US home prices were growing at a near 20% YoY rate for the latest Case-Shiller National home price index report. But mortgage rates have soaring like a SpaceX missile shot.
Of course, I am moving to one of the metro areas in the USA where closed sales fell only -1.10% YoY in April: Columbus Ohio. I should move to San Diego CA where closed sales fell -21.4% YoY.
Of course, the US still suffers from lack of available inventory for sale.
April new listings are down -5.7% YoY. Columbus Ohio didn’t change from April ’21. San Diego is down -18.4% YoY for new listings.
Rising mortgage rates? Inflation? What a total fiasco.
Mortgage rates have increased dramatically under “Middle Class Joe” as The Federal Reserve attempts to choke-off inflation caused by … The Fed coupled with Biden’s energy policies (hope you are enjoying those high gasoline and diesel prices!) and the Federal government’s staggering spending spree under Pelosi, Schumer and McConnell.
Thus far, The Federal Reserve has leveled-out out their Treasury Note and Bond purchases, increased their Agency Mortgage-backed Securities (AgMBS) holdings, but strangely have reduced their holding of Treasury Inflation-Protected Securities (TIPS) in the face of rising inflation.
And while The Fed Funds Target rate is a lowly 1%, it is projected to rise to 2.890% by the February 1, 2023 FOMC meeting. That should send mortgage rates up.
As if mortgage rates haven’t skyrocketed already, thanks to The Fed’s jawboning about having to raise rates and extinguish inflation.
With sizzling mortgage rates (cooling a bit as the global economy slows), home mortgage payments have risen +43.4% YoY.
Now we have President Biden trying to scare us about the Monkey Pox, yet leaves the southern border wide open. One would think that Biden would shut the borders (as if the surge in Fentanyl, sex trafficking and other diseases aren’t reason enough. But I do predict another massive spending bill from Biden/Congress to combat Monkey Pox and the resurgence of Covid variants.
Meanwhile The Fed jawbones fighting inflation with monetary tightening in the future, even if they jawboning causes mortgage rates to soar and mortgage payments to spiral.
We have a double whammy facing investors, The Federal Reserve wanting to take away the monetary punch bowl and Federal energy policies that are crushing middle-class households and lower-wages workers.
But how do you hedge against The Federal Reserve tightening and Biden’s reckless energy policies?
Take a look at investing in commodities (S&P GSCI Commodity-Indexed Trust and the Bloomberg Commodity Index) versus the S&P 500 Total Return index since The Fed began signaling that they would take away the monetary punch bowl.
Yes, commodities like food and gasoline/diesel prices are up dramatically under Biden’s energy policies (not to mention the USA’s proxy war with Russia).
The Fed seems determined to remove the Fed “Snake juice” from the economy.
The US economy us approaching recession as inflation soars and expected growth declines.
Food and energy prices are soaring, hitting middle class and low-wage households like a hammer. While the headline inflation rate is 8.3% YoY, food is up 63% under Biden and gasoline is up 92%.
The 10-year Treasury note yield is down today, which bodes well for 30-year mortgage rates.
The Dow, S&P 500 and NASDAQ are all down over -1% today.
The inflation that is crushing Americans is due to energy and food price increases. That is, the non-core inflation. Under Biden, food is up 63%, gasoline is up 92% and diesel prices are up 112%. But The Fed doesn’t consider food and energy prices, per se.
If we look at the Taylor Rule considering fighting inflation including food and energy, The Fed would have to raise their target rate to … 21.38%.
Now, The Fed can clearly cool-off the housing market by raising rates. In fact, my fear is that they go too far and crash the housing market. The Fed will NEVER get to 20% again like we last saw under Volcker in 1981. 20% rates certainly cooled home prices back then and Fed rate hikes helped crash the housing market in 2008.
So, when The Fed says they want to be the inflation-fightin’ Fed, we must be aware what The Fed can and cannot do. They can’t tame the inflation beast in the form of food and energy prices (unless they crash the economy), but they can crush home prices.
Seriously, with soaring energy prices and soaring EVERYTHING prices (except for real wage growth), it is difficult to see how the US will avoid a recession.
Yes, everything is seemingly rising in price, yet REAL average hourly earnings growth keeps falling. Rising price + declining real earnings growth = eventual recession.
Goldman Sachs Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.”
I am not surprised. Take a look at The Fed’s Overnight Reverse Repo operations. As inflation surged in 2021 and 2022, banks are parking more funds at The Fed. Fear?
We are seeing the S&P 500 futures down today after a nice rally on Friday. The &P 500 forward 12-month P/E ratio is back to pre-Covid, pre Federal spending surge, pre Fed monetary Stimulypto of 2016.
Goldman Sachs see the 10-year Treasury yield rising to 3.3%. That bodes ill for 30-year mortgage rates, perhaps push mortgage rates up another 40 basis points to 5.80%.
Foodstuff are up 61.5% under Biden’s Reign of Error. Gasoline prices are up 85.8%, diesel prices are up 111%. Yet the government inflation index (aka, CPI) is up only 8.3% in April.
But while energy and food prices are soaring, the CRB Spot Metals Index has plummeted -15% since May 4 as Covid is ravaging the Chinese economy. Recession alter anyone?
And then we have soaring home prices and rents. But notice that Zillow’s Rent index is slowing down as mortgage rates soar.
We have a stalling Chinese market, down 28% since October. Is Biden President of China??
On the currency front, the Russian Ruble is soaring relative to the US Dollar while the Chinese Renminbi, the Japanese Yen and the Euro (or in this case, the Gyro) are sinking like a rock.
If I compare the Russian Ruble and Ukrainian Hryvnia, you can see Ukraine is losing the currency war with Russia.
Inflation Inferno thanks to Biden’s misguided energy executive orders and cancellation of Alaskan and Gulf of Mexico drilling leases.
Biden’s economic mismanagement team: American Gothics Treasury Secretary Janet Yellen and Fed Chair Jay Powell.
In the two-pronged attack out of Washington DC, The Federal Reserve is tightening their monetary policy in an effort to combat 40-year highs in inflation (caused by excessive Federal spending and Biden’s ill-advised energy policies), causing residential mortgage rates to soar 93.4% under Biden’s Reign of Error.
It is almost like the Biden Administration and The Federal Reserve are engaged in an economic demolition derby to see who can cause the most destruction to America’s middle class and lower-wage workers.
We should call the current administration and The Federal Reserve “Demolition Men.”
Call this “Nobody’s Everything.” Crytpocurrencies are getting clobbered. But then again, the S&P 500 is not doing so well. But crypto stalwarts Bitcoin and Ethereum have down even worse.
At the dollar strengthens, Bitcoin has gotten pummeled.
But at least Bitcoin rose this morning along with Bitcoin Cash. And XRP. But the others are getting clobbered.
Confounded Interest - Anthony B. Sanders 
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