Posted on 12/01/2016 2:51:31 AM PST by expat_panama
Pending home sales rose less than expected in October as mortgage rates were rising. Meanwhile, Chicago-area factory activity expanded at its fastest pace in nearly two years in November.
Pending home sales rose 0.1% last month, the National Association of Realtors said Wednesday. Economists had expected a 0.8% increase. The index measures contract signings of existing homes. That foreshadows what existing-home sales closings will likely be in a month or two.
NAR cited ongoing tight supply of homes for sales for limiting demand. But mortgage rates also were rising. After the Nov. 8 election, mortgage rates skyrocketed along with Treasury yields as investors bet on Federal Reserve rate hikes and higher inflation in a Trump administration. Treasury yields rose sharply again on Wednesday, signaling mortgage rates will keep rising.
That could make housing less affordable, especially for first-time buyers...
(Excerpt) Read more at investors.com ...
The Fed was keeping interest rates low before the election to give Hillary a better chance at winning the election.
Anyone who believes that real inflation rates the past 8 years are as reported by the Obama administration is a fool or simply in the bag for the Democrats.
Maybe politics played a role here, but the truth is that the Fed's interest rate has remained unchanged since December 2015 but mortgage interest rates have been inching up for most of this year.
The Fed was keeping interest rates low before the election to give Hillary a better chance at winning the election.
Yes.
Trump did say “yellen and the Fed have become politicized in the debate.
Higher interest rates = stock market crash = politicized Fed but they’ll blame it on Trump. Yellen should be replaced.
They also had to keep rates low in the forlorn hope that young Americans would buy homes. Here in the northeast that just isn’t going to happen; the job market is so bad, high property taxes are holdovers from before the McJobs economy, and simply put, people that don’t breed don’t need detached single-family homes. Now the trend is towards multi-unit hives where childless American adults may raise pets while they watch foreign kids fill their local schools and playgrounds.
You see it too!
It has truly gotten bizarre here; my town recently built a “bark park” a short distance from playing fields, and you can see the foreign kids playing soccer in one spot and Americans taking their dogs to the other. They even had a goofy sign for a Halloween parade for the dogs.
Last week there was a news story that a NY fire department had revived someone’s dog, but the equipment they used wasn’t standard gear so people were raising money to provide these gadgets to all departments. Very creepy; shades of “Planet of the Apes” where people use animals instead of children...
“The Fed was keeping interest rates low before the election to give Hillary a better chance at winning the election.”
Excellent insight and good post. I guess you aren’t a democrat after all!
Yes.
Trump did say “yellen and the Fed have become politicized in the debate.
Higher interest rates = stock market crash = politicized Fed but they’ll blame it on Trump. Yellen should be replaced.
‘Very creepy; shades of “Planet of the Apes” where people use animals instead of children...’
In the interest of transparency, I have one outdoor dog. Interesting you made that statement. I campaigned door to door this summer in my county. I came home one evening and told my wife, if something gets in the air and weaponizes the dogs, we will ALL be dead in this county. Many times, a knock on the door elicited multiple barks from inside the house. People that were home, were fighting back the dogs from the door.
I have said history will look back upon us as round people with white teeth. They will find us with a dog under our arm too.
The problem with the notion that we have “real inflation” coming is that inflation is NOT just measured by quantity of money, but velocity.
So even when you have someone “sitting on interest rates,” if people think that money has less value, they will spend it quicker. Just the opposite over the past 10 years. People have been sitting on money, and sitting on it.
There is an alternate theory that I have advanced that so far no serious economists (and I know a couple) have been able to completely debunk:
What if, since the 1990s, we have had such astounding REAL increases in productivity-—not as measured by government, but as measured by ordinary people in their cell phones, electronics, homes and on and on-—that traditional measures have not captured it, let alone properly “monetized” it? What if instead of too much money through QE1, 2, and whatever, we had a period of DEFLATION so deep-—exacerbated by the 2008 crash-—that we still have not climbed back out?
George Gilder kind of agrees with me in his new book “The Scandal of Money,” but then urges a return to the gold standard. He never really gets around to dealing with HIS OWN THEORY that we began massive, unprecedented productivity expansion in the 1990s.
I don’t know. I used to be a quasi-monetarist, but nothing is fitting any theory. The last time this happened was 1776 when Adam Smith designed a new theory to fit new realities.
I have no issue with dogs, especially working dogs; I’m creeped out by people who elevate them to “personhood”. A nasty spinster co-worker, when a minority employee suggested reinstating the office Christmas party that had been held years ago for employees and their families, lashed out that they should only have it if she could bring her dogs.
Nuts.
See my above post. I think we have talked about this.
Have you read Gilder’s new book, “The Scandal of Money?” He pretty much refutes everything he wrote in “Wealth & Poverty.”
These are very good points. And I suspect that velocity is down partially as a reaction to the very low interest rates.
A hidden productivity deflation is something that is suspected to have occurred during the Roaring 20s. It’s very possible that we could be in that situation again.
I suspect that what currently appears to be inflation is a result of globalization, competition from China for purchasing items where we didn’t used to have to them competing. That’s higher prices due to supply and demand.
There’s an argument for the gold standard but we would have to free the US Dollar from being the world’s reserve currency. Triffin Dilemma would return IMO.
We live near logging country where it would be easy to ambush a homestead without the neighbor hearing. I have been keeping the outdoor dog tied up during the day because of deer season. But at night I make sure he roams free, especially on the weekend when a lot of beer cans start showing up along roads. I’ve never lived without a dog and never will.
My own work and that of other scholars showed that on eve of Crash, most companies’ stocks were in fact appropriately valued; that there was little evidence of a “bubble,”; that investors did know what they were buying; and that the money supply had lagged behind production and productivity.
But I always thought velocity was a factor of trust: if you didn’t trust the money, you spent it faster to get real stuff. Lack of velocity indicates huge trust in the money supply, which could be argued to support the notion that there is a massive productivity wave that hasn’t been monetized yet and that people instinctively know it.
It’s the only reason I can figure out for us not having hyperinflation with a $17 trillion debt.
My old dog died last year and I finally decided to get another this year. They are a good warning system. 3 or 4, especially indoors and ruining the house, I am not too fond of.
“But I always thought velocity was a factor of trust: if you didn’t trust the money, you spent it faster to get real stuff. “
That’s certainly evident during inflation. Those of us who lived through the ‘70s remember spending our dollars as fast as possible before they lost even more buying power.
In the current environment I can see people holding on to their money more than normal because they are earning nothing on their savings. When they spend, they aren’t spending interest, they are spending capital. For retirees this is a big deal.
So I suspect that velocity is actually lowered further due to the extremely low interest rates, which may be the opposite of what the Fed has been expecting. And I’m not sure that the Fed could change the interest paid on savings if they wanted, that could be due to a savings glut coming out of China.
“It’s the only reason I can figure out for us not having hyperinflation with a $17 trillion debt.”
About half of that $17T should be sitting on the Fed’s books for managing the money supply. So it’s not all high-powered money sloshing around the banking system. When the economy heats up the Fed will be selling their bond holdings to sponge up liquid money and slow down the expansion of credit. Who knows when we will see that.
I haven’t read the new Gilder book, in fact your post is the first time that I’ve become aware of it. If I can overcome my habitual laziness I should read it...
“Mortgage rates are tied to Treasury yields, and Treasury yields are climbing because more and more Treasury bills purchased by the Fed under all the QE programs are maturing. $200+ billion in these Treasuries matured in 2016, but over $1 trillion are maturing next year.”
I’m trying to figure out what effect this would have on the money supply. I suppose nothing, since the Fed already monetized the QE debt when they purchased it.
What it does do is remove the ability of the Fed to sell these bonds in order to reduce the quantity of liquid money. I think that the Fed now has the ability to issue their own bonds for that purpose but as far as I know they have never done this.
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