Rent Crisis! 41% in U.S. Couldn’t Pay Rent November (Bank MBS Holdings Collapse With Fed Tightening)

Interesting story on Alignable.

Due to high inflation, reduced consumer spending, higher rents and other economic pressures, U.S.-based small business owners’ rent problems just escalated to new heights nationally this month, based on Alignable’s November Rent Poll of 6,326 small business owners taken from 11/19/22 to 11/22/22.

Unfortunately, 41% of U.S.-based small business owners report that they could not pay their rent in full and on time in November, a new record for 2022. Making matters worse, this occurred during a quarter when more money should be coming in and rent delinquency rates should be decreasing. But so far this quarter, the opposite has been true.

Last month, rent delinquency rates increased seven percentage points from 30% in September to 37% in October. And now, in November, that rate is another four percentage points higher, reaching a new high across a variety of industries.

All told in Q4 so far, the rent delinquency rate continues to increase at a significant pace, up 11 percentage points from where it was just two months ago.

Well, this is not good.

And on the mortgage front, not all is quiet.

Commercial bank holding of Agency mortgage-backed securities (MBS) has collapsed with Fed tightening and mortgage rate increases.

Ain’t that a lot of bad news for real estate and the mortgage market.

Existing Home Sales Update: REAL Median Home Price Growth At -1.17% YoY, REAL Wage Growth At -3.0% YoY, REAL 30yr Mortgage Rate At -0.5254% (How Bad Is US Inflation??)

The US housing market is slowing, to be sure. Yesterday’s existing home sales (EHS) report revealed that US EHS were down -28.43% YoY and the median price of EHS slowed to 6.6% YoY.

But that is just the surface of the EHS report for October. Once I removed inflation (CPI YoY) from the numbers, we are left with REAL median price of EHS growth of -1.17% and REAL average hourly earnings YoY of -3.0% YoY. The REAL 30-year mortgage rate is -5.25%. That reveals how horrible inflation is in the US.

It is important to note that EHS numbers are lower in October than they were before Covid stimulypto (my name for the massive spending spree by Congress and massive injection of monetary stimulus by The Fed. Even the REAL 30-year mortgage rate is negative at -0.5254%.

On a side note, how come fraudulent former Stanford student Elizabeth Holmes gets 11 years in prison for her Theranos scam, but Sam Bankman-Fried only gets a House hearing with Maxine “Dirty” Waters as Chair by losing a far greater amount? Could the fact that SBF and his co-founders at FTX contributed $300,351 to nine members of the House Financial Services Committee, according to Federal Election Commission records?

I guess Elizabeth Holmes did not make the requisite pay-offs.

Buying Typical US Home Now Requires Income of Over $100,000, Up 46% YoY (19 Straight Months Of Negative REAL Wage Growth Isn’t Helping)

Redfin had an interesting post where they showed that the “typical” US home now requires income of over $100,000.

Of course, it is easy to blame the figure on rapidly rising mortgage rates and Federal Reserve tightening.

But the rest of the story (as Paul Harvey used to say) is that US REAL wage growth has been NEGATIVE for 19 straight months. This alone makes housing unaffordable for the middle class and low wage workers.

Good day!

Again, why are Biden and Trudeau wearing Mao jackets in Bali? And why is Biden looking like a robot?? Biden does look like he is saying “Take me to my leader, Pei.”

US Treasury Yield Curve Slips Into Darkness (Implied Yield On 3M T-Bills In 18 Months – 3M T-Bill Yield Inverts) Slippin’ Into Darkness

The US economy is Slippin’ Into Darkness.

The Fed’s favorite yield curve measure, the implied yield on 3-month T-Bills in 18 months less the 3-month T-bill yield has inverted. Note that this curve inverts prior to a recession.

The new face of reckless Fed policy and Federal spending. 19 straight months of negative REAL earnings growth as America re-elects the same irresponsible fools that are turning the US into Venezuela.

The Gap! US Mortgage Demand Crashes As Fed Tightens (Taylor Rule Estimate Now 13.85% Versus 4.00% Current Target Rate)

The October Senior Loan Officer Opinion Survey on Bank Lending Practices came out yesterday and its a doozy.

The Net Percentage of Domestic Banks Reporting Stronger Demand for Mortgage Loans is sinking faster than Joe Biden’s oratory skills as The Fed tightens their monetary belts.

Jumbo mortgages, those that are greater than FHFA’s conforming loan limit, are tanking as well.

And today, the University of Michigan (BOOO!!) consumer survey for housing buying conditions fell to the lowest level in recorded history.

Given the latest inflation numbers (improving from disastrous, 8.2% YoY to really horrible, 7.70% YoY), and unemployment rate rising from 3.5% to 3.7%, we now see that Taylor Rule estimate for Fed Funds is now … 13.85%. The US is currently at 4.00%. THAT is a big gap!

Yes, The Fed will not be able to fill the gap between the Taylor Rule and the current Fed Funds Target Rate, without incredible damage being done.

Unfortunately, this is an ACTIVE FAILURE for The Fed which has left monetary stimulus too high for too long since late 2008.

On a personal note, I am glad the midterm elections are over. We saw John Fetterman arguing until he was blue in the face that he loved fracking and will continue to let Pennsylvania frack. Then PA governor-elect Josh Shapiro came out yesterday and said that PA will end all fracking. And we are to believe that Lt Gov Fetterman did not talk with PA Attorney General Shapiro about fracking? To quote Joe Biden, “C’mon man!”

Fed Is NOT Unwinding MBS, 30yr Mortgage Rate Falls To Under 7% (Will The Fed ACTUALLY Unwind Its Balance Sheet??)

Now that the midterm elections are over (except for counting of million of mail-in ballots, a massive moral hazard risk), President Biden has proclaimed that he isn’t changing any of his horrid policies. And apparently, neither is The Federal Reserve.

Despite the headlines that The Federal Reserve is rapidly downsizing its massive balance sheet of assets, The Fed is just letting their enormous holdings of mortgage-backed securities (MBS) run off. That is, just letting MBS mature. So, The Fed’s System Open Market Holdings of Agency MBS has barely declined.

Here is the table of MBS run-off. The mass of MBS doesn’t start to mature until … 2039. It is Treasuries that are maturing.

So, The Fed is raising its target rate rapidly, although that is likely to reverse course in the first half of 2022.

Meanwhile, mortgage applications fall to lowest level since 1997 with Fed tightening.

“So Mr Bond…let me tell you my plan for global domination.”

Terminal Velocity? Bank of England Raises Rates By 75 Basis Points, Biggest Hike in 33 Years (Follows US Fed Is Tightening, But Fed Still Slow To Shrink Balance Sheet As M2 Money Growth Collapses)

The Bank of England followed the Fed’s 75 basis-point increase with an equivalent hike on Thursday, but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. The pound fell 1.8% to $1.1183.

Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than previously anticipated sapped risk appetite. The dollar gained.

Futures on the S&P 500 fell 1% in the wake of Wednesday’s 2.5% drop. The selloff spread to Europe and Asia, where China’s affirmation of its Covid-Zero stance dashed hopes of a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. tumbled in premarket trading, while Etsy Inc. and EBay Inc. rose.

So, the BofE, Fed and ECB are back to 2008/2009 era central bank rates.

But the US Fed is slow to shrink its enormous balance sheet.

What happened to terminal rates in the US?

And M2 Money velocity (GDP/M2) seems terminal.

US 30Y Mortgage Rate Rises To 7.22% As Fed Combats Near 40-year High Bidenflation, BUT 10Y Treasury Yield DOWN -12 BPS This AM (US Treasury 10yr-3mo Curve Falling Further Into Inversion)

US 30-year mortgage rates are above 7% as The Federal Reserve slowly withdraws its Covid-related monetary stimulus and attempt to combat near 40-year highs in inflation under Biden (aka, Bidenflation).

However, the US Treasury 10-year yield is down -12 basis points this morning.

And we have an important predictor of recession, the Treasury 10yr-3mo yield curve.

And if the Republicans win The House (and maybe the Senate) at the midterms, Biden can blame Republicans for the recession.

Joe Biden, Hunter and Biden’s brother James must be singing “Damn, it feels good to be a Biden!

US Mortgage Rates At 7.20% As US Yield Curve 10YR-3MO Inverts (M2 Money YoY Lowest Since 2010)

As the midterm elections get close, the news for Americans gets worse.

On the housing/mortgage front, Bankrate’s 30-year mortgage rate (yellow line) just hit 7.20%, the highest since 2000. Also, the US Treasury 10yr-3mo yield curve (white line) inverted, historically a precursor to recession, before barely climbing back above 0%.

Meanwhile, M2 Money growth has collapsed to the lowest level since 2010.

US GDP numbers are due out at 8:30AM EST for Q3. The numbers are expected to show slow growth (around 2.4%) with rapid inflation (5.3%). While the GDP numbers are better than Q2’s numbers, they are still pretty lousy.

Pension Fund Blues! Agency MBS Prices And Mortgage REITs Declining As Fed Withdraws Monetary Stimulypto (Duration Risk Increasing)

Pension funds have long been investing in “safe” agency mortgage-backed securities.

But as The Fed does its “tighten up”, we are seeing agency MBS prices falling and duration risk rising.

I remember showing my Fixed-income class at Chicago and George Mason the “MBS doom chart” showing the perils of The Fed pushing rates so low that the risk of rising rates becomes a serious problem when rates start to rise. Well, here we are … after I have retired from teaching.

Note the double whammy of Fed rate increases and the gradual shrinking of The Fed’s balance sheet as The Fed withdraws it ample stimulus. But while The Fed was overstimulating markets, it was quite a rush.

But the rush is gone … for the moment. But “Feddie Krueger” is waiting in the wings to do it all over again!