Bizarro World! How the Fed Destroyed the Housing Market and Created Inflation in Pictures

Thanks to Mish (Mike Shedlock) for this wonderful piece!

The Fed erroneously does not consider rising home prices as inflation. Here’s the result in pictures.

Case-Shiller national and 10-city home prices vs CPI, Rent, and Owners’ Equivalent Rent

Chart Note

Case-Shiller measures repeat sales of the same home over time. This ensures an accurate comparison of room size, yard size, and amenities. The only drawback is the data lags a bit. The most current data is from July representing transactions in May and June.
OER stands for Owners’ Equivalent Rent. It’s the price of rent one would pay to rent one’s own house, unfurnished without utilities.

For 12 years, home prices, OER, Rent, and the overall CPI all rose together. That changed in 2000 with another trendline touch in 2012. Then it was off to the races as the Fed did round after round of QE, suppressing mortgage rates.

Case-Shiller Home Price vs Hourly Earnings, the CPI, and Rent

Case-Shiller national home prices vs CPI, Rent, and Average Hourly Earnings.

As with the previous chart, for 12 years, home prices, rent, the overall CPI and hourly earnings all rose together. That changed in 2000 with another trendline touch in 2012.

How Much Are Homes Overpriced?

If the 12-year trend of home prices rising with average hourly earnings stayed intact, the home price index would be 211, not 308.

From that we can calculate home prices are ((308-211) / 211) percent too high, roughly 46 percent too high. If you prefer, home prices would need to fall ((308-211) / 308), roughly 31 percent.

Alternatively, if home prices stagnate for years, wages may eventually catch up.

Case-Shiller Home Price 1988=$150,000

The same home that cost $150,000 in 1988 now costs $678,366. But wages have gone up too. And mortgage rates have had wild swings.

Mortgage Payment and Wage Adjusted Mortgage Payment

The Least Affordable Mortgages in History

Factoring in wage growth, home prices, and mortgage rates, homes are the most expensive ever.

It’s actually much worse than the chart indicates because property taxes and insurance are not factored into.

Mortgage Rates

Mortgage Rate chart courtesy of Mortgage News Daily.

Through massive and totally unwarranted QE, foolishly hoping to create more inflation, the Fed suppressed interest rates to record lows and mortgage rates followed.

Anyone with an an existing mortgage could and did refinance at 3.00 percent or below.

This increased “affordability” and we now have two classes of people courtesy of the Fed: winners and losers (existing home owners who refinanced low and those who want to buy).

Mortgage Application at 30-Year Lows

Refinance Index courtesy of Mortgage News Daily

Please note Mortgage Application Volume Nears 30-Year Lows

“Mortgage rates continued to move higher last week as markets digested the recent upswing in Treasury yields. Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week, up to and above 7.53 percent – the highest rate since 2000,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.”

What About the Winners?

Good question. The winners refinanced at 3.0 percent or below. This put extra money in their pockets every month to spend.

And rising wages further stimulated ability of the winners to buy goods and services.

Thus the Fed is still paying for its asinine push to create inflation.

Meanwhile, the housing market is dead and will remain dead with mortgage rates approaching 8.00 percent.

What About Rent?

That’s another good question. For 24 months or so, economists have been predicting an ease in rent inflations.

On September 13, I noted Consumer Price Inflation Jumps 0.6 Percent Led by Energy and Shelter

The price of gasoline rose 10.6 percent, rent another 0.5 percent, shelter, 0.3 percent, and new cars 0.3 percent leading the way for a 0.6 percent increase in the CPI in August.

The price of rent has gone up at least 0.4 percent for 25 straight months. Not to worry, Paul Krugman says this is lagging.

When Will Record Housing Units Under Construction Ease Rent Inflation?

On October 2, I asked When Will Record Housing Units Under Construction Ease Rent Inflation?

That’s really a trick question. For a better question, remove the lead “when” from the sentence.

The answer is: I don’t know, nor does anyone else, although people claim to be clairvoyant.

Housing Units Under Construction vs CPI Rent Year-Over-Year

Housing units from Census Department, Rent CPI from BLS, chart By Mish

I saw the theory that rent would collapse as soon as housing units get completed so many times that I almost started believing it myself.

However, the data shows no discernable correlation no matter how you shift the lead or lag times.

The chart looks totally random. So perhaps rent abate. Perhaps not. The data itself provides no reason to believe anything.

Regardless, please note the floor. Year-over-year rent has a floor of about 2 percent except in the Great Recession housing crash.

And these charts are not imputed Owner’s Equivalent Rent prices for which people pay no actual rent. These charts reflect rent of primary residence.

34 Percent are Screwed

Well, don’t worry. Only 34 percent of the nation rents, and besides, rent is lagging.

Sarcasm aside, the Fed blew huge asset bubbles and did not see that as inflation. Nor did the Fed see that three massive rounds of fiscal stimulus would cause inflation.

Real Income and Spending Billions of Chained Dollars

Note the three rounds of massive fiscal stimulus in the Covid pandemic. This triggered the most inflation since the 1970s. Economists debate how much “excess savings” still remains.

For discussion of excess savings, please see Excess Pandemic Savings, How Much is Still Unspent?

The Fed never saw this coming, never saw a housing bubble in 2007, and has never once predicted a recession.

Heck, former Fed chair Ben Bernanke denied a housing bubble and denied a severe recession that had already started.

Expect More Inflation Everywhere

Unfortunately, Biden is doing everything humanly possible to stoke inflation with EV mandates, natural gas mandates, union pandering, student debt forgiveness, and regulations, some of which is blatantly unconstitutional.

As a result, Fed Rate Interest Rate Hike Expectations Are Still Higher for Even Longer

Looking to Buy a Home?

If you are looking to buy your first home and need to finance, good luck.

The longer the Fed holds rates high, the longer the housing transaction crash lasts. But cutting rates will further expand the housing bubble, asset bubbles in general. And bubbles are destabilizing.

That is the Fed’s tightrope dilemma, of its own making.

If you are one of the winners, congrats. But that extra money the Fed put in your pocket every month may stoke inflation for a long time.

The Consumer Just Crashed! Credit Card Spending Unexpectedly Cratered In September At -10.8% While Bank Credit Growth Goes Negative For 9th Straight Week

Coping with inflation caused by Federal spending (and excessive Fed stimulus) is difficult and eventually consumer max out their credit cards. Like now!

Credit card useage nosedived by -10.8% in September, according to Citi. This is the fifth straight month of spending decleration.

Leading the decline was electronics. The leader on the positive sign was … jewelry?? Hey, I thought mobs of people were robbing stores because they were hungry!!

In terms of bank credit, rising rates to fight inflation, bank credit growth Bank credit growth has been negative for nine straigth weeks.

Then we have unrealized losses on bank balance sheets, expected to surge to $700 billion with soaring interest rates.

On a different note, Homeland “Security” head Mayorkas now claims the US has to build a wall to combat the out-of-control immigration on the southern border. Wait! I thought Mayorkas and Congressional members (angrily) claim the border was secure! It doesn’t matter, Mayorkas is simply signalling to blue states that he will build a wall. But how fast is a different question.

Here is a video of tHe Biden Administration arranging for the border wall to be consructed. Mayorkas will likely call O’Reilly the builder to build the border wall.

Slowdown! ADP Jobs Added Slows To +89k As Credit Card Delinquencies At Small Banks Hit Highest Level Even Recorded (7.51%)

The US is experencing a slow down.

The massive Federal government and Federal Reserve Covid stimulus has worn out and we are left with a sagging jobs report and soaring credit card delinquencies.

After ADP’s reports printed almost perfectly in line with BLS last month (+177k vs +187k), all eyes are on today’s print, which was expected to decline to +150k. Instead it plunged to just +89k – that is the lowest jobs addition since Jan 2021.

Credit Card Delinquency rates at small banks have reached 7.51%, the highest level ever recorded.

Bidenomics is taking the 10Y rate higher.

Boom shaka laka.

17 Days Later? Mortgage Demand Decreased -6% WoW In Weekly Survey, Purchase Apps Lowest Since 1995 (Only 17 Days Left For Strategic Petroleum Reserve)

Another week under Biden, another economic disaster. This time, its the mortgage market with mortgage demand (applications) down 6% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 29, 2023.

The Market Composite Index, a measure of mortgage loan application volume, decreased 6.0 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6 percent compared with the previous week. The Refinance Index decreased 7 percent from the previous week and was 11 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 22 percent lower than the same week one year ago.

The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8 percent, as some borrowers searched for ways to lower their payments.

The US 30-Year Mortgage Rate Tops 7.5% for First Time Since 2000.

On the energy front, where we are represented by former Michigan governnor Jennifer Granholm and former South Bend Indiana mayor Pete Buttigieg, we see that the Strategic Petroleum Reserve is down to only 17 days left.

Fear The Talking Fed! Treasury Rates Keep Climbing To Multiyear Highs As Fear Of More Rate Hikes Surfaces (Treasury Yields Decouple From Sinking Manufacturing Numbers)

Fear the talking Fed! Various Fed Presidents are talking this week and when they do. WATCH OUT!

The latest fear mongering will be … inflation is persistent and they might have to keeep raising rates.

The two-year Treasury remains above 5% and the 10Y-2Y T-Curve remains inverted.

Treasury 30-year yield rose to 4.856%, HIGHEST SINCE 2007.

The likelhood of another Fed rate hike is growing.

While inflation is cooling (but still elevated), The Fed could choose to rate hikes again.

Treaury yields have decoupled from US manufacturing data.

Best picture of Lael Brainard, Director of the National Economic Council of the United States and former Federal Reserve member and talking head. Or screaming head.

US Excess Savings Depleted For Bottom 80% Of Households To Cope With Bidenomics (Home Affordability Hits All-time Low!)

Wasting away again with Bidenomics, code for massive Federal subsidies to green energy donors. And incentives to buy impractical EVs. Imagine in an emergency and your car only goes 200 miles (and then you have to wait for an available charger to come open). Well, the top 1% are doing fine. But the bottom 80% of households by income are seeing rapid deplection of savings to cope with the rising costs of Bidenomics.

And then we have shrinking home affordability, now at a record low.

Bidenomics/Covid Increased Federal Outlays By 30% From January 2020, M2 Money UP 36% (US Debt Tops $33 Trillion With $194 Trillion In Unfunded Liabilities)

Well, it looks like Ukraine’s army is surrending in droves to Russian forces. Maybe this will end Biden’s obsession with doling billions of dollars to Ukraine. Nah, Biden will continue doling out billions to Ukraine, but this time it will be to rebuild Ukraine (while major US cities continue to rot). But in any case, Biden and Democrats refused to return to pre-Covid levels of spending.

Federal outlays (spending) has increased by 30% from January 2020, just prior to Covid. Yet, Republicans are unable (or unwilling) to get the Biden Administration and Democrats to cut Federal spending back to pre-Covid spending levels. M2 Money is up a whopping 36%.

But never fear. US Federal debt is now above $33 trillion with $194+ TRILLION in unfunded liabilities. I feel dread after California governor “Gruesome” Newsom appointed The Fonz (a Democrat millionaire living in Maryland?) to replace Diane Feintstein in the US Senate.

S&P Global’s PMI Manufacturing jumped from 47.9 in August to 49.8 in September (and up from 48.9 in the flash September print). That is the highest print for US manufacturing since April but remains in contraction (below 5). That is the 5th straight month in contraction and 10th month in the last 11 in contraction (sub 50).

The ISM Manufacturing print also rose (to 49.0), up from 47.6 and better than the 47.9 exp (but still below 50 for the 10th straight month).

No, not Henry Winkler. But Laphonza Butler, a friend of VP Kamala Harris and the CEO of Emily’s List. And lauughably a resident of Maryland representing California.

Making America Unaffordable Again (MAUA)? US Home Prices Rise 1% YoY In July (After 0% Growth In June) Las Vegas Leads Downturn In Home Prices Followed By Zuckerburgh (San Francisco)

Thanks to rampant Federal spending and overstimulus by The Federal Reserve, US housing prices are simply unaffordable for many. Particularly since the Covid epidemic (Wuhan China Flu).

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported 1.0% annual change in July, up from a 0% change in the previous month.

Yes, home prices grew in July despite rising mortgage rates. As CS Lewis wrote “That Hideous Strength” but this is about how The Fed doesn’t understand what they have done.

At the metro level, Las Vegas leads in YoY price declines at -7.2%. In a close second is San Francisco at -6.2%. Portland and Seattle also declined.

Here is Screamin’ Joe Biden. You know Biden is lying when he gets angry.

Making America Last Again (MALA)? US Paying Salaries For Tens Of Thousands Of Ukrainians As 5.8 Million Illegals Enter US Under Biden

Donald Trump was famous for his “Make America Great Again!” campaign. Joe Biden seems to want to make America LAST again (MALA).

A newly aired “60 Minutes” segment entitled The unexpected way American tax dollars are being used in Ukraine has uncovered that the US government is paying the salaries of some 57,000 Ukrainian civic services personnel.

The report details the various ways non-military aid is being spent at a moment GOP Congressional leaders are intensely debating whether to move forward with a proposed defense budget that includes Biden’s push for $24 billion more in military assistance for Kiev.

“The U.S. has spent just over $43 billion on military aid to Ukraine since Russia invaded. That’s equivalent to about 5% of the American defense budget. European countries combined have contributed around $30 billion,” the 60 Minutes report narrates.

And this includes the following stunning detail:

American taxpayers are financing more than just weapons. We discovered the U.S. government’s buying seeds and fertilizer for Ukrainian farmers… and covering the salaries of Ukraine’s first responders – all 57,000 of them.

That includes the team that trains this rescue dog – named Joy – to comb through the wreckage of Russian strikes looking for survivors.

Political commentator Collin Rugg has noted in relation to the potential government shutdown looming for Oct. 1st: “Yes, your tax dollars will be used to fund Ukrainian salaries while American citizens are forced to wait for their pay while the government remains closed,” he said on X.

Rugg is referencing the fact that the Biden administration and Pentagon have declared that Ukraine aid will remain exempt from any potential government shutdown. This means Ukrainian salaries will still be paid, even while federal employees aren’t, in the event of a shutdown.

Here’s more from the 60 Minutes video, featuring a Ukrainian woman “thanking” US taxpayers for footing the bill for Ukrainian employees, thanks to USAID funding:

Tatiana Abramova: Especially in the condition of war, we have to work. We have to pay taxes, we have to pay wage– salary to our employees. We have to work, don’t stop.

Holly Williams: Why does that help Ukraine win the war?

Tatiana Abramova: Because economy is the foundation of everything.

American officials from USAID – the agency in charge of international development – helped Abramova find new customers overseas. In the midst of war, her company is supporting over 70 families.

Meanwhile, a fresh Newsweek headline: US Will Pay Salaries to Thousands of Ukrainians During Government Shutdown…

“US taxpayers will pay the salaries of thousands of Ukrainians, even as the country faces a government shutdown at the end of September.”

But as noted above, this is more like tens of thousands of Ukrainian salaries.

“A federal government shut down will effectively begin on October 1 if Congress isn’t able to pass a funding plan that Biden signs into law,” Newsweek underscores. “If that happens, federal agencies have to stop all nonessential work and will not send paychecks for as long as the shutdown lasts.”

Appropriately, the 60 Minutes episode invoked memory of the late John McCain…

In total, America’s pumped nearly $25 billion of non-military aid into Ukraine’s economy since the invasion began – and you can see it working at the bustling farmers market on John McCain Street in central Kyiv.

The late senator is revered in Ukraine because he pushed the U.S. government to start sending arms to the country… back in 2014.

Here’s how 60 Minutes presents bipartisan support for Biden’s blank check for Ukraine:

While in Kyiv, we learned that three of McCain’s former colleagues were also in town: Democratic Sens. Elizabeth Warren and Richard Blumenthal and Republican Sen. Lindsey Graham. They don’t normally agree on much – together, though, they’re some of the staunchest supporters of U.S. funding for Ukraine’s resistance.

Indeed Zelensky himself while meeting with US Senators in Washington last week said something similar – that without continuing American funds, the war effort is doomed. He urged Congress to keep the billions in aid flowing, and sought to present that Moscow will one day expand aggression beyond just Ukraine.

* * *

Meanwhile, the “aid from the heart of every ordinary American person” will continue (whether those ordinary Americans like or not)…

While Biden seems obsessed with protected Ukraine’s sovereign border, he has left the US southern border wide open. There have been OVER 5.8 MILLION illegal crossings of our southern border.

So, Old Joe Biden is Making America Last Again (MALA)!

Alarm! 3rd Consecutive Year Of Negative Returns On 10-year Treasuries Which Has Never Happened In History (10Y Yields Up 308% Under Biden, Mortgage Rates Up 156%)

Alarm! US 10-year Treasury yields are soaring along with mortgage rates.

The US Treasury market is witnessing another significant selloff, pushing the 10y UST yield close to the 4.50% mark. The surge in real rates is remarkable, reaching 2.12% for the 10y, a level not seen since 08’. While this might appear attractive in real terms compared to historical benchmarks, could we be on the brink of a third consecutive year of negative performance for US Treasuries? To put this into perspective, such a scenario has never occurred in history.

The conforming mortgage rate is at 7.3%, up 156% under since Biden’s coronation as El Presidente of the United Banana Republics of America. Where political opponents are indicted prior to elections.

In Biden’s Banana Republic economy, the US Treasury 10y-2y yield curve remains inverted.

And then we have Mish’s chart on debt as a percentage of GDP from CBO. Remember, we used to worry about the US breaking the 80% debt to GDP level. It is now projected to be 181%. Wow.