Confounded Interest – Anthony B. Sanders
Financial Markets And Real Estate
The US economy has a case of the summertime blues.
Bull steepenings in the yield curve are generally seen as a precursor to a recession, but they are often preceded by bear steepenings. The 3m30y curve is currently bear steepening, indicating a recession could begin as early as the summer. In fact, the 3m30y curve is now inverted at -94.628 basis points pointing to a recession in summer 2023.
This is happening as the US house payment to income ratio near all-time highs.
Yesterday, we saw The Federal Reserve release the minutes of the last meeting. In a nutshell, The Fed is going to keep raising rates.
The terminal Fed Funds target rates is now 5.363% for the July FOMC (Fed Open Market Committee) meeting in 2023.
This comes as US Q4 GDP was revised lower on weaker consumer spending, revised downward to 1.4%
With the revision of Personal Consumption, real GDP was revised downward to 2.7% annualized QoQ.
The Taylor Rule estimate for The Fed Funds Target rate is 10.15%. The Fed is only at 4.75%, so there is a long way to go! Except that The Fed doesn’t follow any useful rule like the Taylor Rule. Just the “seat of the pants” rule.
The value of the US housing market shrunk by the most since the 2008 as the pandemic boom (and M2 Money growth) fizzled out.
After peaking at $47.7 trillion in June, the total value of US homes declined by $2.3 trillion, or 4.9%, in the second half of 2022, according to real estate brokerage Redfin. That’s the largest drop in percentage terms since the 2008 housing crisis, when home values slumped by 5.8% from June to December.
Homebuyers, already facing record-high prices, took an additional hit from mortgage rates that more than doubled last year. With less competition in the market, the median US home sale price was $383,249 last month, down from a peak of $433,133 in May.
To be sure, home prices are not collapsing. In December, the total value of US houses was still 6.5% higher than it was a year earlier.
How much homeowners lost depends on where they bought. The biggest declines were in pricey cities like San Francisco and New York, while buyers who moved to pandemic boomtowns are still seeing the returns on their investment, particularly in Florida.
That was especially true in Miami, where the total value of homes ballooned 20% year-over-year to $468.5 billion in December, the largest annual percentage increase among the top metro areas. While the overall US housing market is down, Miami’s market has about the same value as when it peaked at $472 billion in July. Meanwhile, homeowners in North Port-Sarasota, Florida, Knoxville, Tennessee, and Charleston, South Carolina, all saw annual gains above 17% in 2022.
Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62 percent – the highest rate since November 2022. The jump led to the purchase applications index decreasing 18 percent to its lowest level since 1995.
Mortgage applications decreased 13.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 17, 2023.
The Market Composite Index, a measure of mortgage loan application volume, decreased 13.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 4 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week and was 72 percent lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 18 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 41 percent lower than the same week one year ago.
Did Biden appoint “Pothole Pete” Buttigieg to oversee the mortgage market??
The thrill is gone from housing as The Fed tightens away.
Well, January’s existing home sales numbers were horrific. Down -37% year-over-year (YoY) and down -0.7% MoM.
The median price of existing home sales fell to 0.67% YoY.
I am now posting my Podcasts on Spotify.
But before I go for experimental therapy for my brain tumor, I will leave you with this diddy. Inflation expectations are on the rise, not falling like Biden and Yellen keep screaming.
It is the start to a trading week after yesterday’s pause for President’s Day. And with a new start, we see the US Treasury 10-year yield jump 8.5 basis points to 3.9%. Bankrate’s 30-year mortgage rate is up to 6.83% and the implied Fed Funds Target rate at the June 2023 Fed Open Market Committee meeting is now 5.23%.
Prince Imhoptep (aka, the Minneapolis Fed’s Neel Kashkari) thinks that The Fed will keep raising their target rate to slow down the economy and help The Fed’s green agenda.
As the economy weakens and The Federal Reserve tightens (to fight inflation), we are seeing the lowest level of S&P 500 equity risk premiums since before the financial crisis.
Way to go, Mayor Pete amd Dementia Joe!
The US economy, despite the tight labor market, has been shot through the heart by Biden’s economic policies. The Biden Administration (aka, Obama’s third term as President) is giving government a bad name.
On the corporate side, US bankruptcies in 2023 had the worst start to a year since 2010 and the financial crisis.
On the personal finance side of the ledger, the delinqueny rate on credit cards is growing at the faster rate since 2010.
Throw in 22 straight months of negative REAL wage growth, and have a scary situation facing middle America.
And the shate of outstanding subprime auto debt (30 days or more delinquent) is up to the highest rate since … well, you know when. The financial crisis of 2009-2010.
The US middle class is living on a prayer, because Washington DC doesn’t care.
But don’t worry. Mayor Pete, the EPA and Ohio governor Mike DeWine claim the air is good to breath and the water safe to drink in East Palestine Ohio.
Why isn’t Greta Thunberg racing to Ohio to protest the dumping of toxic chemicals?
President Biden touts his economic plan as being a great success. But the data says otherwise. Real Disposable Personal Income, for examplge, was down -6.4% year-over-year (YoY) in 2022. That is the WORST reading since The Great Depression.
And to cope with inflation, Americans have expanded their credit useage, but credit card delinquencies are through the roof.
So much for “Middle Class Joe” and The Forgotten Man. Biden hasn’t forgotten, he just doesn’t care.
Well, here we are again. Back to 2007 and the housing bubble and subsequent financial crisis. The US Treasury 6-month yield is back over 5%, a yield we haven’t seen since August 8, 2007.
Well, there is one notable difference. The Fed’s balance sheet is still at $8.4 TRILLION whereas it was only $866 billion on August 8, 2007.
The US Treasury yield curve? It remains deeply inverted as The Fed withdraws liquidity.
And then we have this diddy. US household debt balances increase, the largest nominal quarterly increase in 20 years.
Also, we have the year-over-year EPS growth has turned negative for the first time since Covid.
MIA. Transportation Secretary Pete Buttigieg.
Confounded Interest - Anthony B. Sanders 
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