Simply Unaffordable! Fannie Mae Multifamily Financing Grew 23% … While Home Prices Grew 19.1% And Real Hourly Earnings Fell -2.36% (Rising Mortgage Rates Make The Affordability Problem WORSE)

Mortgage Orb has the tantalizing headline: “Fannie Mae’s Financing for Multifamily Affordable Housing Grew Over 23%.” At first, this sounds amazing … until you realize how simply unaffordable housing is much of urban/suburban America.

If you look at the following chart, you can see multifamily (5+ unit) starts remain elevated (pink box) which is not surprising given that home prices at growing at 19.1% YoY nationally (orange circle) and REAL hourly earnings have declined (yellow triangle) thanks to reemergence of inflation after 40 years.

Then we have the humming dragon, rising mortgage rates, that will reduce housing affordability even further.

Home ownership has become simply unaffordable much like steaks. Doctor, doctor (Yellen), we got a bad case of unaffordable home ownership.

UMich Housing Sentiment “Rises” To 83 As Inflation Hurting Retail Sales (Industrial Production Declines -0.3%)

That Bidenflation is really hurting Americans.

Start with the UMich Buying Conditions for Houses. It “rose” to 83. Unfortunately, 100 is the baseline and any number below 100 is bad. The reason? The massive increase in US home prices since 2020.

But retail sales are hurting thanks to higher prices. Retail sales less food services and auto are DOWN 3.1% MoM.

Meanwhile, US industrial production fell to -0.3%.

Mortgage Rates in the U.S. Soar to the Highest Since March 2020 (3.45% Nominal Rate, -3.59% REAL Rate)

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!

Waiting For Godot: US Inflation Jumps To 7% YoY As Real Hourly Earnings Growth Crashes To -2.32% (Taylor Rule Now 17.84% Versus Current Fed Funds Target Rate Of 0.25%)

This is like the Samuel Beckett play “Waiting For Godot.” Except we are waiting for Jerome Powell and The Federal Reserve to do something.

December’s consumer price index (CPI) is out and its a doozy, though expected. The CPI year-over-year (YoY) rose 7% in December.

If we exclude food and energy, CPI rose by 5.5% YoY.

Thanks to Biden’s assault on the energy sector, energy prices are up nearly 50% YoY.

REAL average hourly earnings YoY? It has crashed to -2.32%.

And with 7% inflation, the Taylor Rule model suggests a Fed Funds Target rate of … 17.84%. Bear in mind that the current target rate is 0.25%.

Meanwhile, grocery store shelves remain empty like we are living in Venezuela. Bidenzuela??

Meanwhile, we are waiting for ~~Godot~~ Powell to start taking action instead of jawboning.

Home Ownership More Affordable Than Renting in Majority of U.S. Housing Markets (Except Where I Live, Of Course)

According to Attom, US home prices are growing faster than rents in nearly 90 percent of the nation; but prices are still more affordable in almost 60 percent of U.S. markets; Renting remains more financially viable in most-populous urban areas.

If we look at Attom’s map of affordability, you can see that in western states, it is more affordable to rent. And in megalopolis (Boston, New York, Philadelphia, Washington DC). And Miami. But elsewhere in the eastern states, it is more affordable to buy than to rent.

Of course, any where I live like Phoenix, Fairfax VA, Chicago IL, and Columbus OH it is more affordable to rent than to own.

You will notice that the areas where buying is more affordable than renting tend to be smaller towns with slower growth, while larger cities tend to be more affordable to rent.

Is ARKK A Dog? ARRK Innovation ETF Down 46% Since Fed 12 (BARKK?)

Is Cathie Wood’s flagship fund a dog? Maybe she should rename it BARKK.

ARRK Innovation ETF is down 46% since Feb 12, 2021.

And this year? Same ETF, same dog.

The ARK universe should be renamed the BARK universe.

Way to go Cathie!

10Y Treasury Yield Climbs To 1.783% As Mortgage Rate Hits 3.22% (Highest Since May 2020) As Soaring Nominal Wage Growth Hits

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.

Slowing! US November Jobs Report: Real US Average Hourly Earnings DECLINE -1.71% YoY (Only 199K Jobs Added Vs 450K Expected)

The November jobs report is out and the highlight is that US Average Hourly Earnings GREW at a rate of 4.7% YoY. Unfortunately, inflation is still raging resulting in REAL US Average Hourly Earnings DECLINING at a rate of -1.71% YoY.

REAL US home price growth is slowing and is at 12.856% YoY as REAL average hourly earnings slowed to -1.7094% YoY.

The lowlight of the November jobs report is that only 199K jobs were added versus the 450K jobs expected to be added. At least the unemployment rate fell to 3.9%.

WHERE we the jobs added? Leisure and hospitality led the way! Hey bartender.

Yes, REAL wage growth and REAL home price growth are slowing.

Real Estate Hedge Against Inflation? Housing And REITs Did Better Than Inflation, NCREIF Not So Much

Now that inflation has reared its ugly head, how can investors protect themselves against the ravages of inflation?

Back in 1977, Fama and Schwert showed that housing acted as a hedge against inflation. Over the past year as inflation has reached its highest levels in 40 years, home prices have outpaced inflation by 19.08% to 6.8%.

How about real estate investment trusts? The NAREIT all-equity index rose by 35.6% YoY while inflation rose at 6.8%. The S&P 500 index rose 28.9% YoY.

Of course, the NAREIT all-equity index has a beta of 1.276.

How about the NCREIF All-property commercial real estate index? For Q3, the NCREIF property index rose by 5.22%, less than the most recent inflation reading of 6.8%.

So for the past year, housing has beaten the pants-off inflation, REITs have earned a higher return than inflation, and the NCREIF index seems to be rising slower than inflation (but with its lag problems, I anxiously await the Q4 numbers which should be higher.

Tiny Or BIG Bubbles? Buffett Indicator, Shiller CAPE At Dangerous Levels Thanks To Fed And Their Champagne Policies

The Federal Reserve Open Market Committee meeting should have a Lawrence Welk bubble machine operating, particularly for their announcements.

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.

How about house prices? The Case-Shiller National home price index is far above the level last scene during the housing bubble of 2005-2007. Again, with a little help from The Federal Reserve.

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).

Speaking of Lawrence Welk and his Champagne Music Makers, watch the blazing-hot electric guitar work worthy of Steve Morse or Jimmy Page in this video.

Here is the new logo for The Federal Reserve.