Which Way Wednesday – Four Fed Edition

Williams, Yellen, George and Kocherlakota.

It’s the “murderer’s row” of economic BS today as, starting at 10am, we have 4 consecutive hours of Fed speeches ahead of the release, at 2pm, of the minutes of the last meeting (4/30), whose statement led to a bit of a sell-off the following week – knocking us down to the mid-April lows.  With the Russell already failing those lows and the Dow again failing the 50 dma – the Fed is pulling out all the stops to spin things back to bullish.

It’s very hard to be bullish when THIS is the chart of existing home sales in the US.  Keep in mind, this is WITH $85Bn per month in stimulus last year and RECORD low mortgage rates. The Fed’s Charles Plosser sees “a ticking time bomb” of inflation and, if the Fed is forced to raise rates to combat inflation – how is that going to make housing more desirable?

Even this morning, MBA Mortgage Applications were down 3% on purchases.  That’s 3% lower than last month, when they used the weather as an excuse for that crappy performance.  6 years and $6,500,000,000,0000 worth of stimulus later, we’re barely above the level of housing purchases we had after the first S&L crisis in the early 90s and we’re still over 60% below our peak housing levels.  

Keep in mind that this is the number of home that are sold in the US, so it’s a number that should always be rising as the number of homes expands over time.  In 1990, there were 35M less homes (97M) than there are now (132M) but between 1990 and 2010, we built 34M homes or about 1.7M per year.  In the last 4 years, however, we have built only 720,000 homes or just 180,000 homes per year!  

On the one hand, those are horrific numbers but, on the other hand, it would seem like an opportunity because, at some point, you would think we should go back to building some homes.  HOWEVER, the US population is 314M at the moment and that’s one home for each 2.37 citizens but, in 1990, there were 250M of us in 97M homes – or one home for each 2.57 of us.  On the whole, unless MORE people are moving out on their own(household formation) – we seem to have seriously overbuilt homes in this country.