Treasury And Mortgage Rates In A Never-Ending Balance Sheet World (REAL Mortgage Rates NEGATIVE With Skyrocketing Home Prices)

Headline! “Fed’s Kaplan says delta variant could cause him to rethink his tapering view”

Face it, the Federal Reserve may alter its growth path on asset purchases of Treasuries and Agency Mortgage-backed Securities, but it is doubtful that they will pare back their balance sheet. Call it “A Never-ending balance sheet for you” world.

Why? Seemingly never-ending Covid crisis, etc.

Let’s look at US Treasury yields today. The 10-year Treasury yield is up slightly to 1.25% as of 10am EST.

Here is a chart of the 10-year Treasury yield, Fed Funds effective rate, Fed Balance sheet and reverse repos since the Covid outbreak and Fed massive intervention. Bottom line, the have repressed the short-term interest rates and put downward pressure on the 10-year Treasury yield.

As the 10-year Treasury yield remains repressed DESPITE HIGHEST INFLATION RATE SINCE 2008, the Freddie Mac 30-year mortgage rate remains repressed as well. Yes, that mean NEGATIVE REAL MORTGAGE RATES.

This produces a REAL mortgage rate of -2.56%.

The spread of mortgage rates over the 10-year Treasury yield is about 173 basis point since 1971.

Where will Treasury yields go from hear? If we believe technical analysis like the Ichimoku Cloud, the 10-year Treasury rate will likely rise.

And The Fed’s Dots project also see rates rising (at least on the short-end.

Negative real mortgage rates and blistering home price growth?

Will the attendees at the KC Fed Jackson Hole conference discuss these matters? Or will it just be a Federal Reserve Soul Shake (dance)?

United Wholesale Mortgage Plans To Begin Cryptocurrency Transactions In Q3 (Lender Accepts Cryptocurrency For Home Loans)

From Phil Hall at Benzinga:

United Wholesale Mortgage UWMC has announced plans to become the first national mortgage lender to accept cryptocurrency for home loans.

What Happened: CEO Mat Ishbia previewed the Pontiac, Michigan-based company’s expansion into the cryptocurrency realm during the second-quarter earnings call on Monday.

“We’ve evaluated the feasibility, and we’re looking forward to being the first mortgage company in America to accept cryptocurrency to satisfy mortgage payments,” Ishbia said. “That’s something that we’ve been working on, and we’re excited that hopefully, in Q3, we can actually execute on that before anyone in the country because we are a leader in technology and innovation.”

In an interview with the Detroit Free Press, Ishbia offered more details on which cryptocurrencies would be considered in transactions.

“I think we’re starting with Bitcoin, but we’re looking at Ethereum and others,” Ishbia said. “We’re going to walk before we run, but at the same time, we are definitely a leader in technology and innovation and we are always trying to be the best and the leader in everything we do.

“That’s the plan,” he added. “Obviously there’s no guarantees – we’re still working through some details. But absolutely.”

Why It Matters: One of the first homebuying deals in the U.S. involving cryptocurrency took place in 2014 with the $1.6 million sale of land in Lake Tahoe for a home site. The transaction was completed with payment via Bitcoin (CRYPTO: BTC).

However, the heavily regulated and risk-averse mortgage industry hasn’t embraced cryptocurrency. The government-sponsored enterprises that dominate the industry’s secondary market, Fannie Mae FNMA + Free Alerts and Freddie MacFMCC + Free Alerts, will not accept any transaction in a digital asset.

If UMC plans to package its cryptocurrency-based loans for secondary market sale, the borrower’s cryptocurrency payment would have to be converted into dollars and the borrower would need to provide documentation to verify ownership of the digital assets as part of the loan underwriting process.

Mortgage Investors Flood the Fed With Bonds for Sale (Fed’s O/N Rev Repo Purchases Still Above $1 Trillion)

(Bloomberg) — Last week was notable for the tsunami of agency mortgage bonds offered to the Federal Reserve during its routine purchase operations on Friday.

The central bank’s quantitative easing schedule called for it to buy $2.9 billion of 30-year uniform mortgage bonds Friday, and that was nothing outside of its usual pattern. However, mortgage investors flooded the Fed with $15.06 billion of bonds for sale, the largest daily amount offered during a single operation since April 1, 2020.

In terms of how that compares to the total amount purchased, investors offered 5.2 times as much as were eventually taken down by the central bank. That is well above the 2.3 times average for 30-year uniform mortgage bond operations seen during all of this round of quantitative easing, and the second-highest overall. The highest submission ratio was the 5.5 times seen on July 16, 2020.

There are a number of reasons this could have happened. Investors may have wished to lighten their positions before the summer doldrums of late August, when many desks are lightly staffed due to vacations. Also, tight sector valuations or concerns about a sooner-than-expected taper may have played a part.

While this may simply be a one-off event and no reason for concern, it is certainly something to keep an eye on in case it heralds a change in investor sentiment.

In related news, the Treasury’s overnight reverse repos purchases remain about $1 trillion.

More Housing Inventory is Coming! 850,000 Borrowers Will Exit Forbearance Between August and October (Will The Fed And Biden/HUD/Congress Take Action?)

The ball is in the court of The Fed, the Biden administration (HUD) and Congress. Will they take action?

There will be more housing inventory hitting the market soon. As home prices are up and most are no longer in negative equity situations, some will decide to sell into this hot market. Obviously not paying your mortgage for 12, 14, 16, or even 18 months is a nice bonus that party is coming to an end.

Zillow’s research found that most are not going to bring their mortgage current. Assume someone took a forbearance and their monthly mortgage cost was $2,000 per month, some may be behind by up to $36,000 when the forbearance period ends. Okay, well what if you can’t make it current? You can defer the payments to the end of the mortgage but you still owe that and many got used to not even paying the regular monthly payment. So a sizable portion will be selling

Here is Black Knight’s Scheduled Forebearance Plan expirations.

Could this be the end of the 16.6% YoY growth rate in home prices? Or will Congress and/or The Biden Administration extend the forbearance? Or will The Fed expand their balance sheet even further??

Will the Biden Administration come to the rescue?

Consumer Sentiment in U.S. Plunges to Lowest Since 2011 (Good Time To Buy A Home Falls To 30% Share Due To Raging Home Price Growth)

U.S. consumer sentiment fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases.

The University of Michigan’s preliminary sentiment index fell by 11 points to 70.2, the lowest since December 2011, data released Friday showed. The figure fell well short of all estimates in a Bloomberg survey of economists.

Consumer sentiment in U.S. plunges on concerns about virus, economic prospects

The slump in confidence risks a more pronounced slowing in economic growth in coming months should consumers rein in spending. The recent deterioration in sentiment highlights how rising prices and concerns about the delta variant’s potential impact on the economy are weighing on Americans.

“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Richard Curtin, director of the survey, said in the report.

The expectations gauge plummeted almost 14 points to 65.2, the lowest since October 2013. A measure of consumers’ outlook for the economy over the coming year soured, falling the most since the onset of the pandemic in March 2020.

Only 36% of respondents expect a decline in the jobless rate, down from 52% the prior month, despite record job openings. Consumers also became decidedly downbeat about their income prospects. The gauge of expected personal finances fell to a seven-year low.

Rising prices are having a clear impact on Americans’ budgets, particularly among those with lower or fixed incomes. Nearly a third of those aged 65 or older complained that inflation had lowered their living standards, as did about a fourth of those with incomes in the bottom third or with a high school education or less.

The Michigan report showed buying conditions deteriorated to the lowest since April of last year.

Buying conditions deteriorate sharply for American consumers as prices soar

Yes, only 30% of respondents felt that it was a good time to buy a home. Particularly since home prices are rising at a 16.6% YoY pace, faster even than the peak of the infamous home price bubble of 2005. But this time, The Fed is blowing the bubble, not easy mortgage credit like in 2005.

Apparently, Treasury Secretary Janet Yellen does not inspire confidence in consumers.

Mortgage Purchase Applications Rise 1% From Previous Week, But Down 18% From Last Year Thanks To Unaffordable Home Prices

Simply unaffordable is what singer Robert Palmer would say. Homes, that is.

Mortgage applications increased 2.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 6, 2021.

The Refinance Index increased 3 percent from the previous week and was 8 percent lower than the same week one year ago. But recent declines in mortgage rates have produced a mini-refi wave (pink box).

The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 18 percent lower than the same week one year ago. But rapidly rising home prices have cooled mortgage purchase applications since the beginning of 2021.