05/09/2022
Many reasons why we are not in a housing bubble: No inventory, and home loans are much tougher to obtain than 2003-2007….
MBS Highway Daily Update 5/9/2022: Housing and Fed
Stocks are sharply lower and Mortgage Bonds are trading near unchanged levels to begin the week.
We see many in the media comparing today’s housing market to the housing bubble and specifically looking at multiples of income to home prices and saying that a bubble has to be imminent because it’s higher than it was during the last bubble.
There are so many differences, including interest rates and the levels of income that allow for additional disposable income. But the biggest one people are not considering is the levels of inventory – Back then there were 3.81M homes for sale, and today there are under 1M. There is a difference between 20% appreciation going back towards 5% and going into a 20% decline or depreciation. That’s not what we are seeing at all. There are also 14M more households today and renting was much cheaper back then, where it is much more expensive today. We think that appreciation will come down to high single digits, which is a healthy and sustainable level, but that we will not see depreciation.
Minneapolis Fed President, Neel Kashkari, spoke this morning on CNBC. He was the most dovish Fed member that was screaming against the Fed hikes and was opposed to them through at least 2023. He was a firm believer that inflation would be transitory and has now changed his tune and said that inflation is the biggest problem. He seemed out of touch with reality in saying that Mortgage Rates are higher because of the Fed’s credibility and that they would hike rates. He doesn’t understand it or make the connection that rates are higher because of inflation, which the Fed created.
He went on to say that consumer confidence is high because of the wealth effect in housing, but it’s not the most liquid unless you take out a home equity line of credit or a cash out. People don’t do that to make payments at the gas station. He also points to the wealth gap, but it was the Fed, specifically Bernanke and Yellen that created this wealth gap – Quantitative Easing caused asset prices to spike, but not everyone participates in home ownership or the Stock market.
As we have gone over many times, there are so many differences as to why this time is different. Unlike 2006-2007, loan quality is
It’s a quiet news day, but busy week, highlighted by inflation data. The Consumer Price Index will be released Wednesday at 8:30am ET, where it is expected that inflation will decline from 8.5% to 8.1%. The Core rate is anticipated to decline from 6.5% to 6%. While we may see a temporary decline in inflation or leveling out, remember that there were low inflation readings over the summer months of 2021. That means that we could see a reacceleration of inflation this summer as those lower figures are replaced, but come September we will likely see the peak inflation and downturn from there.
There will also be an important 10-year Treasury Note Auction Wednesday afternoon, and with yields at their highest level in 3.5 years at 3.15%, it will be interesting to see if there is investor demand.
The Producer Price Index and 30-year Bond Auction will be released on Thursday, and there will be several Fed speakers throughout the week.
The 10-year is trading at 2.13%, with the next strong ceiling of resistance at 2.25%. Begin the day carefully floating.
