Existing Home Sales SOAR In Sept (6.54M Beats Expectation of 6.30M) As 30Y Mortgage Rates Hit All-time Low (2.80%)

More good news for the economy! And housing markets!

Existing home sales in September soared to 6.54 Million units (SAAR), higher than the expectation of 6.30 million units.

Existing home sales are exhibiting a V-shaped recovery.

As Freddie Mac’s 30Y commitment rate hits an all-time low.

Existing home sales hit a 14-year high! Thanks in part to tight inventories.

Median EHS prices hit an all-time high with near all-time low in inventory available for sale.

V-Shaped Recovery In Housing Starts/Permits To Build (1-unit Starts Up 8.52% In September)

The housing starts numbers for September were released this morning and point to a V-shaped recovery for housing markets. 1 unit starts were up 8.52% and permits to build were up 7.8%.

This is a V-shaped recovery for single family housing.

Unfortunately, there is no V-shaped recovery in 5+ unit multifamily housing.

But the overall economy is showing a distinct v-shaped recovery, according to The Atlanta Fed GDPNow forecast model.

Lenders Tighten Standards On Credit Cards To Beyond Financial Crisis Peaks

To quote Dean Martin, “Ain’t That A Kick In The Head.” Let ’em have it!

Net % of Domestic Respondents Tightening Standards on Consumer Credit Card Loans just rose to a level higher than that of the financial crisis.

Odd since US home prices are rising through the stratosphere and mortgage rates are at an all-time low. Essentially, homeowners will equity in their homes may have to turn to cash-out refis in lieu of using credit cards.

Yes, cash-out refis (white line) have grown as consumer credit tightens (yellow line).

Like the sailor said, quote, ain’t that a hole in the boat?

All Quiet On The Wall Street Front? US Bond Volatility Jumps, Stock Volatility Calm, Gold Vol Calm, US Dollar Swap Forward Rate Calm

With about two weeks to go until the U.S. election, volatility gauges for stocks and bonds are on different paths. The Cboe Volatility Index — known as the equity market’s “fear gauge” — has been relatively subdued this month in contrast to the ICE BofA MOVE Index, the Treasury market’s equivalent measure.

JP Morgan’s Global Credit Volatility premium index has soared since June while gold’s 3m implied volatility is calm.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF has leveled-out after rising from the Covid outbreak.

The US Dollar Swap forward rate has crashed with Covid and has laid flat ever since.

(A vanilla interest rate swap is an agreement between two counterparties to exchange cashflows (fixed vs floating) in the same currency. This agreement is often used by counterparties to change their fixed cashflows to floating or vice versa. The payments are made during the life of the swap in the frequency that is pre-established by the counterparties.)

US Public Debt Now Exceeds Economic Output, US Budget Gap Triples to Record $3.1 Trillion on Virus Relief (M2 Velocity Crashes To All-time Low)

This is a nightmare. A nightmare on Constitution Avenue.

(Bloomberg) — The U.S. budget deficit more than tripled to a record $3.1 trillion in the latest fiscal year on the government’s massive spending aimed at softening the blow from the coronavirus pandemic.

The increase brought the deficit as a share of gross domestic product to 16% in the year ending in September, the largest since 1945, a Treasury Department report showed Friday. At the end of the financial crisis in 2009, the ratio was close to 10% before slowly narrowing through 2015.

Investors have handed the government ultra-low borrowing costs to finance the spending, resulting in a 9% drop in federal interest payments during the year. But the national debt is now bigger than the size of the economy, and it could be almost double GDP by 2050 as an aging population places more demands on Social Security and Medicare, according to the Congressional Budget Office.

The risk is that in the long term, rising debt could end up sparking inflation and repelling investors if the market becomes too saturated. Federal Reserve Chair Jerome Powell and other officials say eventually the debt trajectory will need to be addressed, but now isn’t the time to worry because unemployment remains high and the pandemic has crushed many businesses, warranting further support for the economy.

While the central bank cut the benchmark interest rate to near zero in March and expects to keep borrowing costs very low likely for years to come, lawmakers remain deadlocked over additional fiscal aid ahead of the Nov. 3 election.

The report showed federal spending jumped 47.3% to $6.55 trillion in fiscal 2020, driven by increased outlays for unemployment compensation and small businesses that were approved by President Donald Trump and Congress. Government revenue declined 1.2% as receipts from individual and corporate income taxes fell.


Underscoring the massive fiscal relief efforts this year, the Treasury’s report showed $275 billion in outlays for federal additional unemployment compensation that included the now-expired $600 supplemental weekly jobless payments. Spending for state unemployment benefits totaled nearly $196 billion in the fiscal year.

Spending on national defense went from the second-largest outlay in fiscal 2019 to fifth in 2020 as pandemic-induced spending resulted in larger spending for income security, health and Medicare.

As Congress and the Administration continue the spending splurge, what are the odds that spending (and borrowing) will decline after Covid recedes? Especially with declining money velocity and exploding public debt.

Europe Extends Economic Shutdown, Equities Fall (Euro Stoxx had only one advances versus 49 declines)


(Bloomberg) — Londoners will be banned from mixing with other households indoors and Paris is set for a curfew, as European leaders struggle to cope with record new coronavirus cases around the region.

Prime Minister Boris Johnson’s government mandated tighter restrictions in the U.K. capital starting this weekend, while French President Emmanuel Macronwill confine residents of nine of the country’s biggest cities to their homes between 9 p.m. and 6 a.m. for four weeks from Saturday. German Chancellor Angela Merkel implored citizens to abide by distancing rules and avoid groups.

The varied approaches around Europe to deal with the disease have caused confusion and stoked unrest amid the pandemic-weary public, especially amid low hospitalization and death rates — which keep rising steadily.

Leaders have little recourse but to tell people to knuckle down. Johnson was adamant he did not want a second lockdown but now the prospect of a so-called “circuit-breaker” with schools closed for two weeks is in the air.

And like that, Euro stocks fell. Euro Stoxx had only one advances versus 49 declines.

Q3 GDP Forecast To Be 35.23% (Atl Fed), 14.07% (NY Fed), Q4 GDP Forecast To Be 4.820% (NY Fed)

The good news is that 1) Q3 GDP is forecast to be 35.23% (Atl Fed) or 14.07 (NY Fed) and 2) Q4 GDP is forecast to be 4.82%. Ok, not as YUGE as Q3 GDP growth, but still respectable.

The average QoQ Real GDP growth is 2.4% since 1984. So, 4.82% is still over 2x the average GDP since 1984.

A Farewell To ARMs: The Adjustable-Rate Mortgage Share Dwindles To 2% In Latest Mortgage Bankers Association Report)

Back in 2011, former HUD and Freddie Mac Chief Economist Michael Lea wrote an article entitled “Do We Need the 30-Year Fixed-Rate Mortgage?” We argued that plain vanilla ARMs (without teaser rates and other tricked-up products during the housing bubble) offered consumers advantages over fixed-rate mortgages (FRMs).

The answer to that question has just been answered: adjustable rate mortgages as a percentage of all mortgages has fallen to its lowest level since financial crisis and The Great Recession.

The reason? First, consumers flock towards FRMs when mortgage rates decline. In part, thanks to The Federal Reserve’s interest rate policies (as shown below).

Lea and I argued that there are certain advantages to ARMs for consumers (see paper at link), such as a lower mortgage rate on average.

Also, empirically mortgage rates on average fall negating the “fear factor” of mortgage rates rising on an ARM reset.

The latest mortgage applications volumes from the Mortgage Bankers Association shows that the ARM% has dwindled to 2%.

5/1 ARM rates (purple) are currently higher than fixed mortgages rates. The 15-year mortgage rate is the lowest.

Yes, it is A Farewell To ARMs, but not as Ernest Hemingway envisioned.

US Core Inflation Clocks In At … 1.7% YoY And Real Avg Weekly Earnings At 4.1% YoY, Rent Inflation Falls To 2.5% YoY (Taylor Rule Suggests Fed Funds Target Rate Of -0.51%)

Well, the Consumer Price Index less food and energy remain near the same level, 1.7133% YoY and is leading the Core PCE growth of 1.5934% YoY.

US Real Average Weekly Earnings YoY checked it at 4.1% YoY.

US CPI Urban Consumers Owners Equivalent Rent of Residences YoY fell to 2.5% YoY despite massive Fed intervention.

The Rudebusch variation of the Taylor Rule suggests that the Fed Funds Target rate should be at -0.51%.

On a side note, the US Dollar rose and gold got clubbed downwards.

Where Has All The Credit Gone? Credit Cards And Mortgage Availability Have Crashed

Where has all the credit gone?

Credit cards and other revolving debt has crashed during the Covid-shutdown recession, despite another expansion of The Fed’s balance sheet.

Yes, banks are tightening standards on consumer loans and credit cards.

Mortgage credit availability has crashed as well despite The Fed’s balance sheet expansion.

Over 50% of lenders are tightening credit standards for mortgage lending, even for GSE-eligilble mortgages.

Apparently The Fed’s spoonful of asset purchases hasn’t done anything to prevent the decline in credit availability to households.