The Thrill Is Gone from the US housing market as M2 Money growth fells to 0%.
US Existing Home Sales fell -1.5% from November to December (MoM) to 4.02 SAAR units sold. That translates to a depressing -34% decline since December 2021 (YoY).
On the positive side, these numbers are better than expected (-3.4% MoM expected). Still, these numbers are pretty dismal.
Existing home sales MEDIAN PRICE fell to $366.9k as M2 Money growth vanishes. And inventory of existing homes for sale remains lower than pre-Covid levels.
Let’s see what Powell and the Gang (aka, The Federal Reserve Board of Governors) does with interest rates going forward.
Today, the 10-year Treasury yield is up 7.1 basis points, but the real action is in Europe where sovereign yields are up 11.5 bps in France, 9.8 bps in Germany and 18.6 bps in Italy.
I watched Biden’s Press Secretary Karine Jean Pierre giving Biden credit for the lowest unemployment rate in US history thanks to his economic policies. And Biden mentioned that he inherited a terrible economy from Trump.
Hmmm.
Let’s let the data talk.
Covid was horrific (I almost died from it), but it was the government response to Covid there was disastorous. Government shutdowns (and the masking of the populace) killed off numerous small businesses and sent jobless claims soaring in 2020 (white line) and U-3 unemployment rate rose to the highest level since The Great Depression.
The response from The Federal Reserve was a massive printing of money (green line). And after governments stopped their economic shutdowns (coupled with massive money printing), we saw jobless claims and unemployment shrink rapidly BEFORE Biden took office as President.
The 1981 recession begat an epic borrowing of money by The Federal government (under House Speaker Tio O’Neill D-MA) and we saw another explosion in Federal debt under House Speaker Nancy Pelosi D-CA TWICE, once in 2009 following the financial meltdown and again in 2020 following the Covid economic lockdowns.
So does Trump get any thanks for the rapidly improving labor market before his ouster by Biden? Of course not. But who gets the blame for the staggering growth in Federal debt? House Speaker Nancy Pelosi.
The US did get positive wage growth under Biden, but due to inflation, American workers have experienced 21 straight months of NEGATIVE wage growth.
While Trump tried deregulation to free-up the US economy, Biden has consistently used regulation as a weapon of obidience. His slavish obidience to activist groups on the environment, which is a shame since temperatures have actually been coming down since 2016.
When you look at the data, Trump actually set in motion the jobs recovery, not Biden. Other than helping to create inflation, I can’t think of one positive thing Biden has done for the economy.
On an unrelated note, why is US FBI Director Chris Wray at the World Economic Forum in Davos Switzerland when there is a top secret document fiasco going on in DC and Delaware?
December’s housing construction numbers are a mixed bag. On the one hand, US housing starts are down -1.36% from November to December, but down -21,8% since December 2021 (YoY).
The good news? 1-unit (single family detatched) rose 11.26% from November to December (MoM). But 5+ (multifamily) starts are down -18.91% MoM.
But 5+ unit PERMITS are up 7.14%. Perhaps Hunter Biden can now rent an apartment rather than pay his father $50,000 a month in rent for Joe’s Wilmington Delaware house.
KB Homes experienced a 68% cancellation rate in Q4 2022.
This version of The Scream is one of four made by Edvard Munch, and the only one outside Norway. It is coming up for auction at Sotheby’s in New York.
Soft landing for the US economy? It is looking less and less likely. The bond market (10-year Treasury yield) just shed -14.1 basis points. As I always told my investments students, any 10 basis point shift in the 10-year Treasury yield is significant.
Let’s start wit the US business leaders survey of current conditions. It just crashed to -21.4
Then we have US industrial production, down -0.7% in December. And is up only 1.65% year-over-year as M2 Money growth stalls.
Capacity Utilization plunged more than expected to 78.7% (79.5% exp).
Biden claiming the US economy is strong is pure Fantasy Island.
Today, Jean Pierre annouced that Biden’s economic plans are working.
Mortgage applications increased 27.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 13, 2023. But mortgage applications are 60% lower than the same week last year.
The Refinance Index increased 34 percent from the previous week and was 81 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 25 percent from one week earlier. The unadjusted Purchase Index increased 32 percent compared with the previous week and was 35 percent lower than the same week one year ago.
Here are the stats.
One lender in particular, Wells Fargo, smells blood in the economic waters, and has cut back mortgage originations.
Just remember, mortgage applications generally rise in the first part of the year until May, then start slowing until the last week of the year. This is called seasonality. But despite the fast growth this year, purchase applications are still down -35% compared to last year at this time.
The Empire Strikes Out! No, not Klaus Schwab and the World Economic Forum, but the New York State Manufacturing index. For January, the index fell to -32.9.
Then we have Wells Fargo and their crashing mortgage originiations.
We got trouble in Potomac City! No, I’m not talking about the numerous Top Secret documents that Biden carelessly left in his garage in Delaware and the UPenn Biden Center. And they found more over the weekend. I’m talking about the US Treasury 10Y-2Y yield curve being inverted for 135 straight days. And thanks to inflation, REAL wage growth has been negative for 21 straight months.
All this is happening while M2 Money growth (green line) stalls to 0% YoY.
Swaps 5Y are rising as The Fed withdraws monetary stimulus.
As The Federal Reserves attempts to combat inflation, the withdrawal of monetary stimulus is creating problems in the housing market. For one, as mortgage rates have risen, newly listed homes declined -21% YoY in December.
And yes, the 2022 vintage is the worst in 6 years as The Fed counterattacks inflation. And mortgage rates rose to over 7% before calming down to around 6.50%.
I don’t think this is a record that Biden can run on for re-election: 21 straight months of NEGATIVE REAL WAGE GRWOTH. Fortunately for Fed Chair Jay Powell, he is not an elected official.
The December inflation report still shows elevated inflation in the US, but only -0.1% since November (MoM), but still high compared to last year (6.5% YoY). That is still over 3x The Fed’s target inflation rate of 2%.
While headline inflation fell to 0.1% MoM, CORE inflation (removing food and energy) rose again 0.3% MoM and 5.7% YoY.
What exactly went up in price in December? Food and energy were all over 10% YoY growth.
At 6.50% YoY headline inflation, the Taylor Rule suggests a Fed Funds Target rate of … 13.13%. Well, I guess that Powell will say there is more rate hikes to be done.
It is the start of a new year and, like clockwork, residential mortgage applications are rising (at least until May). But it is important to realize that purchase mortgage demand is down 44% from the same week last year (YoY). And refinancing mortgage applications are down 86% YoY.
Mortgage applications increased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 6, 2023.
The Refinance Index increased 5 percent from the previous week and was 86 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 47 percent compared with the previous week and was 44 percent lower than the same week one year ago.
You can see the beginning of the new year in pink outline, purchase apps up 47% since the previous week (WoW). But you can see the general decline in both purchases and refinancing applications YoY as M2 Money growth stalls.
Talk about seasonality! If you want to feel optimistic about the mortgage market, just look at the first week of 2023. Declining mortgage rates are helping fuel short-term mortgage demand.
Confounded Interest - Anthony B. Sanders 
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