Bad news for America’s teeming scores of landless peasants: The cost to finance a cheap, hastily constructed wooden box erected on a parking space-sized parcel is back above 7%.
That’s according to the latest read on the MBA’s index, which showed a 10bps jump over the week.
As the figure below shows, that counted as the largest increase since April 24.
Recall that rates slipped below 7% for the first time in months in June as long-end Treasury yields retreated ~50bps from YTD highs. Now we’re heading in the “wrong” direction again.
It’s too early, I think, for the bond market to throw a proper tantrum at the prospect of a “red sweep” in November, but Wall Street’s talking. About a “Trump premium.” Extra yield to compensate investors for fiscal risks of a second Trump term. Mortgage rates track benchmark yields, not Fed funds.
Not surprisingly, mortgage applications fell for the first time since late May, the MBA went on to say Wednesday.
The last round of monthly US housing data was abysmal. Builder sentiment slipped to the lowest of 2024, housing starts were the lowest in four years, existing home sales fell a third month, new home sales plunged double digits and the NAR’s gauge of pending home sales fell to the lowest on record.
Wednesday’s MBA update only underscored the notion that Americans are hyper-sensitive to any move in rates with financing costs still loitering near the highest levels in decades. Don’t forget: If you’re in your 20s… well, first congratulations. Enjoy it. It won’t last. Second, you don’t remember a time when mortgage rates were this high. So, for America’s younger families trying to get started on a life they’ll hate by 40, these are “record” high rates.
Anyway, a quick check on Redfin’s news section (one of my favorite weekly perusals), finds Dana Anderson noting that in the four weeks to June 23, the “typical” US home sold for below ask. It’s “the first time the typical home has sold under list price this time of year since the onset of the pandemic in 2020, when the housing market nearly ground to a halt,” Anderson wrote.
According to Nick Gerli, inventory is going up quickly and prices are crashing in spec housing markets. Pretty interesting how variable the housing market is down to region, state, municipality, neighborhood.
Meanwhile, China is about to do some version of QE. A very interesting version – they are basically short-selling their own government bonds.
https://amp.cnn.com/cnn/2024/07/03/business/china-bond-market-bank-crisis-svb-intl-hnk
So how does it work, if you’re a Chinese bank and have loaned Chinese govt bonds to the Chinese govt who then short-sold them? If the bond yield rises and price falls, as the government wishes, the value of your bond declines. Does that hit your balance sheet? Does the government make you whole? Or does the government adjust your regulatory minimums? If the yield falls and price rises, does the government have to cover the short? If you need cash, can you end the loan and sell your bond? Are these questions all as fictional as the notion that your institution is anything but an appendage of the government?