Only a multi-millionaire like Powell would call it frustrating. Most US consumers would call it “devastating.”
Look at home prices, natural gas, gasoline and food prices since The Fed turned on the money pump to combat the Covid shutdown by government. Well, at least food price growth has slowed, but that is more that offset by natural gas (heating) costs skyrocketing.
Rent? That too has zoomed upwards, although Powell likely isn’t worried about his rent rising by 11.5%.
I wonder if Powell is frustrated by banks parking their money at the Fed’s reverse repo facility? Ninety-two participants on Thursday placed a total of $1.605 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. The previous record, set the day before, was $1.416 trillion. Thursday’s leap was the biggest one-day increase in usage since mid-June.
Biden blames “greed” for rising prices, Powell is “frustrated” by bottlenecks. But why pump trillions into the economy when you know there are bottlenecks? Or meatpacking firms are “greedy”?
So much for the transitory inflation that The Federal Reserve keeps spouting on about.
(Bloomberg) — The pace of rent increases is heating up in the U.S.
Rent data for the past two months show no sign yet of the usual seasonal dip at this time of year, following peaks early in the summer, when many lease renewals come due.
A Zillow Group Inc. index based on the mean of listed rents rose 11.5% in August from a year earlier, with some cities in Florida, Georgia and Washington state seeing increases of more than 25%.
Since the start of the pandemic, the median rent for a two-bedroom apartment has soared 13.1% to $1,663, Zumper data show.
But rent on newly-signed leases rose 17% from the previous tenant’s lease.
For the New York market, landlords are raising rent prices as much as 70% now that people are flooding back into the city as offices and entertainment venues open up. In July, the median asking rent in New York City surged to $3,000, compared with the pandemic low of $2,750 in January 2021, data from StreetEasy showed.
Of course, rent surge is not surprising given that home prices have surged since Covid given limited inventory and massive Fed stimulus.
Perhaps if The Fed and Federales (Federal government) start reducing their apocalyptic-level stimulus, THEN we will see inflation as transitory.
After re-reading these excellent articles on the housing bubble and crash, I thought I would take the opportunity to present a few charts to highlight the housing bubble, pre-crash and post-crash.
Here is a graph of Phoenix AZ home prices. Note the bubble that peaked in mid 2006. The Phoenix bubble correlates with the large volume of sub-620 FICO lending and Adjustable-rate mortgage (ARM) lending. Bear in mind, many of the ARMs prior to 2010 were NINJA (no income, no job) ARM loans.
What happened? Serious delinquenices at the national levels spiked as The Great Recession set in and unemployment spiked.
Since the housing bubble burst and surge in serious mortgage delinquencies, The Federal Reserve entered the economy with a vengeance. And have never left, and increased their drowning of markets with liquidity.
The Fed whip-sawing of interest rates in response to the 2001 recession was certainly a problem. They dropped The Fed Funds Target rate like a rock, then homebuilding went wild nationally and home prices soared thanks to Alt-A (NINJA) and ARM lending. But now The Fed is dominating markets like a gigantic T-Rex.
Oddly, then Fed Chair Ben Bernanke never saw the bubble coming. Or the burst.
Speaking of pizza, Donato’s from Columbus Ohio is my favorite. Founder’s Favorite is my favorite, but they do offer the dreaded Hawaiian pizza (ham, pineapple, almonds and … cinnamon?)
Since Q2 2020, US homeowners have been big winners in terms of home price gains and equity in their homes. Unfortunately, this means that renters are big losers. Once again, The Federal Reserve is benefiting once segment of the population while punishing the other segment.
*Homeownership mortgage source: 2016 American Community Survey.
National Homeowner Equity
In the second quarter of 2021, the average homeowner gained approximately $51,500 in equity during the past year.
California, Washington, and Idaho experienced the largest average equity gains at $116,300, $102,900 and $97,000 respectively. Meanwhile, North Dakota experienced the lowest average equity gain in the second quarter of 2021 at $10,600.
10 Select Metros Change
CoreLogic provides homeowner equity data at the metropolitan level, in this graphic 10 of the largest cities, by housing stock are depicted.
Negative equity has seen a recent decrease across the country. San Francisco-Redwood City-South San Francisco, CA, is the least challenged, with Negative Equity Share of all mortgages at 0.6%.
Loan-to-Value Ratio (LTV)
The graph represents National Homeowner Equity Distribution across multiple LTV Segments.
Since growing home equity lead to lower default risk (or at least losses to the mortgage holder), we are seeing mortgage delinquencies fall after the Covid surge.
The unorthodox monetary stimulus from The Federal Reserve and stimulypto-level spending by the Federal government has resulted in a surge in US housing starts. But that thrill may be gone if the stimulypto is removed.
(Bloomberg) -By Olivia Rockeman- U.S. housing starts rose by more than expected in August, suggesting that the supply and labor constraints that have been holding back construction eased in the month.
Residential starts rose 3.9% last month to a 1.62 million annualized rate after an upwardly revised July print, according to government data released Tuesday. The median estimate in a Bloomberg survey called for a 1.55 million pace.
Building permits, meanwhile, increased 6% in August, the biggest gain since January, reflecting a sizable jump in multi-family units. Permit applications for single-family homes also edged higher.
The data suggest that builders are making some construction headway despite limited availability of land, labor and materials, which has slowed residential starts from a 15-year high in March. Despite the bottlenecks, housing starts remain mostly above pre-pandemic levels, which is expected keep construction activity elevated for some time.
1-unit (single family detached) starts got a tremendous jolt from The Fed’s monetary stimulus and Federal governments fiscal stimulus. But government stimulus wears out.
Given the high cost of housing in the USA, particularly in coastal metro areas, we see home price growth raging at over 4 times hourly earnings growth.
As a result, we are seeing a burst of 5+ unit (multifamily) housing starts. Note the burst of 5+ housing starts prior to Covid striking in early 2020.
Permits for 1-unit housing are up only slightly but 5+ unit permits are up 19.7%.
Remember, the withdrawal of fiscal stimulus will lead to a big fiscal cliff.
This is the Steve Urkel economy where The Federal Reserve and Federal government screw everything up with their policies (or follicies) and say “Whoops! Did I do that?”
(Bloomberg) — U.S. consumer sentiment rose slightly in early September but remained close to a near-decade low, while buying conditions deteriorated to their worst since 1980 because of high prices.
The University of Michigan’s preliminary sentiment index edged up to 71 from 70.3 in August, data released Friday showed. The figure trailed the median estimate of 72 in a Bloomberg survey of economists.
Buying conditions for household durables, homes and motor vehicles all fell to the lowest in decades. The report said the declines were due to complaints about high prices. Consumers expect inflation to rise 4.7% over the coming year, matching the highest since 2008.
September’s UMich Buying Conditions for Houses fell to 60 … thanks to superheated house prices.
I can just picture Fed Chair Jerome Powell channeling Steve Urkel and saying “Whoops!! Did I do that?”
The US Bureau of Labor Statistics released their Real Earnings Report for August yesterday. And is it pretty depressing for US workers.
Real average hourly earnings for all employees increased 0.4 percent from July to August, seasonally adjusted. This result stems from an increase of 0.6 percent in average hourly earnings combined with an increase of 0.3 percent in the Consumer Price Index for All Urban Consumers (CPI-U).
Real average weekly earnings increased 0.3 percent over the month due to the change in real average hourly earnings combined with no change in the average workweek.
If we look at REAL US housing prices versus REAL average hourly earnings for production and nonsupervisory employees, we can see waves of imbalance between the two measures (also known as “bubbles”). Such as today.
But the real horror chart is the following (courtesy of Mish). It shows that real hourly earnings have barely changed since January 1973.
Of course, labor outsourcing to lower labor cost countries is the chief culprit. Karsten Manufacturing, maker of Ping golf clubs, no longer makes their castings in Phoenix AZ thanks, in part, to EPA regulations. Ping clubheads are now made in Asia.
In its August Survey of Consumer Expectations, the bank said Monday that respondents see inflation a year from now at 5.2%, up from 4.9% the prior month. Three years from now, it is expected to be at 4%, up from 3.7% in July. Both readings mark record-high readings for data that goes back to 2013.
It is a shame that in that last reading that the CPI YoY exceeded Average Hourly Earnings YoY by a 5.4% to 4.3% margin.
Yes, inflation is hot, hot, hot and consumers are feeling it.