Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
As US/Russian tensions grow over Ukraine, The Federal Reserve may be forced to postpone or reduce planned rate increases and balance sheet trimming.
But in addition, we see US GDP slowing to near zero (1.285%) as the US Treasury 10Y-2Y yield curve has flattened to 41.684 BPS. The good news? Bankrate’s 30Y mortgage rate increases have slowed to 4.19%.
On a different note, I noticed the Chicago Bulls logo when turned upside-down looks like a space alien violating a crab.
The Federal Reserve and Federal government are helping make housing simply unaffordable!
In January 2020, just prior to the COVID outbreak in the US, the Case-Shiller national home price index was growing at 4% YoY, the Zilliow rent index (all homes) was growing at 2.92% YoY and REAL average hourly earnings were growing at 0.52% YoY.
Then COVID struck and the Federal government dumped trillions of dollars of stimulus into the economy and The Federal Reserve massively expanded its balance sheet. Now the US has home prices growing at a 18.8% rate, rents (for those who can’t afford to purchase a home) growing at 14.91% and REAL hourly earnings growing at -1.80%.
The site Apartment List has an even bleaker view of rent growth, with rents in January 2022 having grown by 18% YoY.
Now that COVID is fading, we see New York City rents growing at 33.5% YoY followed by Florida and Arizona cities at 29.3% and higher rates. Irvine CA is seventh at 28%. The slowest growing city is Oakland, CA is growing at only 0.5%.
So, The Federal Reserve and Federal government have created their version of a horror film with even rents blowing out of control. And it’s getting weirder as inflation blows out of control.
Surprise! US existing home sales in January rose to 6.50 million units SAAR versus the expected 6.10 million units. That is a 6.7% increase over December.
The disturbing news is the continued lack of available inventory that peaked in Q4 2007 and has continued its decline to today … the lowest level of available inventory since 1981. Despite the Fed’s massive stimulus that they allegedly will take away. Median price of existing home sales rose to 15.4% YoY. Making homes affordable should NOT be a slogan for The Federal Reserve, the Biden Administration or Congress.
The massive Federal stimulypto (fiscal and monetary) has helped push existing home sales to 6.50 million units SAAR in January. What will happen after The Fed withdraws it stimulus??
What is surprising is that with declining REAL wage growth, we saw a surge in home buying in January.
Credit Suisse’s Zoltan Pozsar thinks The Federal Reserve needs to spark a market crash. Really Zoltan??
If The Fed does its expected “shock and awe” (or shock and awful), it will be more than the stock markets will crash. The housing market could crash too.
Take the current US housing situation with its limited inventory of listings combined with massive Fed stimulypto.
US 1-unit housing starts are down -4.1% in January. But heck, it is January! But on a year-over-year basis, 1-unit housing starts are down -2.4%. But what will happen if The Fed ACTUALLY withdraws its gargantuan monetary stimulus (green line)?
Existing home sales inventory continues to decline as Bankrate’s 30-year mortgage rate starts to climb with expectations of Fed “Shock and Awful.”
Say hello to The Federal Reserve Board of Governors!
Jay “The Revelator” Powell has told us in The Fed minutes that The Fed is ready to raise rates and shrink the balance “soon.” Sort of like saying “Shock and Awe” is coming.
The minutes of the recent Fed Open Market Committee (FOMC) have been released. Yet they only mention “soon.” Just like when my wife asks me to take out the trash and I reply “soon.” At which point she realizes that I have no intention of doing it.
The REAL 10-year Treasury yield is now -5.44%.
And the 30-year mortgage rate has risen to 4.23% while the REAL 30-year mortgage rate has fallen to -3.7%.
Jay The Revelator sings “Soon!”
Another effect of The Federal Reserve’s reckless monetary policy coupled with Biden/Congress reckless spending is bad foreign policy. The US is exporting inflation around the globe.
US export price YoY is at 15.1%. The US is importing less inflation at 10.8% YoY.
Here is the export/import stack.
Things are not well in the US either. The misery index keeps rising under Biden’s Reign of Error.
The Federal Reserve keeps on printing!
The good news is that borrowers are continuing to apply for a mortgage. The bad news is that they are applying at a 7% slower rate than the same time last year.
Mortgage applications decreased 5.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 11, 2022.
The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 5 percent compared with the previous week and was 7 percent lower than the same week one year ago.
The Refinance Index decreased 9 percent from the previous week and was 54 percent lower than the same week one year ago.
Call this a double whammy! Red-hot rents combined with a slowing economy.
According to CoreLogic, single-family annual rent growth finished 2021 at a new record: 11.7% YoY for high tier rental properties and 10.4% YoY for low tier rental properties.
Of course, southern and southwest rental properties are seeing the fastest rent growth. Particularly Miami at 36% YoY. Phoenix is no slouch at 19% growth in rents.
Inflation is really ripping the insides out of America’s working class. Especially with real-time GDP slowing to 0.7%.
Double whammy, indeed!
The US 30-year mortgage rate broke through the 4% barrier. According to Bankrate’s mortgage survey, the 30-year mortgage rate is now 4.2%.
Even more interesting is the 5/1 Adjustable Rate Mortgage (ARM) rate falling slightly to 2.87%. That is quite a spread between the 30-year fixed and 5/1 ARM rates! That is 133 basis points.
Broken ARMs??
The University of Michigan consumer survey is out for February. And an ugly survey is it! Buying conditions for housing fell to 71 as The Federal Reserve continues it monetary stimulypto!
Despite 7.5% inflation, The Fed continues its “Stimulytpo” monetary policy.
As the US Treasury 10Y-2Y yield curve is slipping into darkness.
US consumer confidence is the lowest in 10 years as the yield curve crashes.
Here is the POMO schedule just released by The Fed.
I am reminded of my roommate at University of Wyoming who played James Brown over and over and over again. Much like The Fed doing nothing to curb inflation. Until they finally do something with a crashing yield curve.
Confounded Interest - Anthony B. Sanders 
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