Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The Freddie Mac 30-year mortgage rate is rising faster than a SpaceX moonshot!
I’m telling your now that The Fed is killing the dreams of millions of Americans by pricing them out of the housing market. Home price growth is lethal as is the increase in mortgage rates.
The Biden Administration and The Federal Reserve together should be called “The Cooler Kings” in that their policies are putting a Big Chill on the mortgage market and equities.
Mortgage rates are skyrocketing thanks to the Federal Reserve.
The 30-year fixed-rate mortgage averaged 5.27% for the week ending May 5, according to data released by Freddie Mac FMCC, -1.62% on Thursday. That’s up 17 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.
House price growth to wage growth is below the all-time high, but remains above housing bubble levels of 2005-2007.
The Refinitiv Venture Capital Index is down 53% since November ’21 as The Fed cranks up interest rates.
Well, at least commodities are soaring under “The Cooler Kings.” Pretty much everything else is sucking wind.
Home prices are actually falling in some cities, like Toledo Ohio, Detroit Michigan, Rochester NY, and Pittsburgh PA. Even La-La Land (Los Angeles CA) is seeing a drop in median listing price since 2021 of -5.0%.
The question, of course, is whether The Federal Reserve will back off its plans to aggressively raise interest rates in lieu of crashing stock market, venture capital, and possibly home prices.
This is Scorcher VI: Global Meltdown.
What happens when the massive Fed stimulus is gone? Its Already Gone … or going.
A measure of U.S. manufacturing activity unexpectedly dropped in April to the lowest level since 2020 as growth in orders, production and employment softened.
The Institute for Supply Management’s gauge of factory activity fell to 55.4 last month from 57.1, according to data released Monday. The Manufacturing Prices index remained elevated.
As the 10-year Treasury yield tries to breech the 3% barrier.
And as The Fed continues to threaten tightening of their monetary follicies, the S&P 500 index is down 14% since Dec 31, 2021.
And the NASDAQ had it worst monthly loss since 2008.
We now have the proverbial double whammy happening … soaring home prices AND soaring mortgage rates.
The theory is, of course, that The Federal Reserve will slowly remove its staggering monetary stimulus leftover from 1) the financial crisis of 2008 and 2) the Covid recession of 2020. As you can see, the sheer volume of monetary stimulus remains outstanding and it is the EXPECTATIONS of The Fed tightening that is caused the 30-year mortgage rate to rise.
So, The Federal Reserve is participating in The Great Reset by helping send mortgage rates to the moon. But with soaring mortgage rates and still red-hot home price growth, a typical buyer’s monthly payment is up 39% —the biggest annual gain on record.
While I used the Case-Shiller National Home Price Index YoY, Redfin shows more contemporaneous home price data with April 24 median home sales price at 16.8%.
Thanks to The Fed, we are seeing homebuyer mortgage payments are up 39.4% YoY.
As inflation continues to damage America’s middle-class and low- wage workers, we may see regulations going into effect from the Consumer Financial Protection Bureau protecting consumers from … themselves.
M2 Money stock YoY skyrocketed during the Covid mini-recession, peaking at 21% during February of 2021. The Dallas Fed manufacturing outlook grew to 38.1 in March 2021.
However, as M2 Money growth has slowed 11%, the Dallas Fed manufacturing outlook has plunged to near zero.
So, with the economy faltering (and REAL wage growth in negative territory), will The Fed reinstate its “Low Rider” interest rate policies?
The US Treasury 10Y yield is down -12.5 basis points (never a good sign as investors buy Treasuries in a flight to safety).
Crude oil is down below $100 again and is down -5.61% today on … problems everywhere. ALL metals are down.
Cryptos are getting clobbered today as well.
Between Biden’s “Going green!” policies and The Fed’s allegedly trying to fight inflation, markets are getting trashed.
Its Saturday and I am dreading markets opening on Monday. But here is where we sit today.
The 30-year mortgage rate has soared to 5.29%, the highest level since 2009 at the beginning of Obama’s Presidency. Since 2009, we have seen the purchasing power of the US Dollar decline further (orange line) while inflation (blue line) has soared. M1 (yellow) and M2 (green) has been growing since the financial crisis, but really took-off with the Covid outbreak in 2020 and The Fed’s massive overreaction coupled with Federal government stimulus.
Since the creation of The Federal Reserve System under President Woodrow Wilson, the purchasing power of the US Dollar has collapsed so much that $10 in 1913 in worth 34.8 cents today. But notice that since 1949, the CPI YoY has rarely been negative meaning that prices are pretty much only going up.
Instead of April showers bring May flowers, it is April expected Fed rate hikes (now 10.408 rate hikes by February 2023) bringing declining assets prices. In April so far, the S&P 500 index is DOWN 7%, the 10-year Treasury Note price is DOWN 5%, Bitcoin is DOWN 11%, the 3.5 coupon agency MBS price is down 3.2%.
We are seeing increased volatility in both the equity and bond markets.
Well, Powell and The Fed are hurling fireballs at mortgage rates and asset prices in April.
US President Biden went green and signed executive orders on his first day to limit oil and natural gas exploration of Federal lands and offshore (also, killed the Keystone Pipeline), helping to drive up energy prices and food prices. These orders begat inflation (also caused by the massive Covid relief by the Federal government). The highest inflation in 40 years begat The Federal Reserve signalling a tightening of Fed monetary policy … to fight the problem caused by The Fed in the first place … too much monetary stimulus for too long. Fiscal and monetary fanaticism and ignorance is forever busy and needs feeding
There was an interesting article on MarketWatch entitled “Bond rout exposes Social Security’s insanity.” The headline was “Every dollar of yours that’s invested in the Social Security trust fund is invested in low-yielding government bonds.”
Yes, another disastrous consequence of The Fed’s lax monetary policy since 2008, helping to push Treasury yields extremely low. And REAL Treasury yields into negative territory.
But here we sit today with The Fed threatening to trim their balance sheet and raise rates … to combat the inflation they helped create in the first place. Now we have the 10-year Treasury Note price falling like a paralyzed falcon with expected hate hikes going above rate hikes by February 2023 (based on Fed Funds Futures prices).
Most pension funds also invest heaving in US Treasuries, along with agency Mortgage-backed Securities (AgencyMBS).
Plus we have the Treasury curve slipping into darkness.
Speaking of “Slipping Into Darkness,” mortgage rates are soaring.
Meanwhile, Biden, Fed economists and Congress are merrily partying at some DC nightclub.
What is hip? NOT Biden, Pelosi, Schumer or Powell.
US existing home sales declined -2.7% MoM in March and are down -3.8% YoY.
The median price of existing home sales are still sizzling at 15.23% YoY while inventory available still remains MIA by historic standards.
While mortgage rates have been smoking, existing home sales growth slowed compared to February as the US begins its Spring/Summer buying season.
WHO is buying homes? There are considerably purchases by investors as of Q4 2021 taking advantage of Fed stimulypto.
There is one song that sums up the mortgage banking industry with proposed tightening of Fed monetary stimulypto: T-R-O-U-B-L-E.
Mortgage applications decreased 5.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 15, 2022.
The Refinance Index decreased 8 percent from the previous week and was 68 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 14 percent lower than the same week one year ago.
All together now, mortgage rates are up 76% under Biden.
And yes, The Federal Reserve STILL has its enormous foot on the monetary gas pedal (with hints that they will remove it “soon.”
The number of ARMs increased 14.9% from the previous week.
Between Bidenflation and Powell and the Gang tightening monetary policy, This One’s Gonna Hurt You (For A Long, Long Time).
People Get Ready! For The Federal Reserve to actually withdraw its massive stimulus.
I generally discuss that negative impact of rising mortgage rates on the housing market, but today I am focusing on the decline in agency mortgage-backed security prices due to rising mortgage rates.
Here is the uniform MBS price for a 3.5% coupon security. It is falling like a rock with anticipated Fed monetary tightening.
And duration risk is going to the moon! (That is, accelerating rapidly).
FNCL 3.5 coupon MBS has a WAC of 4.206 and a WAM (or WARM) of 359. Not to mention a factor 0.997.
At least energy prices are cooling thanks to China grinding to a halt with the latest Covid epidemic.
I wish The Fed would back off its allegedly ambitious tightening and soothe me.
But hold on, Powell and The Fed are coming with their sword of destruction.
Confounded Interest - Anthony B. Sanders 