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.
The good news is that US industrial production rose 0.9% in March. The bad news? US capacity utilization rose to 78.3% indicating that the labor market is overheating.
Notice that prior to Covid, The Fed began rising raising its target rate as capacity utilization was increasing towards 80%. But once The Fed Funds Target rate (upper bound) hit 2.50%, capacity utilization started to cool off. Then Covid stuck.
Since Covid struck and The Fed massively expanded its balance sheet, capacity utilization has increased. But this time around, The Fed has been sloth-like in its removal of monetary stimulus.
Of course, The Fed has been slow to cool inflation which is the highest in 40 years. And supply-chain strains are peaking again (isn’t Mayor Pete in charge of infrastructure?) This is helping to drive prices up.
And don’t forget that REAL average weekly earnings YoY are falling.
As we are all aware, The Federal Reserve launched its monetary “stimulypto” in March 2020 to combat the Covid virus. Coupled with the surge in Federal stimulus, we have seen home prices rise over 20% since February 2020.
Specifically, New York City home prices are up 26.3% since February 2020, Chicago home prices are up 21.7%, and Los Angeles home prices are up 32.5%. Fed monetary stimulypto is up 113% since February 2020.
Of course, this has resulted in soaring PROPERTY TAXES as well. According to Attom Data Services, “Among 1,481 U.S. counties with at least 10,000 single-family homes in 2021, 16 had an average single-family-home tax of more than $10,000, including 12 in the New York City metro area. The top five were Kings County (Brooklyn), NY ($13,734); Marin County, CA (outside San Francisco) ($13,719); Westchester County, NY ($13,674); Essex County, NJ ($13,116) and Nassau County, NY ($13,095).”
Of course, not all metro areas raised their property taxes. Major markets with the largest decreases in average property taxes included Pittsburgh, PA (down 35.1 percent); New Orleans, LA (down 20.2 percent); Houston, TX (down 18.7 percent); Dallas, TX (down 12.2 percent) and Austin, TX (down 7.7 percent).
States with the highest effective property tax rates in 2021 were Illinois (1.86 percent), New Jersey (1.73 percent), Connecticut (1.67 percent), Vermont (1.55 percent) and Pennsylvania (1.37 percent).
Even if The Federal Reserve removes its massive monetary stimulypto (MMS), property taxes will remain elevated unless cities reduces their property tax rates. But Democrat-controlled cities tend to be addicted to spending much like The Federal government.
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.
Mortgage interest rates continue their meteoric rise (along with home prices), the result of which is a tanking of consumer confidence in home buying.
The University of Michigan survey of consumers about buying conditions for housing remains depressed due to rising mortgage rates and surging home prices.
Bankrate’s 30Y mortgage rate is down slightly today to 5.06% as the 2-year Treasury yield declines and the anticipated rate hikes have fallen to 9.19.
As I mentioned earlier, mortgage credit availability hasn’t recovered from the “Covid Correction.”
Export prices by end us YoY is up to 18.8%, the highest in recorded history (or since 1983 when they started recording export prices).
Import prices by end use rose to 12.5% YoY.
Unrelated to US export and import prices, the MBA’s mortgage credit availability index slumped with the Covid outbreak and the explosion of The Fed’s Balance Sheet. As I have said before, nothing has been the same since Covid.
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.
The Federal Reserve’s two goals of price stability and maximum sustainable employment are known collectively as the “dual mandate.” Unfortunately, inflation is running away (bad) from employment gains (good). Sort of like “The Good, The Bad and The Ugly.” But just the Good and The Ugly combine to create the Misery Index.
Here is the Atlanta Fed’s CORE flexible CPI YoY for March. The good news? Flexible Core CPI YoY was a little lower than the historic high reading in February. The bad news? We are still talking about 21.82%+ rise in prices (down from 23.56% in February).
If I use the Atlanta Fed’s flexible consumer price CORE index combined with the U-3 unemployment rate, we see that March’s inflation report plus U-3 unemployment is generating a misery index that was last seen in July 2008 during The Great Recession. Unless we consider the July 2021 reading of 31.3%, so we have seen two horrible misery index readings under Biden.
If we look at the Misery Index since 1967, we now have the GOAT (Greatest of All-time) Misery.
Now, inflation under Presidents Ford and Carter (red line) were higher than the flexible core price index (blue line) in the 1970s and 1980. But flexible core price CPI YoY is substantially higher than March’s CPI growth of 8.5%.
The bottom line is that inflation losses are far outweighing the employment gains, resulting in elevated misery.
US real average weekly earnings growth YoY is down to -3.60%. That is the lowest since 2007 and is worse than The Great Recession and financial crisis of 2008.
And look at this chart of mortgage payments under Biden. The US was actually experiencing DECLINING mortgage payments YoY in 2019 and 2020. But under Biden’s leadership, mortgage payments have increased by 50% making housing even MORE unaffordable for the middle class and lower-income households.
And now for something kind of scary. The US today suffered a 12 basis point decline in the 2-year Treasury yield, generally a bad sign for the economy. As if we needed more bad news for today.
Highest inflation in 40 years, worst wage growth since 2007 and rising mortgage payments. We will need all the luck we can get.
With 8.5% YoY inflation, REAL average hourly earnings growth fell to -3% YoY.
And with The Fed intent on extinguishing their part of the inflation, Bankrate’s 30Y mortgage rate rose to 5.14%.
Energy is the biggest culprit (fuel oil up 70.1% YoY) thanks to the double whammy of 1) Russia’s invasion of Ukraine and 2) Biden’s restrictions on oil and natural gas production. Food at home is up 10% YoY.
Here is a colorful chart of MoM growth in prices.
The Taylor Rule model now says that The Fed Funds Target Rate should be 11.90%. Hence, Fed Stimulypto is still in place with the signal that rates will increase.
How about WTI Crude and Brent Crude soaring over 4% today?
Once again, the Four Horsemen of the Inflation Apocalypse (Biden, Powell, Pelosi, Schumer) overstimulated the economy and financial markets with excessive monetary stimulus (Powell) and excessive Federal spending (Biden, Pelosi, Schumer) where demand soared for products and supply naturally hasn’t caught up.
Confounded Interest - Anthony B. Sanders 
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