side,” Hatzius said. “With inflation probably still far above target at that point, we no longer think that the start to runoff will substitute for a quarterly rate hike. We continue to see hikes in March, June, and September, and have now added a hike in December.”
In its December meeting minutes, Fed officials signaled they are preparing to move quicker than the last time they tightened monetary policy in a bid to keep the U.S. economy from overheating amid high inflation and near-full employment. These conditions — along with a larger balance sheet that’s suppressing longer-term borrowing costs — “could warrant a potentially faster pace of policy rate normalization,” the minutes said.
Officials also saw the timing of reducing the $8.8 trillion balance sheet as likely “closer to that of policy-rate liftoff than in the committee’s previous experience,” according to the minutes.
While Goldman sees 4 rate hikes in 2022, The Fed Funds Futures market only sees 3 rate hikes and the Fed Funds target rates hitting 1% by Feb 2023.
An increase to 1%? The Fed Funds target rate hit 5.25% during the housing bubble in 2006/2007 and markets are worried about an increase to 1%??
So, Goldman thinks that there will be faster “run-off” than expected. This simply means that The Fed will allow Treasuries and Agency MBS to mature rather than actually sell securities.
With the expectation of Fed activity, z-scores for Treasuries are negative across the board.
So we shall see if The Fed Open Market Committee are hawks, doves or “birds of war.”
It looks like markets are buying into the prospect of The Federal Reserve raising rates three times (Bob) in 2022. And ceasing COVID monetary stimulus.
Today, the 10-year Treasury yield rose to PRE-COVID levels of 1.783%. And the Freddie Mac 30-year mortgage commitment rate rose to 3.22%, the highest since May 2020.
Today’s rising wage rates (although negative in terms of REAL wage rates) will likely put a Peruvian fire under The Fed’s behind. As of this morning, Fed Funds Futures are still pointing to three rate increases in 2022 (May, July and December).
And The Fed is supposed to be winding down the COVID monetary stimulus.
Why a Peruvian fire? Even Peru’s central bank is raising its key interest rate to 3% after soaring inflation.
Let’s see if Powell and The Gang follow through … or reveal themselves to be Peruvian Chickens.
“Some participants also noted that it could be appropriate to begin to reduce the size of the Federal Reserve’s balance sheet relatively soon after beginning to raise the federal funds rate,” the minutes said.
The S&P 500 stock index extended declines following the release and was on track for its biggest loss in more than a month. Treasuries also extended losses and the dollar pared its decline.
At the conclusion of the December meeting, the FOMC announced it would wind down the Fed’s bond-buying program at a faster pace than first outlined at the previous meeting in early November, citing rising risks from inflation. The new schedule puts the central bank on track to conclude purchases in March.
And with the minutes released, the Down dumped.
And the 10-year Treasury yield jumped 5.3 bps on the release.
When we look at the Buffett Indicator, we can see how The Federal Reserve’s loose monetary policies (or follycies) are driving up stocks to unsustainable levels that may not survive without The Fed’s “Do Ho Big Bubble Policies.”
How about the Shiller CAPE (Cyclically-adjusted Price/Earnings) ratio? While not up to dot.com levels yet, the Shiller CAPE ratio is climbing with the assistance of The Fed and their insane money printing.
I can’t wait to see how the equity market and housing market reacts IF The Fed actually follows through with reducing monetary stimulus. Probably not just adding more stimulus, just reinvesting the Treasury and MBS proceeds (aka, not shrinking the balance sheet).
The last mortgage purchase applications index from the Mortgage Bankers Association was released this morning. The headline is “Mortgage Purchase Applications Plunge 10% WoW (since the previous week). But this is called “Seasonality.” And it happens EVERY YEAR.
Here is a chart of mortgage purchase application (NON-seasonally adjusted). What will happen when the new year starts and purchase applications began rising?
Whether seasonally-adjusted or not, all number are down for the final week of 2021, except for the 30-year mortgage rate that rose 60 basis points.
On a seasonally-adjusted basis (aka, smoothed-out), we can see the impact of super-low mortgage rates on home prices.
Here is the data summary for the last week of December 2021. All indices are down … except for the 30 year mortgage rate which was up 60 basis points.