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The average mortgage rate is up 80bps or 50% in just over one week. As a result, applications for a mortgage are now roughly half the level they were one year ago.
Homebuilder sentiment is at a two-year low. And online real estate companies Redfin and Compass have announced layoffs of 8% and 10% of their workforces, respectively.
What can go wrong in the housing industry?
By Dave Allen for Discount Gold & Silver
On yesterday’s Financial Survival podcast/radio program, I observed that getting the price of oil down is really the whole ballgame when it comes to how, why and when the Federal Reserve plans to bring down inflation.
And if it doesn't go down – substantially – then the Fed will only go harder and faster on rate hikes to try to scale back demand – ill-advised as that may end up being.
Whatever the case, that level of unwarranted monetary tightening will mean markets further spiraling downward and sending the economy into a recession sooner – and possibly deeper – than we think.
Stocks, bonds and precious metals plummeted again today as Wall Street reacted with continuing, unencumbered knee jerks to soaring inflation.
It appears there’s widespread distrust and a self-fulfilling fear among investors about how forceful the Federal Reserve will be as it tries to put the evil genie back in the bottle.
The S&P 500 is now officially in a bear market, down nearly 22% since it hit its most recent high on January 3rd.
Matt Phillips writes that these market moves highlight the deeply uncertain outlook after more than a decade of growth for stocks and gold and low bond yields that made borrowing more affordable than ever for investors and consumers alike.
So affordable, in fact, that U.S. consumers’ collective personal debt has risen to over $23 trillion – about $69,800 per citizen.
The S&P 500 benchmark index closed down 3.9% on the day. The Nasdaq composite index fell 4.7%. The yield on 10-year Treasuries climbed 0.22 points to 3.39%.
Plus, bitcoin is down another 14%+ over the past 24 hours, and rates on the 30-year fixed mortgage hit 6.13%.
Spiking prices are overshadowing the Fed’s policy meeting tomorrow and Wednesday, where the Federal Open Market Committee will almost certainly hike interest rates by at least another half a percentage point.
Inflation is driving prices upward at the highest level in over 40 years, leaving the Fed with little wiggle room to cut interest rates in the face of dizzying markets — as it has done repeatedly in recent years, most recently in 2019.
For now, the markets will have to figure out how to live without the support of the Fed.
Stubborn, persistent, historically high inflation continues to make a splash as we approach another, otherwise relaxing weekend.
Earlier this week, Pam and Russ Martens at Wall Street on Parade featured Schlafer’s Auto Body & Repair in Mendocino, California, which was making headlines in quite the inauspicious way.
Schlafer’s, you see, is home to an independent Chevron gas station and as of last weekend, it was charging what the Martens say is the highest regular gas price in the country – at $9.60 a gallon.
That’s 50% higher than the average price for regular in all of California ($6.37), according to the American Automobile Association’s gas tracker, and essentially twice the national average ($4.91).
Now, the Martens point out that California is far from the only state where complaints of outrageous price gouging are being heard.
The Daily Record of Maryland reports that a Shell station in Bowie, MD, was charging $6.13 for a gallon of regular gas, at the same time an Exxon station “less than a block away,” was charging over a dollar less.
The lion’s share of gas stations in the U.S. are independently owned and operated – not by a major oil company.
More warehouse workers, fewer waiters. More health store employees, fewer in public schools. The overall job market is getting back to its pre-pandemic strength, but it looks a lot different.
Courtenay Brown writes that disruptions over the past two years have shaken up the composition of the labor force — “with big implications for how industries will have to adjust to a longer-term worker shortfall.”
Economist Ellen Gaske at PGIM Fixed Income says, "I'm not looking for recovery to pre-pandemic levels in each industry. Some workers have left for greener pastures, and that's a good thing.”
She added, "There is more opportunity for workers to return to new jobs — where the industries are growing and the outlook is potentially brighter. That churning is what offers up a possibility of stronger productivity gains and increased standard of living."
EU sanctions on Russia — as demanded by the bloc’s US master — have had a boomerang effect.
Instead of harming their intended target — largely self-sufficient Russia — they’re biting the hands and shooting the feet of bloc nations.
After weeks of toing and froing debates, what passes for EU “leaders” agreed on a sixth round of self-destructive sanctions on Russia.
They include delisting Russia’s Sberbank — one of the nation’s two largest banks — from the so-called SWIFT international payment system.
I’m writing this ahead of the three day Memorial Day Holiday, so I’ll try and keep it short. Like many of you, we too have some delicious plans for the weekend, and writing a long drawn-out article wasn’t high in the ranking. Ha. But I do want to talk briefly about the market and what I see happening.
For over two weeks, I’d been looking for a bear market bounce to occur. Maybe three actually. But each one ended up just being a one-day wonder, where on very low volume they’d send the DOW up 4, 5, 600 points, only to see it roll over and flop the next day. It was frustrating, not to mention the intra day volatility that often saw round trip swings of 900+ points. Great for daytrading, but not so hot for swing trades, or short term holds.
Well, starting this past Monday, the market (especially the DOW) decided it was finally time and we’ve seen them put in a powerful reversal. It was pretty overdue, as the market had fallen for 5 weeks in a row. But we finally got it and because people have short memories, there’s a ton of chatter that the bottom is in, and now we’re starting the first legs of a new bull market.
That could be possible. Anything is possible. But is it probable? That’s up for debate. So really quick, let’s ask a few questions and see where the answers lead us.
The National Inflation Association is out with its 2022 Gold Education Report and, boy, is it a doozy!
The NIA’s report chronicles gold’s historical path and suggests its future track, given its close relationship to factors like M-2 money supply, price inflation, the Fed Funds rate, the U.S. dollar index, and others.
Let’s Take a Closer Look.
The NIA says the #1 factor that determines the price of gold (in U.S. dollars) in the long run is the country’s M2 money supply per capita.
The report notes that in January 1980, when the U.S. last experienced a price inflation crisis, gold peaked at $850/oz. when M2 money supply per capita was a mere $6,569 ($1.617 trillion total M2, not seasonally adjusted).
Today, with M2 money supply per capita of $66,234 ($22.072 trillion total M2), the NIA believes dollar-priced gold could surpass $8,500 in the years ahead.
For the past 15 straight years, “gold always bottoms at the same exact price as a percentage of M2 money supply per capita of 2.7%,” according to the NIA.
In fact, when gold is less than 2.8% of M2 money supply per capita – like it is today – gold achieves median forward price increases as follows:
2.4% in 1 month (5.4 times higher than normal), 7.7% in 3 months (4.6 times higher), 10.8% in 6 months (2.8 times higher) and 24.9% in 1 year (6.4 times higher).
What’s more, gold gains 100% of the time in these situations.
Since 1968, gold’s long-term median price as a percentage of M2 money supply per capita has been 2.94%, ranging from a low of 1.2% in 1970 and 1.4% in the early 2000s to a high of just shy of 13% in 1980.
A new facility in the Philadelphia region is soon expected to better prepare union carpenters to help build the 21st century energy grid by training them to work underwater.
Say what? Carpenters who work underwater? Who knew?
A year before the pandemic hit the U.S., consumer sentiment was on the rise, eventually hitting the 101 mark in February 2020 before abruptly falling to 89.1 and then 71.8 over the next two months.
The latest consumer sentiment index declined by 9.4% to 59.1 from 65.2 in April, reversing gains realized last month.
The 59.1 represents a 59% fall from its pre-pandemic peak and is the lowest reading since August 2011.
What is the Consumer Sentiment Index?
As Emily Peck teases, they're b-a-a-c-c-k. ARMs, that is.
Adjustable-rate mortgages, which are initially issued with a lower rate than, say, the 30-year fixed rate and jumps up after a certain time period (usually 1, 3 or 5 years), made up about 11% of all mortgage applications last week.
That’s the highest level since the 2008 Great Recession, according to the Mortgage Bankers Association.
It’s another way the Federal Reserve’s interest rate hikes are affecting markets and consumer behavior.
Until recently, 30-year fixed mortgage rates were super low. As of the end of last year, they were hovering just above 3.0%. During the pandemic, they’ve gotten as low as 2.77% last August.
It didn't make sense to take on a riskier adjustable loan; ARM rates have ranged between 2.37% and 2.56% between last August and the end of December.
Now with rates on 30-year fixed loans more than doubling to around 5.3% this week – and ARMs often coming in at more than a point less – homeowners are going for it.
Many readers might remember ARMs from the housing bubble that led to the 2008 financial crisis and subsequent bailout.
Back then, many subprime (unqualified or high-risk) borrowers took out interest-only ARMs with super-low teaser rates that would skyrocket to unaffordable levels – some after 1, 3 or 5 years.
When their monthly payments went up, many of them couldn't pay and wound up in foreclosure and bankruptcy.
Banking regulations and underwriting standards have tightened since then, prohibiting a lot of that kind of stuff.
Friday’s latest government jobs report shows two ongoing trends:
First, with employers adding 428,000 in April, the economic rebound from the brutal pandemic seems to be holding together.
And second, as shown in the chart above, the level of the job rebound since the early days of the pandemic continues to depend on what industry you work in.
On the one hand, April’s seasonally adjusted figures are virtually the same as March’s, according to the Labor Department, with the growth in jobs broad-based across every major industry.
Last fall, aerial drone photos showed dozens of huge, multi-colored container ships backed up outside the Port of LA.
Even then, it looked like inflation was going to be with us for longer than the Fed and many others were predicting at the time.
It’s simply transitory – temporary – they insisted. Turns out, they were wrong, by a long shot.
Inflation, as measured by the Fed’s preferred, if somewhat mythical, metric – the Core Personal Consumption Expenditures Index (i.e., excluding food and energy) – has steadily risen since the pandemic was declared in March 2020.
The core PCE consistently hovered at or below the Fed’s 2% target from late 2008 until the 1st quarter of 2021.
In February 2020, just before the pandemic was declared in the U.S., the core PCE was roughly 1.8%.
Since then, it’s risen every quarter, from its low of 1.0% in Q2 2020 to 5.2% at the end of March 2022 – more than double the Fed’s target.
Of course, the broader core Consumer Price Index (CPI-U) rose an even higher 6.5% in March (8.4% when you include food and energy prices).
The other day I said that there’s not going to be any Fed rate hike and then they’re done. No “one and done” sort of thing. I also explained why I think that they’re going to drive down demand for things, by making it harder to borrow money.
Now, I see a LOT of the so called market genius people saying that the Feds will hike into a recession, then have to stop and reverse course and start a new round of cuts and increase their QE. I get it. I really do. It’s been the norm for years…decades actually.
An Economy at a Crossroad
Emily Peck believes the country’s at a new threshold in this period of bad vibes – thanks to mixed economic signals, a new and intensifying war and, yes, continuing Covid weirdness.
Americans’ growing anxiety is rising as Jerome Powell and the Fed prepare to put the brakes on the economy, which could cool off the hot labor market – and further sink stocks and bonds and to a lesser extent precious metals.
Next week, the Fed will almost certainly hike rates by half a percentage point.