The good news? Mortgage purchase demand fell only -0.05% from last week. The bad news? Mortgage purchase demand is down -35% since Resident Biden was sworn in. And mortgage refinancing demand is down a whopping -90%. Reason? Mortgage rates are up 128% under Clueless Joe.
Mortgage applications increased 0.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 16, 2023.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 1 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 40 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index decreased 0.1 percent compared with the previous week and was 32 percent lower than the same week one year ago.
And as Paul Harvey used to say, here is the rest of the story.
And the renter’s misery index, CPI for owner’s equivalent rent YoY + U-3 unemployment rate, is now a staggering 11.75% verus 6.78% in February 2020, the last month before the Chinese Wuhan virus led to economic and school shutdowns. And we have Donald Trump as President instead of this corrupt clown.
What is the difference between baseball legend Shoeless Joe Jackson and Clueless Joe Biden? While both sold out their teams for personal wealth, at least Shoeless Joe was good at baseball. Clueless Joe is a corrupt bully. Shoeless Joe was allegedly stupid, but so is Clueless Joe.
Well, not really unexpected since the housing sentiment index for home builders was above 50 yesterday. But with The Fed pausing rate hikes, housing starts are soaring!
US housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting residential construction is on track to help fuel economic growth.
Beginning home construction jumped 21.7% to a 1.63 million annualized rate, the fastest pace in more than a year, according to government data released Tuesday. The pace exceeded all projections in a Bloomberg survey of economists. Single-family homebuilding rose 18.5% to an 11-month high.
Applications to build, a proxy for future construction, climbed 5.2% to an annualized rate of 1.49 million units. Permits for one-family dwellings increased.
Metric
Actual
Est.
Housing starts (SAAR)
1.63 mln
1.4 mln
One-family home starts (SAAR)
997,000
na
Building permits (SAAR)
1.49 mln
1.425 mln
One-family home permits (SAAR)
897,000
na
The figures corroborate Federal Reserve Chair Jerome Powell’s comments last week that the housing market has shown signs of stabilizing. Homebuilders, which are responding to limited inventory in the resale market, have grown more upbeat as demand firms, materials costs retreat and supply-chain pressures ease.
The housing starts data will feed into economists’ estimates of home construction’s impact on second-quarter gross domestic product. Prior to the report, the Atlanta Fed’s GDPNow forecast had residential investment subtracting about 0.1 percentage point from gross domestic product. Homebuilding last contributed to growth in the first quarter of 2021.
At the same time, elevated mortgage rates are crimping affordability, suggesting limited momentum in housing demand.
The increase in starts from a month earlier was the biggest since October 2016 and reflected gains in three of four US regions. Starts of apartment buildings and other multifamily projects jumped more than 27%.
The number of homes completed increased to a 1.52 million annualized rate. The level of one-family properties under construction were little changed at 695,000.
Existing-home sales data for May will be released on Thursday, while a report on new-home purchases is due next week.
Now only has The Fed paused, but the most recent Fed Dots Plot reveals that Fed open market committee (FOMC) members see The Fed slashing rates over the coming years. Just in time for creepy, demented Grandpa Joe to be reelected as President. In other words, the return of ZORP (zero outrageous rate policy).
Maybe The Fed should adopt the Coca Cola slogan “The Pause That Refreshes!”
Between work at home, Bidenflation and The Feral Reserve, commercial real estate and regional banks are suffering … and it could get a lot worse. And Joe Biden (aka, Negan) in general. Living in Negan Country!
The work-from-home trend has been taking its toll on office landlords and is now making its way through to banks’ commercial loan portfolios, leading some analysts to predict that more trauma could be on the way for regional banks this year.
And in the current climate of bank failures, short sellers, and nervous depositors, banks with large exposures to commercial real estate (CRE) loans are racing to clean up and sell down their loan portfolios in hopes that they will not fall victim to another round of bank runs.
“There is an estimated $1.5 trillion of commercial property debt that will be due for repayment in about 18 months,” Peter Earle, an economist at the American Institute for Economic Research, told The Epoch Times. “It’s not improbable that even if interest rates have fallen by that time, some of that real estate debt will nevertheless be impaired and have an adverse impact on regional banks.”
In step with a recent trend in the CRE market, tech giant Google announced in May that it was attempting to sublease 1.4 million square feet of vacant office space in its Silicon Valley home base in order to “match the needs of our hybrid workforce.” Despite more employees returning to their offices this year, average office occupancy rates across the United States are still below 50 percent.
According to a report by Bank of America, 68 percent of CRE loans are held by regional banks. Approximately $450 billion in CRE loans will mature in 2023. JPMorgan Chase estimated that CRE loans comprise, on average 28.7 percent of the assets of small and regional banks, and projected that 21 percent of CRE loans will ultimately default, costing banks about $38 billion in losses.
Double Hit (of Biden’s Policies) Commercial mortgages are getting hit on two fronts: first, by the lack of demand for office space, leading to credit concerns regarding landlords, and second, by interest rate hikes that make it significantly more expensive for borrowers to refinance.
According to a June 12 report by Trepp, a CRE analytics firm, CRE loans that were originated a decade ago, when average mortgage rates were 4.58 percent, are now coming due, and in today’s market, fixed-rate CRE loan rates are averaging around 6.5 percent.
Banks that make CRE loans consider factors like debt service coverage ratios (DSCRs), which measure a property’s income relative to cash payments due on loans. Simulating mortgage interest rates from 5.5 percent to 7.5 percent, Trepp projected that between 28 percent and 44 percent, respectively, of currently outstanding CRE loans would fail to meet the 1.25 DSCR ratio today, and thus be ineligible for refinancing.
These calculations were done assuming current cash flows from properties stay the same and that loans are interest-only, but with vacancies rising, many landlords may have substantially less cash flow available. In addition, whereas interest-only CRE loans were 88 percent of the market in 2021, lenders are now switching to amortizing mortgages to reduce risk, which significantly increases debt service payments.
Refinancing Issues Fitch, a rating agency, projected that approximately one-third of commercial mortgages coming due between April and December of this year will be unable to refinance, given current interest rates and rental income.
“It’s a very different world now from the one in which the majority of these loans were made,” Earle said. “In a zero-interest-rate environment, before the COVID lockdowns saw many businesses shift to a remote work basis, many of these loan portfolios full of office properties looked great. Now, a substantial portion of them look quite vulnerable.”
The Trepp report highlighted several regional markets, such as San Francisco, where office sublease offers jumped 140 percent since 2020, and Los Angeles, where office vacancies hit a historic high of 22 percent. Available office space in Washington D.C. increased to 21.7 percent in the first quarter of 2023.
New York has been hit hard, as well. Office occupancy rates in New York City plummeted from 90 percent to 10 percent in 2020 during the COVID pandemic, but only recovered to 48 percent this year. Revenue from office leases fell by 18.5 percent between December 2019 and December 2022.
Vacancy Rates at 30-Year High Overall, according to a report by analysts at New York University and Columbia Business School, office vacancy rates are at a 30-year high in many American cities.
The report found that “remote work led to large drops in lease revenues, occupancy, lease renewal rates, and market rents in the commercial office sector.”
The authors predict that, even if office occupancy returns to pre-pandemic levels, “we revalue New York City office buildings, taking into account both the cash flow and discount rate implications of these shocks, and find a 44% decline in long run value. For the U.S., we find a $506.3 billion value destruction.”
As predicted, delinquencies in commercial mortgage loans are now creeping up. Missed payments in commercial mortgage-backed securities (CMBS) increased half a percent in May over the prior month to 3.62 percent, Trepp reports. The worst component of the CMBS market, which includes multi-unit rental buildings, medical facilities, malls, warehouses, and hotels, was offices, where delinquencies increased 125 basis points to more than 4 percent.
To put this in perspective, however, CMBS delinquencies exceeded 10 percent in 2012 and 2020. And analysts say that lending criteria for CRE have been more conservative than they were before the mortgage crisis of 2008, leaving more cushion on ratios relative to a decade ago.
All the same, the credit crunch at regional banks has created a vicious circle, where banks race to pare down their CRE portfolios, and the dearth of financing leaves more landlords facing default as outstanding loans mature. To make matters worse, commercial property values, which provide collateral for the loans, appear to be taking a hit as well.
In an effort to rapidly clean up their CRE loan portfolios and avoid the fate of failed banks like Silicon Valley Bank, Signature Bank, and First Republic Bank, banks are now attempting to sell off the loans, often taking a loss in the process.
In May, PacWest, a regional bank, sold $2.6 billion of construction loans at a loss. Citizens Bank reportedly has put $1.8 billion of its CRE loans up for sale during the first quarter of this year. Customers Bancorp reduced its CRE lending by $25 million and put $16 million of its existing portfolio up for sale.
Wells Fargo, one of the top four largest U.S. banks, is also downsizing its CRE portfolio, and in announcing the move CEO Charlie Scharf stated, “we will see losses, no question about it.”
“Between the Fed’s 500+ basis point hikes over the past 16 months and the failure of Silicon Valley Bank, and others, earlier this year, a credit tightening is already underway,” Earle said. “That has put a lot of pressure on regional lenders.”
A March academic study titled “Monetary Tightening and U.S. Bank Fragility in 2023” stated that the market value of assets held by U.S. banks is $2.2 trillion lower than what is reported in terms of their book value. This represents an average 10 percent decline in the market value of assets across the U.S. banking industry, and much of this decline came from commercial real estate loans.
Consequently, the authors wrote, “even if only half of uninsured depositors decide to withdraw, almost 190 banks with assets of $300 billion are at a potential risk of impairment, meaning that the mark-to-market value of their remaining assets after these withdrawals will be insufficient to repay all insured deposits.”
Okay, Joe Biden was generally regarded as the dumbest member of the US Senate and mean-spirited (I won’t repeat podcaster Joe Rogan’s opinion of Biden). Now we realize how brazenly corrupt Biden is (taking bribes from China and Ukraine to influence American poliicies). Not only is Biden an attrocious human being, but his policies have damaged the US middle class terribly thanks to inflation.
Federal Reserve policymakers are about to take their first break from an interest-rate hiking campaign that started 15 months ago, even as they confront a resilient US economy and persistent inflation.
The Federal Open Market Committee on Wednesday is expected to maintain its benchmark lending rate at the 5%-5.25% range, marking the first skip after 10 consecutive increases going back to March of last year. While officials’ efforts have helped to reduce price pressures in the US economy, inflation remains well above their goal.
Source: Bureau of Labor Statistics, Bloomberg
Investors’ focus will be on the Fed’s quarterly dot plot in its Summary of Economic Projections, which is expected to show the policy benchmark rate at 5.1% at the end of 2023.
By contrast, markets are pricing in the possibility of a quarter-point hike in July followed by a similar-sized cut by December, and some Fed policymakers have emphasized that a pause in the hiking cycle shouldn’t be seen as the final increase.
Fed Chair Jerome Powell, who’ll hold a press conference after the meeting, has suggested he favors a break from hiking to assess the impact both of past moves and of recent banking failures on credit conditions and the economy. His commentary will be scrutinized for hints of the committee.
Remember, there is still over $8 TRILLION in Fed assets held sloshing around the economy. The Fed never really removed the excess liquidity and it continues to stoke asset bubbles.
Bear in mind that The Fed is pausing at 5.25% Fed Target Rate, while the Taylor Rule suggests rate hikes to 10.12%. So, Foul Powell is pausing at just over the half way mark.
Of course, Biden’s and Congress’ massive spending spree is causing inflation, and The Fed has no control over Biden/Congress irresponsible spending.
Treasury Secretary Janet “Too Low For Too Long” Yellen, and former Federal Reserve Chair, is partly responsible for a phenomenon plaguing America: the death of starter homes.
As Mish has discussed, with main markets no longer an option for first-time buyers, Point2 looked at the country’s 100 largest secondary cities for the median price of a starter home and renter households’ median income. Defined as large non-core cities within a metro, these cities used to be fruitful house-hunting grounds for first-time buyers exploring less-expensive options away from main cities. But as it turns out, unaffordability can put a dent in homeownership plans regardless of city type or size.
In 41 of the 100 largest secondary cities in the U.S., renters earn half or less than half of the income they would need to buy a median-priced starter home.
There are no non-core cities in which renters could comfortably make a move toward homeownership: In 10 cities, the necessary income is about triple what they earn.
Would-be buyers in Burbank and Glendale, CA have it worst: They lack 67% of the income they would need in order to make the move from renter to homeowner.
Renters in 9 California cities would need to earn about $100,000 more in order to afford a starter home. Based on the latest renter income figures, starter home prices, and mortgage rates, non-core cities in the LA and San Diego metros are the toughest for first-time homebuyers.
In 15 of the 100 largest secondary cities, renters would need less than 4 months’ worth of extra income to afford the transition to owning a starter home.
Homeownership is within reach in Independence, MO, and Broken Arrow, OK. Those who dream of owning here would need less than one month’s worth of extra income to afford a starter home.
California Tops the List of Worst Places to Look
California has the dubious distinction of having the top least affordable starter home cities.
A starter home, according to the Census Department is priced in the bottom third of homes in the area.
Pomona, CA, is in fourteenth place. The average renter in Pomona makes $49,000 a year and needs to get to $121,000 a year. That’s nearly 2.5 times current salary.
In Burbank, CA, the average renter makes $63,000 year an needs to get to $193,000. That’s over 3 times current salary.
Within Grasp
In no market can the average renter make the plunge.
But in Independence, Missouri, or Broken Arrow, Oklahoma, the average renter is respectively just 2% and 5% short of the amount needed for a starter home
Not Shocking
None of this is shocking. It matches one one should expect looking at Case-Shiller home prices and mortgage rates.
The Fed wanted to produce inflation and it did. But for years the Fed did not even see the inflation because the manifestation of inflation was in asset prices, not the price of consumer goods.
Case-Shiller Top City Home Prices Decline From Year Ago for the First Time Since May 2012
Housing starts, like mortgage purchase demand, remains depressed compared to the housing bubble of the 2000s.
Now, will The anticipated Fed pause in rate hiking help? Not likely. The Fed still has over $8 trillion in monetary stimulus chasing assets. Too much Stimulypto.
Worsening conditions in the US mortgage-backed securities market are doing little to ease fears over financial contagion as a recession looms.
MBS current-coupon yield spreads over Treasuries are near the highest level since 2008 subprime crisis, as economic and political concerns weigh on performance, Erica Adelberg, a Bloomberg Intelligence strategist, wrote in a BI Chart Book. Mortgage-related exchange traded funds are seeing outflows, even as bond funds as a whole enjoy inflows. Applications for loans are near 25-year lows as the housing market languishes.
Use the GP tool for charting and run BI to search for research, data and chart books.
The top panel shows nominal current-coupon yield spreads are back near decade highs, surpassing those seen in the fourth quarter and reaching peak levels from the pandemic panic in March 2020. The bottom panel shows option-adjusted spreads are also wide, trading near two standard deviations of the average level, though slightly more in line than nominals, Adelberg wrote.
Primary mortgage rates are approaching historic highs versus Treasuries too.
Both the secondary mortgage spread to Treasuries (white) and the primary mortgage spread to secondaries (blue) have blown wider. That has increased the total spread between 30-year-fixed consumer mortgage rates and 10-year Treasuries (pink) to near financial-crisis levels.
Elevated spreads could make it harder for borrowers to find rate relief, even if Treasuries rally and secondary mortgage spreads tighten, Adelberg wrote.
Mortgage ETFs saw marginal outflows while bond funds as a whole continued to see inflows. To monitor ETF flows:
Flows into US aggregate bond ETFs are mostly positive this year, as investor demand has improved on higher yields. Agency MBS-specific ETF flows, however, are more muted, Adelberg wrote.
Loan applications remain near all-time lows, showing no signs of life yet.
Loan applications for refinancings and purchases are near 25-year lows as housing-market activity is still depressed, and most refinancings are uneconomical at current rates, Adelberg wrote. The 30-year fixed mortgage contract rate hovers around 6.7%.
Activity in the existing-home market continues to wane.
Single-family existing-home sales in April fell 3.5% month-over-month and are down more than 20% from a year ago. Existing-home median prices continued to decline as well, seeing their largest year-over-year drop since early 2012, though this may partly reflect the mix of homes purchased. Low existing homes for sale, with many homeowners locked into low-rate mortgages, are depressing resale activity.
MBS spreads may remain under pressure until the economic and inflation outlooks become more optimistic, Adelberg wrote on May 31.
White House and Republican negotiators tentatively narrowed differences but were still clashing Friday on key issues as the Treasury Department signaled extra time was available before a potential US default.
Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debts up until June 5 if lawmakers fail to act on the US debt ceiling. That set a more pointed date for a potential default but is also four days later than her previous comments eyeing trouble as soon as June 1.
The new so-called X-date buys negotiators for House Speaker Kevin McCarthy and President Joe Biden more time to strike a deal. The negotiating teams haven’t met in person since Wednesday but spoke late into the night Thursday and were in regular communication throughout the day Friday.
Yes, there isn’t really a crisis folks. Treasury collects tax dollars continuously so Treasury can prioritze debt payments and other disbursements. The only crisis is in the minds of the media.
Deputy Treasury Secretary Wally Adeyemo warned Friday that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.
We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”
The accord would also include a measure to upgrade the nation’s electric grid to accommodate sham renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.
The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act (big whoop). Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.
What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.
Treasury’s cash balance is at a low point and The Administration threatens Social Security recipients and veterans of delayed payments … while Biden goes on vacation for Memorial Day weekend to honor veterans??
Of course, Yellen know that all The Fed has to do to increase M2 Money growth again.
Meanwhile, bankrupties among large companies are highest since 2010.
In the mortgage market, current coupon nominal spreads 9Agency MBS 30Y coupon over Treasuries) are soaring.
Meanwhile, to honor US veterans, Biden goes on Memorial Day weekend and threaten veterans with delays in veteran benefits. Sigh.
Is Joe Biden REALLY Reverend Kane from Poltergeist II??
Reminder, the US already has $32 TRILLION in debt and politicians have promised $188 TRILLION in entitlement spending. yet we are sending billions to Ukraine, etc. Yet Biden is visiting Japan (hide your little girls, Hiroshima!) and Biden/Congress still haven’t solved the debt limit crisis and Biden’s insane budget yet. Meanwhile, Americans are suffering from Biden’s inflation (aka, Bidenflation) and bad economic policies.
As many as 89.1 million American adults (or about 38.5%) were found to experience some form of difficulty in covering expenses between April 26 and May 8, according to Bloomberg, citing new data from the Household Pulse Survey. This is up from 34.4% in 2022 and 26.7% during the same period in 2021.
The rising trend is alarming but not surprising. Consumers have been battered by two years of negative real wage growth.
As wages fail to outpace the cost of living, many consumers have burned through savings and resorted to credit cards. The latest revolving credit data shows consumers appear to be ‘strong,’ but that’s only because they use their plastic cards more than ever to survive.
The Household Pulse Survey found struggling households were primarily based across West Coast and the South.
Compared with the same period last year, the survey found 2.7 million more households were relying on credit cards to cover expenses.
Consumers have record card debt and ultra-low savings rates and are paying some of the highest borrowing costs in a generation (the average interest rate on cards now exceeds 20%). This debt is becoming insurmountable for some as delinquencies rise.
And what we have now is new debit and credit card data published by the Bank of America Institute that shows not just spending slowdown for lower-income consumers, but also the upper-income cohort is finally starting to crack.
However, it is appropriate that Biden is visiting Hiroshima Japan where a nuke was detonated to help end World War II.. Biden is doing the same to the US.
Confounded Interest - Anthony B. Sanders 
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