Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
Well, at least markets recovered yesterday (Dow up 500 points this AM) from the Russian invasion of Ukraine. But now on to other news.
US pending home sales fell -9.07% YoY as mortgage interest rates began rising.
The University of Michigan Buying Conditions for housing fell to 71 as mortgage rates increase.
It is not surprising that applications for a residential mortgage have crashed and burned after The Federal Reserve’s announced intentions to raise their target rate and trim the ballast in the economic tanks. But dang!
Mortgage applications decreased 13.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 18, 2022.
The seasonally adjusted Purchase Index decreased 10 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 6 percent lower than the same week one year ago.
The Refinance Index decreased 16 percent from the previous week and was 56.4 percent lower than the same week one year ago.
While the average loan size did not increase this week, it remained close to the survey’s record high.
What The Fed giveth, The Fed can taketh away. Let’s see if Thurston Powell The Great Magician can raise rates and NOT crash the housing and mortgage markets.
The S&P CoreLogic Case-Shiller National home price index remained HOT in December, growing at a 18.84% pace. M2 Money YoY is still smoking at 13.11%.
All 20 metro areas in the Case-Shiller 20 index grew at 10% or higher YoY with my former home city Phoenix leading the way at 32.5% YoY house price growth. Washington DC, aka Mordor on The Potomac, was in last place at 10.5% YoY.
In terms of active inventory of housing, only Phoenix and Columbus Ohio are showing positive growth in active inventory YoY. But even Phoenix and Columbus saw a decline MoM (or month-over-month).
Including Existing Home Sales Active listings in the first chart, we see The Federal Reserve continuing to pump money at at 13.11% clip while active inventory is at an all-time low.
This is nuts.
The Federal Reserve and Federal government are helping make housing simply unaffordable!
In January 2020, just prior to the COVID outbreak in the US, the Case-Shiller national home price index was growing at 4% YoY, the Zilliow rent index (all homes) was growing at 2.92% YoY and REAL average hourly earnings were growing at 0.52% YoY.
Then COVID struck and the Federal government dumped trillions of dollars of stimulus into the economy and The Federal Reserve massively expanded its balance sheet. Now the US has home prices growing at a 18.8% rate, rents (for those who can’t afford to purchase a home) growing at 14.91% and REAL hourly earnings growing at -1.80%.
The site Apartment List has an even bleaker view of rent growth, with rents in January 2022 having grown by 18% YoY.
Now that COVID is fading, we see New York City rents growing at 33.5% YoY followed by Florida and Arizona cities at 29.3% and higher rates. Irvine CA is seventh at 28%. The slowest growing city is Oakland, CA is growing at only 0.5%.
So, The Federal Reserve and Federal government have created their version of a horror film with even rents blowing out of control. And it’s getting weirder as inflation blows out of control.
Surprise! US existing home sales in January rose to 6.50 million units SAAR versus the expected 6.10 million units. That is a 6.7% increase over December.
The disturbing news is the continued lack of available inventory that peaked in Q4 2007 and has continued its decline to today … the lowest level of available inventory since 1981. Despite the Fed’s massive stimulus that they allegedly will take away. Median price of existing home sales rose to 15.4% YoY. Making homes affordable should NOT be a slogan for The Federal Reserve, the Biden Administration or Congress.
The massive Federal stimulypto (fiscal and monetary) has helped push existing home sales to 6.50 million units SAAR in January. What will happen after The Fed withdraws it stimulus??
What is surprising is that with declining REAL wage growth, we saw a surge in home buying in January.
Credit Suisse’s Zoltan Pozsar thinks The Federal Reserve needs to spark a market crash. Really Zoltan??
If The Fed does its expected “shock and awe” (or shock and awful), it will be more than the stock markets will crash. The housing market could crash too.
Take the current US housing situation with its limited inventory of listings combined with massive Fed stimulypto.
US 1-unit housing starts are down -4.1% in January. But heck, it is January! But on a year-over-year basis, 1-unit housing starts are down -2.4%. But what will happen if The Fed ACTUALLY withdraws its gargantuan monetary stimulus (green line)?
Existing home sales inventory continues to decline as Bankrate’s 30-year mortgage rate starts to climb with expectations of Fed “Shock and Awful.”
Say hello to The Federal Reserve Board of Governors!
Biden and The Fed have a seemingly never ending problem for Americans: Inflation.
Today, the Final Demand Producer Price Index (PPI) printed at 9.7% YoY.
Biden claimed inflation was caused by COVID. How about 1) Biden’s anti-fossil fuel policies combined with 2) excessive fiscal (Biden and Congress) and excessive monetary stimulus (Fed)?
The Fed held its behind-closed-doors meeting on Monday, but nothing has been released about what they discussed. Suffice it to say, they have left the staggering monetary stimulus in play.
I wonder if The Fed is concerned about a soft landing with proposed rate increases.
Call this “The running of the Bull(ard)s mouth.”
Federal Reserve Bank of St. Louis President James Bullard said he supports raising interest rates by a full percentage point by the start of July — including the first half-point hike since 2000 — in response to the hottest inflation in four decades.
“I’d like to see 100 basis points in the bag by July 1,” Bullard, a voter on monetary policy this year, said in an interview with Bloomberg News on Thursday. “I was already more hawkish but I have pulled up dramatically what I think the committee should do.”
Bullard’s plan involves spreading the increases over three meetings, shrinking the Fed’s balance sheet starting in the second quarter, and then deciding on the path of rates in the second half based on updated data. He said he was undecided on whether the March meeting should begin with 50 basis points, and would defer to Fed Chair Jerome Powell in leading the discussion. Powell, at a press conference in January, didn’t rule out the idea of such a move.
Bullard’s comments, along with the war drums along The Potomac about a Russian invasion of The Ukraine, are causing the 2-year Treasury yield to rise faster than the 10-year yield.
Resulting in a crashing 10Y-2Y curve.
The GINI measure of income inequality is at an all-time high as the purchasing power of the US Dollar is at an all-time low. Way to go, Federal Reserve and Congress!
What will The Fed decide at their emergency, closed-door meeting today? Nice transparency, Powell!
I thought the last inflation report of 7.5% inflation was bad. But then the Atlanta Fed updated their inflation measure for flexible prices. Flexible inflation, less food and energy, is roaring at 19% YoY!
Flexible prices are those prices that adjust rapidly. Along with commodity prices.
Speaking of rapid rises, take a look at the 2-year US Treasury yield since COVID struck in early 2020.
We did see 2-year Treasury yields generally correlated with The Fed Funds Target Rate … at least until COVID struck. Since mid-2020, The Fed Funds Target Rate remains at 0.25% while the 2-year Treasury yield is roaring back with fuzzy expectations from The Fed’s leadership.
The 10-year Treasury yield is not rising as rapidly as the 2-year Treasury yield, but it is hovering around 2%.
But Bankrate’s 30-year mortgage rate is rising like a comet, similar to the 2-year Treasury yield.
Rapidly rising inflation may cause anxiety attacks. Here is a cure: an emotional support honey badger!
The University of Michigan consumer survey is out for February. And an ugly survey is it! Buying conditions for housing fell to 71 as The Federal Reserve continues it monetary stimulypto!
Despite 7.5% inflation, The Fed continues its “Stimulytpo” monetary policy.
As the US Treasury 10Y-2Y yield curve is slipping into darkness.
US consumer confidence is the lowest in 10 years as the yield curve crashes.
Here is the POMO schedule just released by The Fed.
I am reminded of my roommate at University of Wyoming who played James Brown over and over and over again. Much like The Fed doing nothing to curb inflation. Until they finally do something with a crashing yield curve.
Confounded Interest - Anthony B. Sanders 
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