Thread by @GordonJohnson19

1/15 Is the US housing bubble 2.0 about to "pop"? Well, first, we'll note that applications for home purchases are among the best leading indicators for the real estate market - i.e., potential buyers try to get pre-approved for a mortgage, then lock in a rate, and then start...

2/15... house hunting. And, the MBA's Purchase Mortgage Applications Index has dropped to levels not seen since the depths of the COVID lockdowns in Mar. 2020 - while index was up +8.1% this week, it was down -15.6% from a yr ago, which follows last week's 6/3/22 -20.6% YoY fall.

3/15 So, with the MBA Purchase Mortgage Applications Index now at the lows of late 2018, some history on the state of play in 2018 is warranted. That is, we note by Nov 2018 the Fed had been hiking rates for yrs (very slowly), QT was ongoing, & mortgage rates were >5%, which...

4/15... proved enough to shake up the housing market. What happened? Well, home sales slowed, home prices fell in many markets, and stocks sold off (hard). Moreover, in Nov. 2018, inflation was below the Fed's target; thus, w/ Trump pushing Powell to be more accommodative to...

5/15... boost the stock market, the Fed signaled around Dec. 2018 its intention to ease policy, and instantly mortgage rates collapsed, which sent home sales & home prices WAY higher. Yet, today, w/ the Fed's sole purpose to fight inflation w/ the blessing of the White House,...

6/15... J Powell & Co aren't going to stop home prices from imploding n-term. And, given the Fed is on record targeting demand destruction to bring down inflation, and real estate is BY FAR the largest holding (by wealth) of the majority of Americans (i.e., 55% of...

7/15... the wealth of the bottom 90%), it seems this is EXACTLEY where the Fed will focus its demand destruction (i.e., the US housing market).

8/15 Thusly, w/ the 30yr fixed mortgage rate (w/ 20% down) rising >6% this week, or the highest since 2009, we note that using a simple mortgage calculator & considering the 52-week low for the 30yr fixed mortgage is 2.8%, the price of a $400K house at a 30yr fixed 2.8% rate...

9/15... would have to drop to $272.5K (-32%) at today's 6.03% rate for the payment to stay flat. #housingcrash mortgagecalculator.org. And, as would be expected, it turns out sky-high home prices to be funded w/ near-recent record mortgage rates, not to mention fears around...

10/15... recession, & falling crypto/stock prices, combined, are a NASTY mix for homebuyers. That is, the number of people saying now is a "bad time to buy" a home jumped to 79% in May, a record high in the data going back to 2010, according to Fannie Mae. In short, THIS IS BAD!

11/15 It gets worse however. That is, in the most recent week, applications for mortgages to refinance an existing mortgage dropped -76% YoY, after being down -75% YoY last week.

12/15 In fact, w/ mortgage rates >6%, among the only reasons one would seem to need to refinance would be to extract cash from the home via a cash-out refi. Yet, according to the AEI Housing Center, which tracks mortgage rates by the number of rate locks, in May this seg. of...

13/15... the market (i.e., no-cash-out refi applications) imploded -92% from a yr ago. In short, cash-out refis provide A LOT of money for homeowners to spend on things like: (a) other homes, (b) home improvements, (c) cars, (d) credit card debt, (e) clothing/electronics,...

14/15... etc. In short, not only is the plunge in cash-out refis bad for the housing market, but it's bad for the broader US economy (i.e., leading indicator). And, w/ the spike in mortgage rates & subsequent -92% collapse in no-cash-out refi mortgage applications, this form...

15/15... of stimulus is OVER. The housing bubble is popping. Few understand this.