Falling home sales another sign of stagflation - or even recession?  - Hot air

Falling home sales another sign of stagflation – or even recession? – Hot air

Has the Federal Reserve succeeded in shutting down the housing market – as well as scaring off the stock market? Janet Yellen’s concession yesterday on the ‘stagflationary effects’ of inflation already emerging probably didn’t boost investor confidence, but sharp declines in mortgage closings and home sales raise fears of a crisis general economy.

CNN Business reports that April’s home sales numbers fell for the third month in a row:

Home sales fell for the third straight month in April as rising mortgage rates and affordability issues pushed many potential buyers out of the market. Still, prices continued to climb, reaching an all-time high.

The median home price in April was a record $391,200, up 14.8% from a year ago, according to a report from the National Association of Realtors. Although price growth was robust, it was slower than in recent months and determined buyers stretched their budgets to buy a home before mortgage rates climbed further.

The price increase marks more than a decade of consecutive year-on-year increases, the longest running streak on record.

But as the average rate for a 30-year mortgage topped 5% in April, the rising cost of financing a home pushed some potential buyers out of the market. Sales of existing homes, which include single-family homes, townhouses, condominiums and co-ops, fell 2.4% from the previous month and 5.9% from a year ago.

And this trend could get worse. Weekly mortgage demand fell sharply this month, in both new sales and refinancing, CNBC’s Diana Olick reports, although rates actually fell slightly due to weaker demand:

Mortgage rates actually fell slightly last week, but the damage has already been done to housing affordability. Demand for refinance and purchase loans fell, leading to an 11% drop in total mortgage application volume for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Mortgage applications for home purchases were down 12% week over week and 15% from the same week a year ago. It was the first weekly decline in buyer demand since the third week of April. Mortgage rates are up more than 2 percentage points year-to-date, and house prices are up more than 20% from a year ago.

The average contract interest rate for 30-year fixed rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.49% from 5.53%, with points dropping from 0 .73 to 0.74 (including origination fees) for loans with a 20% decline. Payment.

Inflation also doesn’t help consumers feel particularly good.

Olick also points out that April’s residential sales figures are the lowest of the pandemic:

Sales of previously owned homes in April fell at the lowest rate since the start of the Covid pandemic, according to the National Association of Realtors.

Existing home sales fell 2.4% from March to a seasonally adjusted annualized rate of 5.61 million units, the group said. Sales were 5.9% lower than in April 2021. This is the slowest pace since June 2020, which was artificially slow as the economy grappled with sweeping shutdowns due to the coronavirus.

This tally represents closings during the month, so it reflects contracts likely signed in February and March, when mortgage rates were rising. The average 30-year fixed mortgage rate started in February at 3.66% and ended in March at 4.78%, according to Mortgage News Daily. It now hovers around 5.45%.

These are not the only worrying signs of the impact of inflation on economic activity, direct or indirect. Falling operating margins at discount retailers Walmart and Target have pushed Wall Street into sharply negative territory this week, including this morning. CBS reported early this afternoon that the S&P 500 was on the verge of turning into a bear market, and analysts now fear that the Fed’s action could push the economy into a full-blown recession:

Wall Street is increasingly concerned about the potential for a downturn in the face of headwinds, including the highest inflation in 40 years and rising interest rates. Tighter monetary policy could create a bumpy landing – and even a recession – resulting in slower economic growth. Grim quarterly earnings reports from retailers such as Target and Walmart this week fueled investor concerns.

“It’s a gloomy morning as stocks fall across the globe,” Adam Crisafulli, president of investment advisory firm Vital Knowledge, said in a research note. “The Walmart/Target outbursts cast a hugely negative pallor on the tape, reversing the modest stability seen in Thursday-Tuesday markets.”

The slippage put the S&P 500 on the cusp of a “bear market,” which is when a stock index falls 20% or more from a recent high for an extended period. With today’s drop, the S&P 500 is down 18.7% from its most recent high of 4,796 on January 3, while the Dow is 14.4% below its most recent Mountain peak. The Nasdaq had already entered bearish territory and is down 29% from its last high in November.

As if the market needed more pessimism, inflation eroded first-quarter earnings at more upscale discount retailer Kohl’s. Overall year-over-year sales fell more than 5%, and the apparel/housewares retailer is revising its expectations for the rest of the year:

Kohls Corp. KSS 3.71%▲ slashed sales and profit targets amid a sharper-than-expected pullback in consumer spending, but executives said suitors remained interested in buying the department store chain ahead of the submission deadline.

While the first quarter started strong, company officials said, demand weakened as inflation prompted consumers to tighten their belts without the government’s increased stimulus measures. year to help spending. Overall sales for the quarter fell 5.2% from a year earlier.

“Their wallets are tight and so they walk into the store and they’re a little more attentive to the brands they’re buying and what’s going into their cart,” Kohl’s chief financial officer Jill Timm told analysts on Thursday. .

The results are the latest warning sign this week about the retail environment, triggering a sell-off in stocks across the sector. Major retailers, including Target Corp. TGT -4.91%▼ and Walmart Inc., WMT -2.21%▼ are growing sales at much slower rates than they did during the height of the pandemic, and now profits are falling due higher costs.

Even when incomes are stable, it is mainly because inflation has pushed prices up to cover the drop in sales. That’s what Home Depot and Lowe’s, both of which have benefited from home improvement impulses during pandemic shutdowns, are finding:

Shoppers are also shifting from discretionary purchases to low-margin items like groceries and other household staples, putting pressure on corporate profits. Home improvement chains Home Depot Inc. and Lowe’s Cos. see the number of transactions drop, but revenue is supported by higher prices for items in their stores.

We could see the end of several small bubbles this year, thanks to a sudden and deliberate contraction in the money supply. Home sales and consumer spending have plummeted over the past two years thanks to government stimulus and rapid monetary expansions, but in truth those bubbles probably started a dozen years ago with the expansions of Ben Bernanke’s quantitative easing. Clearly, our current hyperinflationary environment was caused in large part by Bernanke’s policies and then triggered by Joe Biden’s hyperstimulus. It will take a major recession to wring these bubbles out, but at least these should be less likely to cause a financial crash than the internet and mortgage bubbles of the past 22 years.

Or so we hope. Going forward, we should calculate our policies to avoid bubbles in the first place.

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