Thanks to massive Fed monetary stimulus still stalking the housing market, US new home sales rose +10.7% MoM (from April to May), but were down -5.9% YoY (from May 2021 to May 2022) as mortgage rates rose.
Median price of new home sales rose 42% since May 2021, thanks to Fed stimulypto. And Federal government stimulus spending.
Yes, like the predators from the movies, The Fed’s balance sheet is still stalking markets.
As The Federal Reserve tightens the monetary noose (Fed Chair Powell said Fed ‘acutely focused’ on returning inflation to 2%), the US economy is slowing. In fact, May’s Industrial Production report is half of what was expected. Industrial production declined to 0.20% MoM versus the expected 0.4%. At the same time, capacity utilization rose slightly to 79%., but still below expectations.
Mortgage rates are rising rapidly, but the growth has cooled slightly as the economy cools.
Bitcoin is getting demolished by The Fed’s reaction to inflation.
And “It’s Not Always Sunny In Philadelphia.” Since the Philadelphia Fed’s Business General Conditions has dropped into negative territory with, among other things, The Fed’s monetary tightening. And they’ve only just begun (no Carpenters’ songs!).
The US Treasury 10Y-5Y yield curve has gone into negative territory (which usually occurs before a recession). At the same time, US mortgage rates are climbing like Tom Cruise in “Top Gun: Maverick” to 5.87% as The Fed tightens its choke hold on markets.
The 10Y-5Y Treasury curve typically goes negative before a recession.
And then we have today’s PPI report (Producer Price Index), rising 10.8% YoY as M2 Money stock starts to decline a bit.
Here is a better view of mortgage rates under Biden/Powell.
The CPI news on Friday was so awful that it changed the bond market’s view of Fed trajectory, and the weakest sector broke. In bond jargon, MBS went “no-bid.”No buyers for MBS. Then a few posted prices beyond borrower demand, not wanting to buy except at penalty prices. (Courtesy of Cherry Creek Mortgage)
Despite what Treasury Secretary Janet Yellen has said, Friday’s inflation report demonstrated that inflation is no longer transitory. And with that realization, there was a dearth of bidders for Agency Mortgage-backed Securities (Agency MBS) on Friday.
As a result, agency MBS 2.5% dropped to under $90 as markets expect The Fed to keep raising rates to combat inflation.
Duration of the FNCL 2.5% agency MBS has been extending with growing inflation. Duration was under 1 on August 2, 2021 but is now 7 times greater at almost 7.
Note to Yellen: inflation seems be permanent, not transitory. Or at least inflation will remain high for the foreseeable future, crushing the life out of Agency MBS.
Pennies from Heaven. That is what the bottom 50% received from The Federal Reserve’s massive doses of monetary stimulus (or stimulypto).
There was one big dose of monetary stimulus in late 2008 surrounding the financial crisis and housing bubble burst, another doses (aka, QE 2 and QE3) then the biggest dose of all with the outbreak of Covid in early 2020.
President Biden should have mentioned on Jimmy Dimmel last night that The Federal Reserve has helped the bottom 50% with its endless monetary stimulus.
But if you were fortunate enough to own a home (the top 1% are likely homeowners), then you benefited from The Fed’s monetary stimulypto.
And I noticed that Biden didn’t mention plunging REAL average weekly earnings YoY.
The Federal Reserve’s monetary “policies” have benefited the top 1% and homeowners relative to the bottom 50% (who often rent and got clobbered with 20% growth in rents).
Great job, Fed! Making housing more unaffordable for rents (combine rising rents and declining REAL wages and we have a real affordability problem).
Home affordability for first time homebuyers?
And what is with Biden’s ear lobes? As inflation is rising, his ear lobes are shrinking.
The Biden Administration and The Federal Reserve together should be called “The Cooler Kings” in that their policies are putting a Big Chill on the mortgage market and equities.
Mortgage rates are skyrocketing thanks to the Federal Reserve.
The 30-year fixed-rate mortgage averaged 5.27% for the week ending May 5, according to data released by Freddie Mac FMCC, -1.62% on Thursday. That’s up 17 basis points from the previous week — one basis point is equal to one hundredth of a percentage point, or 1% of 1%.
House price growth to wage growth is below the all-time high, but remains above housing bubble levels of 2005-2007.
The Refinitiv Venture Capital Index is down 53% since November ’21 as The Fed cranks up interest rates.
Well, at least commodities are soaring under “The Cooler Kings.” Pretty much everything else is sucking wind.
Here’s some simple Medusa math for you: negative growth + payroll gains = negative productivity. Negative productivity + high labor costs = very high unit labor costs. That’s not a pretty picture for the economy or for companies, and the Q1 figures were even worse than expected — productivity fell by 7.5%, pushing unit labor costs up by 11.6%. Nasty.
In fact, labor productivity fell to the lowest level since 1947 and President Harry Truman.
Of course, Biden’s green energy policies have led to crushing inflation.
So, after Fed Chair Powell (aka, Jay The Revelator) said yesterday that “No Signs US Economy ‘Vulnerable’ To Recession”, we saw the S&P 500 index dive 1.5% and the 10-year Treasury yield break through the 3% barrier.
Biden’s policies are a Medusa-touch on the economy.
M2 Money Velocity (GDP/M2 Money) peaked in Q3 1997, but after several bouts of Fed money printing, M2 Money Velocity is near the all-time low at 1.1216 In Q1 2022. And M2 Money stock is still growing at a torrid pace of 9.9% YoY. But the massive overreaction of The Federal Reserve in response to the Covid outbreak has led to near zero money velocity.
Now with The Federal Reserve considering removing the monetary stimulus, what will happen to US GDP left to survive on its own?
An example of how The Fed’s expected tightening of monetary policy can be seen in the meteoric rise in mortgage rates.
So, the US has hit terminal money velocity. I wish The Fed lots of luck going forward.
Is Charlie Sheen the Chairman of The Federal Reserve Board of Governors?? That must be Lael Brainard falling out of the sky with Charlie Sheen (aka, Jerome Powell).
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.