Under President Biden’s Reign of Error, inflation is the highest in 40 years. But Powell and The Fed are still overstimulating the economy, and Congress is contributing to the inflation disaster with short-sighted political policies and spending (flooding the economy with stimulus spending helping to drive up prices). Even Democrat US Senator Elizabeth Warren gets it.
Here is Biden’s inflation scorecard in one chart. Under Inflation Joe, foodstuffs are up 58%, gasoline is up 72%, diesel fuel is up 154%, and green energy element Lithium is up 645% (no wonder electric car manufacturer Telsa is raising their prices 10%). Of course, The Federal Reserve keeps on expanding its balance sheet, UP 50.3% under Inflation Joe.
House price growth is up 69% and the 30-year mortgage rate is UP 83.3% and currently is at 5.28%. The orange line is the growth path.
Yes, prices have risen even more after Russia Invaded Ukraine on February 24, 2022. But most of the inflation was baked-in prior to the Russian invasion. Sorry Jen Psaki, but you are wrong about inflation being all Putin’s fault.
There is one song that sums up the mortgage banking industry with proposed tightening of Fed monetary stimulypto: T-R-O-U-B-L-E.
Mortgage applications decreased 5.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 15, 2022.
The Refinance Index decreased 8 percent from the previous week and was 68 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 14 percent lower than the same week one year ago.
All together now, mortgage rates are up 76% under Biden.
And yes, The Federal Reserve STILL has its enormous foot on the monetary gas pedal (with hints that they will remove it “soon.”
The number of ARMs increased 14.9% from the previous week.
We have Federal Reserve of St Louis President James “Bully” Bullard saying that The Fed could raise rates by 75 basis points in May, the Japanese Yen to Dollar is crashing as mortgage rates continue to soar.
Here is a nice summary of The Fed’s massive balance sheet expansion in reaction to Covid (orange line) and the resulting soaring of home prices. Then The Fed signals that they will remove the “punchbowl” and mortgage rates have boomed. And not in a good day.
Today we have the US housing starts report. In a nutshell, 1-unit housing starts (single-family detached) declined -4.4% YoY as mortgage rates skyrocket.
5+ unit (aka, apartment stats rose 7.49% MoM in March while 1-unit starts declined by -1.72% MoM. 1-unit permits fell by -4.81% MoM while 5+ units starts rose by 10.89% MoM.
Soaring home prices coupled with soaring mortgage rates equals … apartment living.
Bear in mind that The Fed STILL have massive monetary stimulypto outstanding!!
The book and movie “The Big Short” revolved around the 2005-2007 housing bubble driven by lending to borrowers with subprime credit (and little or no underwriting). As we know, Bear Stearns, Lehman Brothers and other investment banks too large positions in subprime asset-backed securities (SABS) that became highly toxic once the demand for high-yield subprime ABS dried up. The decline in US home prices coupled with soaring 90-day mortgage delinquencies led to the failure of Bear Stearns and Lehman Brothers along with Fannie Mae and Freddie Mac being put into conservatorship by their regulator.
Fast forward to today. Mortgage originations by credit scores of 620 or less have shriveled while home price growth YoY is even higher than the subprime mortgage crisis of 2005-2007. So, is the US facing another “Big Short” scenario? Yes and no.
The answer is no in that lenders have tightened their credit box sufficiently so that investment banks are no longer buying large quantities of subprime credit paper. The answer is yes if we consider that the current housing bubble is fueled by extraordinary monetary stimulus due to Covid (as well as rampant Federal government stimulus spending).
Following the Federal Reserve of Dallas’ lead, here is a chart of REAL home price growth YoY against REAL average hourly earnings YoY. I added REAL Zillow house rents YoY as well.
Look at the affordability gap during the Subprime Bubble of 2004-2006 and then the Fed Bubble of 2020 to today. Both bubbles show a disconnect between REAL home prices and REAL wages. REAL Zillow home rents are not as high as REAL home price growth, but still how a huge gap in rent affordability.
So, what can upset the apple cart? How about Jay and The Gang jacking up mortgage rates making home affordability even worse (unless it slows home price growth).
Thanks to The Fed’s propose quantitative tightening, mortgage rates are soaring and mortgage costs along with them. Mortgage costs, thanks to The Fed driving up housing prices AND mortgage rates, are substantially higher than during the subprime mortgage housing bubble.
The Fed’s whipsaw approach helped crash home prices during the subprime mortgage crisis by dropping rates too fast at first (helping to ignite a housing bubble) then raising rates too fast (helping to crash housing prices).
WASHINGTON (AP) — Long-term U.S. mortgage rates continued to climb this week as the key 30-year loan rate reached 5% for the first time in more than a decade amid persistent high inflation.
The average 5% rate on the 30-year mortgage was up from 4.72% last week, mortgage buyer Freddie Mac reported Thursday. The average rates in recent months have been showing the fastest pace of increases since 1994. By contrast, a year ago the 30-year rate stood at 3.04%.
The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, jumped to 4.17% from 3.91% last week.
Yet The Federal Reserve’s balance sheet keeps on growing.
Today, the US Treasury 10-year yield exploded upwards by over 12 basis points. With it, the 30-year mortgage yield is above 5%. And MBA Mortgage Purchase Applications are actually increasing.
Harry Truman once uttered the phrase “The buck stops here.” Joe Biden’s catchphrase should be “It’s Russia’s fault!”
Well, all roads led to Joe and Jay. Here is a chart of Producer Price Index (Final Goods) prices YoY, now the highest in history. At least, gasoline prices are declining to $4.083 (they were $2.40 when Biden was installed as President). But inflation is out of control and the 30-year mortgage rate is now 5.14% (mortgage rates were 2.82% in February 2021 just after Biden took control).
Just in case you wonder why I follow Fed Funds Futures data so closely.
Equity markets are up strongly today as markets sense a weakening in resolve by The Federal Reserve (number of expected rate hikes dropped at 10AM EST).
It appears that we have a “Powell in the headlights” problem.
As the US Treasury 2-year yield hits 2.507% (up from 0.128% when Biden was installed as President) and the number of Fed rate hikes over by February 2023 hits 9.6, Bankrate’s 30-year mortgage rate breached the 5% mark at 5.04%.
The most recent data from on existing home sales show YoY sales in negative territory as The Fed begins in monetary fireball tightening.
St Louis Fed’s Bullard said The Fed is “behind the curve.” Ya think??
The Fed’s minutes from the most recent meeting indicates that The Fed will shedding $95 billion a month from it swollen balance sheet. At almost $9 trillion mostly populated by Treasuries will be the first asset to run-off the balance sheet (there is almost $1 trillion of Treasuries maturing in 2022 and $856 billion maturity in 2023, etc), The Fed plans to shrink the balance sheet while, at the same, raising The Fed Funds target rate from it near zero levels.
The Federal Reserve has ignoring rules like the Taylor Rule since the financial crisis of 2008-2009, but seemingly are paying attention to the Taylor Rule because of 7.9% inflation. The Taylor Rule is suggesting a 20.42% Fed Funds target while the current target rate is 0.50%. Now THAT would be a real shock to the economy.
Federal Reserve Governor Lael Brainard said the U.S. central bank will continue to tighten policy methodically and shrink its balance sheet at a rapid pace as soon as May.
Brainard’s hawkish remarks sent bond prices crashing and 10Y bond yields up over 16 bps.
While Bankrate’s 30Y mortgage rate is down slightly today, the surge in the 10Y and 2Y Treasury yields could push mortgage rates above 5% by tomorrow,
Even Europe is feeling Brainard’s wrath. Italian 10Y sovereign yields are up almost 20 bps.
The NASDAQ index is down 300 points on Brainard’s utterance.
Gee thanks Lael from all us wanting to finance the purchase of a house.
Confounded Interest - Anthony B. Sanders 
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