Worst Year For Rates Since 1979
Please note 2022 is Already The Worst Year For Rates Since 1979
Hope vs Reality
Mortgages Go No Bid
One of the best ongoing blog discussions on the web, updated weekly is Mortgage Credit News by Louis S Barnes
June 10th, 2022
During the last forty-four years, my days have begun and ended with the mortgage market. Four painful moments stand out. Today makes five. (There have been many more good days, but even the Fairy Godmother has her limits.)
Mortgages are covered poorly in financial press, as stocks and such are much more entertaining. Today’s events still unfolding will take days for good coverage. Freddie’s weekly survey will not discover today until next Thursday. But the MBS market is real-time, not like old, sleepy S&L days.
The CPI news this morning 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. Overnight the retail consequence has been a leap from roughly 5.50% to 6.00% for low-fee 30-fixed loans.
Today’s CPI Trigger. Markets were braced for a bad report, but not this. Overall CPI jumped 1.0% in May. Any thought of deceleration… ka-blooie. CPI 8.6% in the last year, accelerating under pressure from Ukraine energy dislocation.
Now What? At Thanksgiving 2008 the credit markets (all markets) were rescued by Ben Bernanke’s genius, announcing quantitative easing — buying enough MBS and Treasurys to unlock markets in which all had been afraid to buy.
Today… is it a coincidence that MBS have blown simultaneously with the Fed’s flip from QE buying to allowing runoff and threatening to sell? The weak break first. MBS are weird, and weird under stress is weak.
The Fed has had a plan, Powell becoming more concise each day: We will raise the cost of money until inflation comes under control. “It is our job to calibrate demand to supply.” A good, tidy, sorta mathematic way to proceed. But destruction of demand has limits, and this morning we hit one.
In today’s US, nobody is prepared to deal with inflation as it has developed in the last 90 days.
Punished Until We Behave
There is much more in the report. Inquiring minds may want to give it a look.
Here’s a single paragraph from May 20th that I like.
The recession-watch: watching the Fed watch us. We will be punished until we behave. Supplies limited, the Fed must remove our ability to compete for things in short supply.
Lumber Futures
Lumber is crashing but that says little about the price of rent, just the price of homes.
Reflections on Mortgage Rates
At a 6.125% mortgage rate the average home price in the US needs to fall ~32% to reach its pre-Covid affordability relative to income.
— Sid Prabhu (@sidprabhu) June 13, 2022
Why Did Economists Blow the CPI Forecast So Badly This Month?
For a look at the June 10 CPI which fueled the mortgage carnage, please see Why Did Economists Blow the CPI Forecast So Badly This Month?
This post originated at MishTalk.Com.
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Mish
“Over the past five decades, only when the 10-year T-note yield plunged 135 basis points (on average) did the S&P 500 manage to make a bottom.”
How do we measure the 135 basis points plunge? From its own peak to trough? Or from where it was when the stock bear-market started?
MBS to enable suitable progress toward a longer-run
SOMA portfolio composed primarily of Treasury securities. Any program of sales of agency MBS would be
announced well in advance”
Seeing a steady stream of price reductions on the mls. 5 to 30%. Hours prices don’t look so sticky after all.
If not, we are in serious trouble because building will go to hell.
and California’s Taxation Code Section 2611.6 (j)(1) “That if the taxpayer disagrees
with the assessed value as shown on the tax bill, the taxpayer has the
right to an informal assessment review by contacting the assessor’s
office.”
If the fed continues down this path of fighting inflation, I’m firmly convinced credit will freeze up and lending will collapse. I also believe it will happen faster than anyone is thinking. If that occurs then what will the fed do?
If they stop and reverse, like in 2008, gold will undoubtedly explode. 5k is not outside the realm of possibility. But…will the fed do that? Can they allow inflation to continue? Or are they going to punt and keep hiking and let the lawmakers deal with it?
I have no idea. But, my investments are all dividend payers and I’m looking at the dividends, not the stock price. It’s the only way to stay sane and non-reactionary. I have to look at my investments as an income source, not price appreciation.
their production costs. I’m more comfortable being long gold and/or
silver than the miners. If oil crashes (maybe as a result of the
Ukraine war ending), then miners would look really good. But as long as
oil stays above $100, I see the miners struggling.