As expected, US inflation surged from 7.0% in December to 7.5% in January.
REAL average weekly earnings growth YoY fell to -3.1%.
Energy prices YoY lead the wage (fuel oil UP 46.5% YoY). Used cars and trucks UP 40.5%. At least food is up “only” 7%.
At 7.5% CPI, the Taylor Rule suggests that The Federal Reserve should have their target rate be 18.90%.
At least CORE inflation is “only” 6% YoY.
How about rent CPI? The owner’s equivalent rent of residences rose to 4.09% YoY. Seems a little misleading since home prices nationally are growing at 18.81% YoY.
Fed Funds Futures data points to 6-7 rate HIKES over the coming year. BRACE FOR IMPACT!!
Yes, this is Powell’s famous chili recipe if The Fed actually starts to raise rates and pare back the balance sheet stimulus.
The Mortgage Bankers Association (MBA) released their weekly mortgage application survey this morning. Mortgage applications decreased 8.1 percent from one week earlier, for the week ending February 4, 2022.
The Refinance Index decreased 7 percent from the previous week and was 52 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 12 percent lower than the same week one year ago.
And mortgage refinancing applications are down 50% since the same week last week.
Here are the stats. Pretty much down across the board.
How bad is inflation in the USA? Try 18%, based on the Flexible Consumer Price Index.
The Flexible Price Consumer Price Index (CPI) is calculated from a subset of goods and services included in the CPI that change price relatively frequently. Because flexible prices are quick to change, it assumes that when these prices are set, they incorporate less of an expectation about future inflation.
Again, remember that Federal inflation numbers woefully undercount housing and rent inflation. For example, the Case-Shiller National Home Price index (as of November 2021) was growing at 18.8%.
The sad part is that inflation-adjusted average hourly earnings growth of all employees is crashing thanks to inflation.
This is a case of “Too much money” in the economy, courtesy of The Federal Reserve.
(Bloomberg) — U.S. inflation-adjusted consumer spending fell last month by the most since February, suggesting that Americans tempered their outlays amid the latest Covid-19 wave and the fastest inflation in nearly 40 years.
Purchases of goods and services, adjusted for changes in prices, decreased 1% from November, the Commerce Department said Friday.
The personal consumption expenditures price gauge, which the Federal Reserve uses for its inflation target, rose 0.4% from a month earlier and 5.8% from December 2020, the most since 1982. Unadjusted for inflation, spending fell 0.6%, while incomes rose 0.3%.
Yes, the PCE Deflator YoY rose to 5.8% as M2 Money Stock is growing at a 13.1% YoY clip.
REAL personal spending declined 1% in December as prices rose in part thanks to the 13.1% growth in M2 Money stock YoY.
Too much money! Time to slow down, Jay Powell! Stop sucking the life out people with inflation.
The Case-Shiller National home price index “slowed” to 18.81% YoY in November as The Fed continues its monetary stimulypto. Notice that The Fed is easing even when there is limited inventory available. Result? Hideous home price inflation.
Which metro area is growing the fastest, making housing even more unaffordable for renters? Phoenix AZ is growing at a 32.2% YoY clip while Washington DC is the slowest growing metro area at 11.1% YoY. The second faster growing metro area in Tampa FLA.
Phoenix AZ is growing at the fastest rate in the nation as The Fed still has its monetary stimulus at FULL SPEED AHEAD.
The banner headline is … US existing home sales declined 4.6% MoM in December. But that isn’t the interesting news. The interesting news is the mystery of the missing housing inventory. While various pundits told us that inventory would be returning … it isn’t. And the median price of existing home sales is up 14.85% YoY with insane Fed stimulus still in play.
That was December. What will January bring with rising mortgage rates? Freddie Mac’s 30-year commitment rate rose to 3.56% today.
When will housing inventory for sale start to increase? Probably about the same time The Fed ACTUALLY starts raising interest rates and paring back on the monetary stimulus.
Massive Federal stimulus (both fiscal and monetary) have led to bidding wars among the wealthiest Americans. Despite clamoring for The Fed to increase rates and speed-up the shrinking of The Fed’s balance sheet, nothing has happened … yet.
(Bloomberg) — Home buyers willing to spend almost a $1 million are competing the most for a piece of the red-hot U.S. housing market.
Homes priced between $800,000 and $1 million saw the highest rate of bidding wars at 64.6%, followed by 62% for homes between $1 million to $1.5 million and 61.7% for homes above $1.5 million, according to December data from Redfin Corp.
“Buyers should anticipate that they may not win a house until their sixth or seventh bid,” Candace Evans, a Redfin team manager in New York, said in a statement. “If you’re the type of person who falls in love with a house, this is not your market.”
Salt Lake City had the highest bidding-war rate of 37 U.S. metropolitan areas analyzed, with 74% of offers facing competition in December, the firm said. Tucson had a 73.1% bidding-war rate and followed by 71.1% for San Diego.
Prospective buyers are competing for homes as relatively cheap mortgage rates and a proliferation of remote-working opportunities in the wake of the Covid-19 pandemic boost demand for homes in smaller cities. The number of available homes in several of the hottest markets continue to shrink.
Nearly 60% of home offers written by Redfin agents across the U.S. faced competing bids in December, the firm said. It was the lowest rate in 12 months but an increase from 54% in December 2020 as pandemic-driven demand for housing remains strong.
Vacation homes, which are often pricey and have increased in popularity due to Covid-19, may have contributed to bidding wars in the high-end market, Redfin said. Townhouses had a bidding-war rate of 62% followed by 61.3% for single-family homes, the firm said.
Now its a race against the clock as potential home buyers try to beat Powell and the Gang as they raise mortgages rates.
Yes, Federal stimulus has made the top 1% increase their share of total net worth that includes $800,000+ homes.
Now we have people like JPMC’s Jaime Dimon speculating about 7 rates increases in 2022 and other bankers speculating about a faster than expected withdrawal of the The Fed’s monetary stimulus in the form of asset purchases, we have to anticipate what the result will be in markets.
Like what will happen to housing starts if and when the stimulus is removed.
Today, we saw 1-unit housing starts fall 2.25% from November to December, but multifamily (5+ unit) starts rise 13.7%.
Of course, home price growth of near 20% YoY combined with declining REAL hourly earnings points to more multifamily housing and less single-family detached housing.
Here is the rest of the story, as Paul Harvey used to say. 5+ unit permits are up 19.9% in December while 1-unit permits are up 1.99%.
The 10-year Treasury Note yield rose to 1.869% this afternoon as Freddie Mac’s 30-year mortgage commitment rate rose to 3.45%.
And if you like The Fed Funds Futures data, it is pricing in 4 rate hikes by The Fed (March, June, September and December). For a grand total of … 100 basis points or 1%.
By keeping rates soooo low for soooo long, The Fed has committed a serious policy error. Or as Kevin Malone calls it, “The Fed’s Famous Chili!”
Confounded Interest - Anthony B. Sanders 
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