While the Fed’s Jackson Hole meeting is going on, the Mortgage Bankers Association released their weekly applications data. Mortgage purchase applications fell -1.6% from the previous week. But look at the following chart.
With smokin’ home price growth, we are seeing a decline in mortgage purchase applications.
But at least mortgage refinancing applications are up 9.27% from the previous week as the MBA contract rate fell from 3.11% to 3.01%.
Is The Fed paying attention? Or riding jackalopes in Jackson Hole?
John Burns consulting has this interesting chart showing a slight slowdown in home price growth. But HPI growth is still growing strong. At 17% YoY in June.
The Case-Shiller National home price index, growing at 14.6% Yo is lagged with reporting only as of April. But you can see the slowing M2 Money Stock YoY. Although M2 Money stock is still growing at a sizzling 13.84% YoY as of May.
So if John Burns is correct, then we should see an increase in the next Case-Shiller report for May, then a slight slowdown in Case-Shiller’s June report.
But if we look at new home prices (net of incentives), we see a 20% YoY price increase (Source: John Burns)
And the housing pump is primed with the lowest REAL 30-year mortgage rate since 1975.
I was reading the usual pundits talking about massive increases in housing coming onto the market, then I saw today’s existing home sales numbers from the National Association of Realtors.
US existing home sales were up 1.38% in June from May, but up 22.85% YoY.
But the scary numbers were median price of existing home sales YoY printing at +23.4% while EHS inventory increased to the highest level … in 2021 but 2021 is sill lower than anytime since 2000. Maybe July’s numbers will show that incredible spike.
Existing home sales were largely in the South, then Midwest, then West and finally the Northeast.
But look at distribution of EHS prices. Houses in the $100K-$250K range (green line) are rapidly vanishing while houses in the $500K-$750K (pink line) are rapidly increasing.
Is this the new normal for banking? A big 4 bank actually had a huge upside earning … on declining lending??
Yes, Wells Fargo had a 41.44% earnings surprise on July 14, 2021.
Wells Fargo Earnings Per Share (EPS) plunged during the March 2020 Covid outbreak, but has been recovering … in terms of EPS and share price.
Wells Fargo is seeing booming deposits (green) at virtually zero deposit rates while loans have fallen (green). The recent widening between deposit and loans is in the pink box while the general widening has taken place since Q4 2010.
Total loans to total assets (white) has been falling since The Financial Crisis and housing bubble burst.
Wells Fargo’s total risk based capital ratio dramatically increased after the financial crisis, as it did for all banks.
The University of Michigan consumer survey was released this morning and revealed that their consumer sentiment index fell to 80.8 (the index was around 100 prior to the Covid outbreak in March 2020).
Inflation expectations for the coming 12 months soared to 4.8%.
UMi buying conditions for housing has collapsed (but the measure is lagged one month). House price inflation is running at 14.59% YoY making housing less affordable. Hence, lower consumer sentiment for housing.
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell are slated to discuss the hot U.S. housing market and the risks it could pose to the financial system at a meeting with fellow regulators on Friday.
The aim of the closed-door session: To make sure the U.S. is not vulnerable to a crisis akin to the one it suffered more than a dozen years ago, when the bursting of a property-price bubble drove top banks to the brink of insolvency and the economy into a deep recession.
The meeting of the Financial Stability Oversight Council, or FSOC, that’s headed by Yellen will come on the heels of two days of testimony by Powell to Congress on the Fed’s semi-annual monetary policy report.
Inflation keeps rising and wage earners continue to suffer.
Today’s inflation print shows headline CPI YoY at 5.4% and core CPI YoY are 4.5%, the highest since 1991.
The problem is that real average hourly earnings printed at -1.7% YoY.
0.9% June inflation x 12 months = 10.8% Run Rate Inflation.
If we look at REAL house prices (FHFA HPI Purchase Only YoY – Headline CPI YoY) and REAL US average hourly earnings YoY, we can see a real problem created by excessive Fed money printing and Federal government spending. It is the proverbial “Devil In Disguise.”
Then we have the CPI Owners Equivalent Rent of Residences YoY printing at 2.3%. This compares with home prices growing at 15.7% YoY.
Surging house prices across much of the globe are emerging as a key test for central banks’ ability to rein in their crisis support.
Withdrawing stimulus too slowly risks inflating real estate further and worsening financial stability concerns in the longer term. Pulling back too hard means unsettling markets and sending property prices lower, threatening the economic recovery from the Covid-19 pandemic.
With memories of the global financial crisis that was triggered by a housing bust still fresh in policy makers minds, how to keep a grip on soaring house prices is a dilemma in the forefront of deliberations as recovering growth sees some central banks discuss slowing asset purchases and even raising interest rates.
Federal Reserve officials who favor tapering their bond buying program have cited rising house prices as one reason to do so. In particular, they are looking hard at the Fed’s purchases of mortgage backed securities, which some worry are stoking housing demand in an already hot market.
Here is a chart comparing REAL house price growth the the growth in the combined balance sheets of The Federal Reserve, the ECB and Bank of Japan.
And in the USA, we see that home prices are simply affordable for many (when we compare home price growth to hourly earnings growth). The bigger the gap, the more unaffordable housing becomes.
As folicymakers consider withdrawing monetary stimulus, consider the China’s declining credit impulse which could slow the global economic recovery.
The bottom line? Housing is getting simply unaffordable. Thanks in part to the Fed’s endless monetary stimulus, but also tight local zoning restrictions.
We also have migration trends, away states like California, Illinois and New York to states like Texas, Arizona and Florida.