Mortgage Rates Are Rising Much Faster than Treasury Yields. What’s the Deal?

Is this spread heading to what happened in the 1970s and 1980s when the Fed battled blow-out inflation?

By Wolf Richter for WOLF STREET.

The average 30-year fixed mortgage rate tracks the 10-year Treasury yield, running roughly in parallel but higher. It tracks the 10-year yield because the average 30-year mortgage gets paid off in just under 10 years, either through the sale of the home, or through a refi. But they don’t move in lockstep, and the difference between the two – the spread – has been widening sharply, with mortgage rates suddenly rising much faster than the 10-year yield.

The US Treasury 10-year yield has shot up since the Fed made its infamous “pivot” in the fall of 2021, from willfully ignoring and assiduously brushing off the incredibly spiking inflation to actually acknowledging, even if tepidly at first, its existence and persistence.

Back in August 2021, the 10-year yield was still at around 1.3%. Today it’s 2.34%, having gained 1.03 percentage points in seven months. Over the same period, the average 30-year fixed mortgage rate, as tracked by Freddie Mac, jumped by 1.55 percentage points, from 2.87% to 4.42%:

The chart above shows what happened during the March 2020 chaos, when the Fed cut its policy rates to near 0% and announced a huge QE program which caused the 10-year Treasury yield (green line) to plunge, while mortgage rates just continued their methodical decline that lasted through December 2020.

That decline in mortgage rates was kicked off in late November 2018, when Powell, getting hammered on a daily basis by Trump, caved and communicated that the Fed would soon stop tightening.

At the time, inflation was below the Fed’s target, and the Fed was hiking rates that were already above CPI and it was reducing its balance sheet at a rate of about $50 billion a month (QT). Housing was getting hit, and stocks were tanking, and Trump, who’d taken ownership of the Dow, had had it.

The fact that the 10-year yield plunged in March 2020 while mortgage rates were only slowly declining caused the spread between the two to blow out. It maxed out at the end of April at 2.73 percentage points.

The average 30-year fixed mortgage rate continued to drop until it hit a historic low in December 2020 of 2.66%.

But the 10-year Treasury yield had started rising four months before mortgage rates started rising, bouncing off its historic low of 0.55% in August, causing the spread between the two to narrow. By December 2020, when mortgage rates had hit their low point, the 10-year Treasury yield had risen to 0.9%. And the spread continued to narrow into 2021.

Part of what contributed to the very low mortgage rates in 2021 was the narrow spread between the 10-year Treasury yield and the 30-year mortgage rates. At the time, it ran in the range between about 1.3 percentage points and 1.6 percentage points.

But in January 2022, the spread suddenly started widening, with mortgage rates rising much faster than Treasury yields. As of the latest weekly mortgage rate, the spread has reached 1.81 percentage points, after having hit 2.09 percentage points in early March. Note the increasing volatility of the spread:

Long-term patterns show just how much the spread can widen. The massive widening in March 2020 and during the Financial Crisis occurred because the Fed aggressively pushed down Treasury yields while mortgage rates lagged.

But in era between the mid-1970s and the mid-1980s, the Fed was aggressively pushing up Treasury yields to battle the markets with massive rate hikes. And mortgage rates in 1980 — like today — were running ahead of the 10-year Treasury yield as lenders were trying to deal with inflation. Eventually, Treasuries caught up, and then there were massive rate cuts, followed by more massive rate hikes, followed by massive rate cuts, and the spread blew out and shrank with huge volatility:

The current situation – an incredibly spiking inflation that the Fed is belatedly getting serious about – is much closer to the scenario of the 1970s and 1980s, than it is to the Financial Crisis and the March 2020 crisis. During the latter two, spreads widened because the Fed pushed down Treasury yields while mortgage rates lagged. Now the spread is widening because mortgage rates are running ahead and are rising faster than the 10-year yield. It’s likely that the spread will be very volatile, and potentially very wide for certain periods, with mortgage rates potentially outpacing Treasury yields by a wide margin during these periods, before Treasury yields catch up or mortgage rates back off.

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  231 comments for “Mortgage Rates Are Rising Much Faster than Treasury Yields. What’s the Deal?

  1. mjkim says:

    I thing it’s reflecting that MBS tightening will be bigger than T-bond one in QT.

    • Raj says:

      Meanwhile total Fed assets rose again by $8 billion this week after rising by $44 billion last week. So here we are speculating on QT in face of blatant money printing despite the untrustworthy Fed saying that it “MAY” consider QT in “FUTURE”.

      All Jawboning with little actual action : 0.25% rate hike to control 8% inflation is a joke. Not to mention that inflation is measured by BLS with significant effort to misrepresent the real number that runs > 15%. God bless America.

      • Wolf Richter says:


        Garbage. I get so sick and tired of this ignorant, idiotic, or manipulative — you pick — BS.

        1. For the week, total assets increased by $8 billion. For the entire 4-week period, the total amount of increase was $34 billion, or $8 billion a week. Why didn’t you show up and post this when the balance fell? Too painful, hahahaha?

        2. The Fed buys securities to replace maturing securities. If it stops buying securities altogether, its balance sheet will decline, and that will be “Quantitative Tightening.” Coming soon.

        3. You’re freaking clueless about the MBS, though I have pointed this out a gazillion times.

        The Fed buys MBS in the To Be Announced (TBA) market, and the purchases take 2-3 months to settle, which is when the Fed books the purchases, so that what we see added to the balance sheet during the week was bought 2-3 months ago, so Nov-Jan. MBS come off the balance sheet via pass-through principal payments when mortgages are paid off or are paid down, and these pass-through principal payments speed up when rates fall, and they shrink when rates rise (fewer refis, like right now); but the Fed has to replace them, but they’re impossible to predict. And that’s why you see the jagged line in the balance sheet.

        • Jay says:

          So he doesn’t understand how MBS works in pure terms, so what? His overall point is that the FED is clueless which you would seem to agree with having said a gazillion times the “most irresponsible, reckless FED ever”.

          As you well know, from late 2019 – Sept 2019, the FED’s balance sheet dropped less than $700B. During that same period, MND shows that the average 30YFRM went from 4% to 5%.

          The recent, rapid increase of the 30FRM is directly due to the FED ending MBS purchases (aka FAKE DEMAND) over the last 3-4 months. With rates pushing past ear 4.5%, the last QT tightening data fully supports, at a minimum, a 1% increase in the 30FRM by the end of the year. This assumes that after 2-3 months of MBS QT, the FED is forced to accelerate its overall tightening. And with real inflation running > 10% due to the FED’s reckless under-reporting of rents & OER, we could see the whole scenario accelerated by a factor of 2 by this fall, when the whole shebang comes home to roost.

          Personally, I want to see what the reverse REPO market does after 3-6 months of QT. My guess it will drop from its current $1.7T to something notably lower. This nearly $2T in FAKE liquidity needs to go away ASAP.

          And the real question is how much of a stomach does the FED and Congress have for > 5.5% mortgages? We can clearly see that the REFI business will literally end by the time we get to 5% rates. But rest assumed, I’ll keep getting those “everything is rosy” news feed alerts from NAMB.

          As we all know, the FED is doing everything it can to slow poke mindbogglingly QT.

        • Wolf Richter says:


          Look, the Fed is bad enough as it is. When people here just make up stuff that readers here then take seriously, they get misinformed in some silly way that then distracts from the real problems with the Fed.

          In terms of the $1.8 trillion in RRPs: if the Fed does $100 billion a month in QT, it will take about 18 months to burn through the $1.8 billion in RRPs. So I don’t think QT will blow up anything until after the RRPs are gone, PLUS SOME. Maybe another $500 billion or $1 trillion after the RRPs before serious fireworks erupt. Maybe.

        • Depth Charge says:

          What is the FED waiting for right now, Wolf? They are deliberately stalling in the face of the worst inflation in half a century. They have a raging casino going on in all risk assets and they ignore it.

        • CRV says:

          “”Garbage. I get so sick and tired of this ignorant, idiotic, or manipulative — you pick — BS.”

          I don’t like to read such reactions. Seeing a lot of those from you lately. For me it makes it harder to read your pieces without thinking of an angry man writing it. It gives a bad ‘colouring’ to the normally excellent info.
          Just saying.

        • Wolf Richter says:

          People need to stop abusing my site to spread willful manipulative BS. There are other sites that encourage that.

          If you don’t know and are puzzled about the Fed’s balance sheet, ask a question. And that is perfectly fine. But don’t try to manipulate readers here with BS.

        • Franz Beckenbauer says:

          You are funny.

          On the one hand you wonder, why mortgage rates go through the roof if the Fed only announces they might think about reducing their MBS purchases some time soon, on the other hand you still maintain QT – should it ever arrive – will be not a problem and everything will be just hunky dory. As soon as the Fed lets the market be a market again, it will blow up. Simple as that.

          How about those MBS on the Fed’s balance sheet that are now deep underwater with the raising mortgage rates, because noone is going to refinance at these higher rates ? Easy: They will have to hold them or roll them over for ever on their face value, because marking them to market would bankrupt the Fed. Think Lehman Brothers with the brothers now being Powell and Yellen.

          Once you go socialist there’s no way back other than a collapse of the system.

        • Wolf Richter says:

          Franz Beckenbauer,

          Thank you for calling me “funny.” I do have that vein in me.

          “How about those MBS on the Fed’s balance sheet that are now deep underwater with the raising mortgage rates…”

          The Fed has two ways of getting rid of MBS:

          1. By not replacing the passthrough principal payments that come in from the underlying mortgages via regular mortgage payments and mortgage payoffs either when the home is sold or when it is refinanced. This is a large stream every month, even if it is smaller than it was before. People are still buying homes and doing refis, just somewhat less at higher rates than at lower rates, and they’re still making mortgage payments. There are NO losses for the Fed here.

          2. By selling them outright. If it loses a little bit selling MBS, well fine. The Fed made $122 billion (with a B) in interest income in 2021. And it continues to make interest income in 2022. So what it has a loss against its interest income?

        • Winston says:

          “When people here just make up stuff that readers here then take seriously, they get misinformed in some silly way that then distracts from the real problems with the Fed.”

          And, in the end, it just doesn’t matter (thanks Bill Murray) because even the real problems of the Fed will NEVER be fixed short of an economic collapse because those “problems” are actually “features” of the system for those who benefit from it and who are also the only people in powerful enough positions to demand it be “fixed.” “Fixing” it would be against their interests.

          As far as central banks are concerned we’re proles along for their ride.

          However, I actually do agree with your point as I’d prefer an ACCURATE idea about how I’m being screwed in ways I can do absolutely nothing about as it at least allows more accurate guesses for investment purposes.

        • Lune says:

          “The Fed made $122 billion (with a B) in interest income in 2021. And it continues to make interest income in 2022. So what it has a loss against its interest income?”

          That’s an interesting question I was meaning to ask. Depending on how fast the Fed wants to tighten, it may end up needing to sell securities. Since most of what it will likely sell are long-dated securities, and these are the most affected by interest rate changes, the chances of taking a loss on their sale is quite high.

          $122bil in interest income over a year is not much when we’re looking at draining several hundred billion if not perhaps a trillion from the markets over the same timeline.

          While unlikely, it’s interesting to speculate what happens if the Fed books a net loss for the year? The Fed has no retained earnings: whatever profit it earns each year, it passes on to the Treasury. So technically, it has no cushion against losses. It’s never needed one because it’s never taken losses before (always held to maturity). But what if it were to book a net loss this year? Would it simply carry a negative equity or book value but otherwise still be able to carry on like before? Or would it technically be bankrupt? And what does it mean for a central bank to go bankrupt, when it can print the currency it needs to pay any creditor?

          It would definitely be uncharted territory (I’m assuming, though I don’t know the full history of central banking), and interesting to speculate about what it would mean from a practical standpoint.

        • Wolf Richter says:


          So let’s ballpark some numbers here, just for fun.

          1. The cash flow to the Fed from maturing Treasury securities and passthrough principal payments from MBS is likely in excess of $100 billion a month. Last year, it was a lot more per month. So at $100 billion a month, the Fed would reduce its balance sheet by $1.2 trillion in a year, and it would not lose money on those.

          2. If the Fed wanted to speed up QT and outright sell $50 billion a month in MBS (I doubt it, but just for fun), that would be an additional $600 billion a year. If it loses 15% on those sales (this seems high, but we’ll run with it), it would then lose $90 billion on those sales.

          But wait…

          The current portfolio includes a big pile of securities that the Fed bought years ago when yields were higher than now, and the Fed would make a profit selling those.

          The Fed also owns a big pile of TIPS and the principal value of TIPS rises with CPI, and the Fed would make a profit selling its TIPS.

          In addition, the Fed would continue to earn a large amount of interest on the current portfolio.

          The one thing that will happen for sure, the remittances to the Treasury Department will plunge. That happened during the last QT, and it will happen again. They might go away entirely, if the Fed doesn’t make a profit.

        • TweedleDum says:

          Wolf, I empathize with your sentiment. Unlike a lot of fellow commetators here, If anything, I feel you are far too patient in repeatedly clarifying such nonsense.

          One suggestion would be to create a running “BS Destroyer” post, where you debunk these ONCE and then can just post a reference say

          “BS#14 Debunked.” followed by link to the post.

          This would save some effort, and keeps your BS counters within in the comments discussion to maintain the accuracy of information being discussed.

        • Educated but Poor Millennial says:

          Hi everyone,
          Who say that FED always wants to stabilize the market?
          Apparently they want to wait until the balloon is pumped enough so the boom 💥 will be heard in other galaxies too (purposefully ) .
          Why? Who knows? Maybe they have agenda and you will learn much much later.
          I bet I will spend and will buy Wolf’s famous mug if I am wrong 😑. LOL
          Have a greate weekend

    • Shells says:

      Annnd, now US mortgages are essentially at 5%! Wow! Drama, and history in the making

      • Peanut Gallery says:

        That is absolutely amazing how quickly we got to 5%.

        For 30yr FRM we were less than 3% last summer! And now basically nine months later we are basically at 5%.

        MND published that their survey average came in at 4.95%

  2. Minutes says:

    This is a good thing. Let’s hope it continues indefinitely.

    • Peanut Gallery says:

      I agree. Increase in rates will bring back some sanity to home prices in the real estate markets.

      …or maybe not? Perhaps more and more people will start to hoard housing as a hedge against fiat?

      • Russ says:

        It is the funds that are buying residential because it is so much better than commercial.

        • Raj says:

          REITs are buying because Real estate yielded >17% over treasuries last year and still gives atleast >3.5% over cash thanks to Raging inflation (8% as measured by govt), and artificially low interest rates (0.25%) and artificially lowered mortgage rates (4.5%). It has nothing to do with commercial real estate.

      • Lash Leroux says:

        Corporate buyers may step up their buying as prices wobble.
        They finance their acquisitions outside of conventional mortgage channels.

        • Wolf Richter says:

          What you see in the headlines is about huge investors selling rental properties for billions of dollars to each other, with some trying to get out at the peak, and with others jumping with other people’s money.

          Corporate buyers/REITS/funds are NOT buying individual houses that homeowners are trying to sell.

          They’re buying entire portfolios of hundreds or thousands of already rented-out rental properties, for billions of dollars at a time, such as entire “build to rent” developments, or other massive portfolios of rental properties that are already rented out. They’re buying them from the homebuilders that built the build-to-rent developments (this is a HUGE thing now), and they’re buying portfolios of thousands of already-rented-out houses from big investors that are trying to get out.

          Investor purchases in of individual homes have been roughly flat: In February, “all-cash” sales, which includes institutional investors that can fund the purchases at the institutional level, remained in the same range, accounting for 25% of the transactions in February, down from 27% in January but up from 22% in February 2021.

        • VintageVNvet says:

          That may be true, in the main part, today, but the fact was that our competition as a cash buyer in the saintly part of the tpa bay area in late summer of 2015 WAS the hedgies, etc.
          We were fortunate to hook up with a realtor whose sign was on the house we wanted, and she told us it had been bought by a hedgie, and they was able to sort through a dozen or so more appropriate houses for us, most of which were not sold, but were being held by the banks to be able to sell to the hedgies — and these houses were spread all over the area.
          Finally found one, fully trashed, that the ”bird dog” for the hedge fund (s) had not properly researched before they bought it, and was able to close in 10 days and rehab it enough to move into in 30 days after that.

      • joedidee says:

        Mortgage rates at 4.42%

        I’m putting my WORTH LESS CASH to use buying HOMES for RENT
        made 4.42% this week instead of banksters grifting my $$

    • 2banana says:

      On the bottom chart.

      Looks like mortgage rate spreads at about 2.5% is gonna tank the market.

      • Peanut Gallery says:

        What is the significance of a 2.5 spread?

      • Implicit says:

        The feds sell MBS during QT, bond prices fall and rates go up. They are trying to drive rates up for a change.

        The equity line that I had for years before I recently consolidated during a refinance was also tied to the 10-year yield. The loan couldn’t go below 4 percent, however there was no limit up.
        Due to the low rates it stayed at 4 most of the time, but every once in it would go briefly over 4%.
        Probably starting to happen right now for those equity line variable rates. I would imagine it will cause problems for those stuck with variable rate loans.
        If a line was drawn for those type of loans it would be between the 10 and the 30 of the first Wolf chart with the same variability.


  3. Brewski says:

    Long way to go.

    The Fed continues to pump. Bought $28,000 million mortgage backed securities this week.

    “The beat goes on!”


    • Watching the money flows, the walk doesn’t even match the talk.

    • Wolf Richter says:


      I get so sick and tired of this ignorant, idiotic, or manipulative — you pick — BS.

      And, Ambrose Bierce, if you agree with Breski’s BS, you’re in the same ballpark.

      1. For the week, total assets increased by $8 billion. For the entire 4-week period, the total amount of increase was $34 billion, or $8 billion a week. Why didn’t you show up and post this when the balance fell? Too painful, hahahaha?

      2. The Fed buys securities to replace maturing securities. If it stops buying securities altogether, its balance sheet will decline, and that will be “Quantitative Tightening.” Coming soon.

      3. You’re freaking clueless about the MBS, though I have pointed this out a gazillion times.

      The Fed buys MBS in the To Be Announced (TBA) market, and the purchases take 2-3 months to settle, which is when the Fed books the purchases, so that what we see added to the balance sheet during the week was bought 2-3 months ago, so Nov-Jan. MBS come off the balance sheet via pass-through principal payments when mortgages are paid off or are paid down, and these pass-through principal payments speed up when rates fall, and they shrink when rates rise (fewer refis, like right now); but the Fed has to replace them, but they’re impossible to predict. And that’s why you see the jagged line in the balance sheet.

      • Moosy says:

        I am not a brilliant economist like you but can the explanation not be much much much simpler?

        The driving force behind the mortgages are banks and lenders who want to make a buck. So any excuse to have the rate higher will be used immediately and when there is reason for lower rates, they will walk it slowly. We see the same thing with the gas-at-the-pump prices.

        The driving force for the Fed and government is to spend as little as possible on interest . If rates are high, those bonds are sold and interest need to be payed to a third party. If rates are low, nobody except the Fed will buy them so all money stays in the system. And whatever the treasury has to pay the coupon clippers of the Fed does not matter since that money , the profit of the Fed, is returned to the treasury.

        • Wisdom Seeker says:

          The simple version of Wolf’s comment is that the Federal Reserve HAS stopped buying MBS, it’s just that the transaction accounting lags behind by a couple of months. So the paperwork on the final purchases is still being reported out.

      • This cycle was pumped egregiously on the front end. Now they repent at their leisure. Up until now the Fed has done a great job in a stressful situation. I also thought they should have raised rates first, and that was the correct assumption. Until they actually start cancelling signature only bond buys they are pumping the money supply in ways that benefit wall street. The supply chain debacle is no more evident than it is in the bond market. They over monetized (non existent spending bills), supply is down and prices are falling, yields spike. (Is it Treasuries fault?) We’re probably at peak money supply here, so buckle up.

      • Tom Bond says:

        The exact numbers don’t really matter, we don’t need details, we need insights. Fed’s intent is clear – more inflation. The war on inflation is like the war on drugs, the more the government fights it, the more people die from overdose/worse-living-standards/etc. $ 34 B increase in asset “purchases” isn’t “fighting inflation”, that much is absolutely, and indisputably true. It’s the starting point.

        WIN – “Whip Inflation Now” – was a Nixon era campaign to subtly blame the people for what the Gov/Fed were doing. Eat more lentils, buy less stuff and inflation will go away… not true.

        • Wolf Richter says:

          Tom Bond,

          “…exact numbers don’t really matter,” and “Fed’s intent is clear – more inflation.”

          Hahahaha, yes, “exact numbers don’t really matter” if they contradict some wishful thinking. Keep dreaming. Even markets don’t buy it anymore, and they bought everything and anything before.

          Average 30-year fixed mortgage rate today 4.95% already. And the Fed heads are STILL out there talking about 50-basis-point hikes this year (plural), rather than walking them back. This ship has sailed. The Fed is now actually trying (still too little too late) to crack down on inflation because this inflation is threatening the wealth of their constituents and the viability of the dollar. This is now serious!

        • Depth Charge says:

          “The Fed is now actually trying (still too little too late) to crack down on inflation because this inflation is threatening the wealth of their constituents and the viability of the dollar. This is now serious!”

          Wolf, with all due respect, I disagree with this. I believe the FED is trying to PRETEND they are cracking down on inflation while not really cracking down on inflation. Why do I believe this? Because they stood up there and told us they were “going to let it run hot,” and then that’s what they did and are STILL doing.

          A 25 basis point rate hike to supposedly combat 8% inflation is a joke. Everybody knows it. Even if they raise by 25 basis points every meeting this year and for the next 3 years, they wouldn’t catch up to inflation. Somebody mentioned they were asked about the FFR being so out of whack with inflation and Powell just mumbled or something, didn’t even really answer.

          I believe this is intentional. They wanted this inflation and they are secretly reveling in it. Otherwise, they would treat it like an emergency and take swift, forceful action. Instead, they chose not to.

        • Swamp Creature says:

          If .25% rate increase to combat 8% Inflation is a joke, then what is .25% rate increase to combat the real inflation rate which is running 15 to 20%??

      • Jay says:



        With the massive 0.24% spike per MND showing that the 30 YRM has jumped up to 4.95%, what’s driving these big increases in the last two weeks?

        Is the market right sizing lower prices / higher yields with what they expect in the coming weeks as the FED starts to QT its MBS portfolio?

        Does this mean the FED is signaling they plan to sell MBS vs just letting them roll off as they mature? If so, this could cause the mortgage industry demand to move rates / yields closer to what the current MBS on the FED’s books may sell for.

        These jumps lately are so significant, I can’t imagine it’s just the mortgage industry reacting to the ending of MBS purchases alone.

        My goodness, 6% mortgages by the time the FED starts QT in May is starting to look likely. And what happens if the FED jumps a 50 basis point rise in the funds rate for April? Yikes!


        • Wolf Richter says:


          I have to admit, the market reaction is going a lot faster than I had thought. This is really fast-moving now.

          Not sure I have a good answer for “what’s driving these big increases in the last two weeks?” other than that the mortgage market is buying the Fed’s projections of much higher short-term interest rates and massive QT amid rampant inflation.

          What is even more interesting is that the Fed talking heads are now all warning of faster and more and front-loaded rate hikes (50 basis point hikes, plural) DESPITE the surge in mortgage rates. A year ago, we had a flareup in mortgage rates, and the Fed heads then started walking back some of their verbiage. Now they’re INCREASING their verbiage despite the exploding mortgage rates.

        • HowNow says:

          Jay, seems to me that Depth Charge and some others WANT the FED to wreck the economy. Their fantasy is to then scrounge through the economic rubble and grift assets from the impoverished.
          The FED is definitely trying to stop and reverse the higher rate of inflation. For D.Charge and others, they’d like to see rates jump 8%, right out of the box, to match inflation. It’s a good thing that America doesn’t have one of these ninnies in charge of the central bank.

      • John Apostolatos says:

        “The Fed buys MBS in the To Be Announced (TBA) market, and the purchases take 2-3 months to settle, which is when the Fed books the purchases, so that what we see added to the balance sheet during the week was bought 2-3 months ago, so Nov-Jan.”

        I feel bad for Wolf to have to keep repeating this mantra without people reading (and understanding) it. My guess is the at the real fireworks will start this summer when the rug is pulled from under the MBS market. We are at 5% already. The ones buying now are what Wall Street calls “dumb money.”

  4. Trilander says:

    The Fed is so far beyond clueless that it smells like a mobster setup for the 1% elite at the expense of everyone else.

    • HowNow says:

      You should visit an ENT dr. The “mobster setup” is a pretty infantile conspiracy theory. Something much less than “theory”, really. If enough people on this website keep saying it, though, do ya think it’ll become real?

  5. Up North says:

    Our friend XiXi can’t wait to see how this is all going to end I’m telling ya.

    • historicus says:

      IF he wants to displace the US…….and he probably does (Thucydidies Trap)…THE he would also want his currency to be THE CURRENCY.

      The negative rates courtesy of the Fed may just be what turns the WORLD off on the dollar.

      • Augustus Frost says:

        If you have read prior articles on the subject here which I assume you have, then you will know that “real” rates are also negative in much of the world, not just the US.

        How much it matters varies on who holds USD.

        It’s most important to anyone who uses the USD as their currency of reference, like US based corporations and individuals because their income and expenses are also in USD.

        It’s essentially irrelevant to any central bank, because “they” have different motives for holding the USD (as FX reserves) and the “they” isn’t an actual person, so it isn’t actually anyone’s money.

        For foreign based corporations, it’s changes in FX rates that matter most, as that’s what affects their P&L the most directly. Inflation elsewhere impacts their costs indirectly but doesn’t have 1:1 correlation to the change in the FX rate.

        For foreign individuals, it’s also more about changes in FX rates, except that I would say it’s more important to them than other foreign entities because it’s their wealth.

        • Tom Bond says:

          “real rates are also negative in much of the world, not just the US.”

          “Much” is not all, just the West… and it most definitely doesn’t include the country we’re discussing – China. The *real interest rate* in China is well above 3%. it’s about (-13%) in the US. Much difference, no?

      • BigAl says:


        Sanctions are already turning the world off the dollar. Reserve currencies – typically don’t play nicely with capital controls.

        Of course, China also wants to exercise its own capital controls – so the path to making the YMB the world’s reserve currency is tricky.

    • John H. says:

      Up North-

      Doesn’t Xi have an RE skeleton in his own closet? The slow motion train wreck in Chinese housing development is truly gargantuan, and is allegedly 30% of China’s alleged GDP, though with China who really knows what the real numbers are….

  6. Dave Mac says:

    Let’s see what wonders The FED pull out of their massive bag of tricks.

    Will it work though?

    • andy says:

      They will pull.. wait for it.. a 0.25% rate increase. Then promptly print another $Trillion.

    • Nathan Dumbrowski says:

      Reminds me of a Batman with Jack Nickolson as Joker. He says to his side kicks “Where does he get those wonderful toys?” Then not actioning him he says “No really go find out!”

      I wait for what the FED will roll out next

  7. JustTruth says:

    Yeah, don’t they call this Build Back Better? Don’t worry, be happy. Everything you have experienced the past 2 years is just “Transitory”.

    • Troy says:

      If this is aimed at a certain political party then let me also remind you that In 2020 the government flooded the economy with $4,000,000,000,000 to anyone and everyone

      Although, I will not let either party off the hook since both unilaterally voted for the move

  8. Ben Sargent says:

    So if the fed buys the MBS how is the spread set? Other buyers? Jumbos? I have no idea myself.

    • Wolf Richter says:

      The market decides at what prices these MBS get bought (at what price do I want to buy those MBS?). Price determines yield. If they pay higher prices for those MBS, yields are lower. If they pay lower prices for those MBS (right now), yields are higher. Higher yields mean falling prices of MBS. In other words, MBS prices are falling faster than Treasury prices.

      • Jay says:

        Which means the FED will potentially lose billions of dollars, if by some miracle, the eliminate their entire portfolio of MBS while yields are rising / prices falling, NO? Because when the economy tanks, Lord knows the FED is going to jump right back into buying up MBS, right?

        Jokingly: Does the FED get to remit those losses back to the treasury?

  9. The Real Tony says:

    Th only thing Powell is serious about is creating hyperinflation which will spread to the rest of the world.

  10. No doubt there will be ripples in the system after massive
    pandemic spending and the inflationary blow back, and then the giant rug pull on spending due next fall. The 1800s were cattle, land and gold. Crypto is Beyond Gold, and Beyond Meat obsolesces cattle, and there are NFTs you can live in, virtually? Wonder what the mortgage spreads are?

    • Depth Charge says:

      I can’t wait for crypto gamblers like you to be completely wiped out.

    • Gen Z says:

      Crypto is one big SCAM and PONZI SCHEME.

      I remember when Bitcoin was US$100 in 2013, and I tried to buy it with my allowance, and when I used my dad’s credit card, the bank froze his card and he had to call them because his subscription payments were being rejected.

      But when Bitcoin was at US$70,000 and rising, the banks suddenly found a way to allow payments?!

      • BigAl says:

        Long-term – yes.

        In the shorter term it’s going to be finding uses as a possible way to circumvent sanctions. This will bid the prices higher.

        Digital currencies are, perhaps, the way of the future. But there will be no anonymity in their use.

    • HowNow says:

      Cattle should be obsolesced, not completely, just insofar as it’s food for the masses.

  11. Depth Charge says:

    No worries, the latest soundbite from the FED today was “FED reserve official doesn’t think housing is headed for a crash.” These people are desperately trying to keep house prices and rents out of reach of the young, the working class, the poor and the elderly. Since when was the FED’s mandate to actively promote inflation?

    • Wisdom Seeker says:

      When they have to come out and officially deny something, that often means it’s either true or about to happen… trying to forestall panic.

      If there wasn’t a legitimate reason to worry, the question would be ludicrous and they wouldn’t need to say anything.

    • HowNow says:

      Do you give much thought to this stuff: “These people are desperately trying to keep house prices and rents out of reach of the young, the working class, the poor and the elderly”, or do you just need to see a proctologist?

      • Wisdom Seeker says:

        It’s a legitimate perspective and one you won’t see in the corporate-funded media.

        High housing prices and high rents are a bane, not a boon, to most of the population.

        We don’t celebrate high car prices, high mobile phone prices, or high food prices. Yet housing is also one of life’s necessities, so why do people act like high costs of housing are a good thing?

        Wall Street has convinced people of a number of things that aren’t true when you look into them, including the notion that “credit” = capital, that “short-term credit” = cash, and that housing is an “asset” not an expense.

        • HowNow says:

          The damaging effects of high prices, etc., are one thing. But believing that this is being done intentionally, to impoverish certain classes, is conspiratorial b.s.

        • Wisdom Seeker says:

          The policy of inflating asset prices (the Fed calls it “the Wealth Effect”) is certainly intentional.

          The effect of impoverishing the young, creating historically unprecedented wealth inequality, is well documented.

          It’s a damning indictment of the Fed that they’re either doing this intentionally OR totally blind to the real-world effects of their policies.

          It shows you how little they really know, about what they imagine they can control.

          That much power should not be wielded by anyone so unaware.

          As Henry Ford once put it, if people really understood how money works in this country, there would be a revolution by morning.

  12. Jack says:

    In Canada I can get a 3 year 3.4% GIC, fully CDIC insured, guaranteed up to $100,000 principal and interest. I would not buy bonds at these low rates.

    • Number1gi says:

      Canada? Is it insured against Government seizure for misbehaving or thought crimes?

    • cb says:

      is it insured against currency risks when a foreign buyers(Americans) try to convert their principal and interest earned back into dollars?

    • georgist says:

      I’ve got some cash in car and I’m concerned.
      The Canadian “economy” is heavily reliant on increasing house prices.

      • BigAl says:

        It’s not only the “wealth effect” from increasing house prices…it’s also that high assessment values generate healthy property tax revenue for cities and towns.

  13. Trucker guy says:

    So what are the chances that home supply starts ratcheting up with supply chain issues easing and the pandemic winding down with construction finally starting to complete work while interest rates start skyrocketing.

    Another 2013 housing trough in a few years?

    • John Apostolatos says:

      Wolf’s article on unfinished new homes that are about to hit the market is a good one.

    • Anthony A. says:

      When the panic selling starts, everyone will be running for the exits. Just wait it out.

      • BigAl says:

        Anthony A.

        You’re assuming it will be a deflationary crash…

        …It’s an inflationary one this time around.

    • ru82 says:

      I am trying to analyze some of this housing data.

      Wolf sees the new home just finished and unfinished supply of home increasing. He has plenty of informative charts and articles. IMHO…Most new homes are very expensive I think. Inflation of input costs.

      Existing homes that are below $300k are being bought up left and right. These are the 2 and 3 bedroom homes from the pre-90s because nobody builds starters anymore. Maybe they will now? But this sector is very tight on inventory. These are starter homes but also the coveted homes investors like to buy and rent.

      Prices are certainly bubblicious. Look at almost any chart like Case-Shiller or Wolfstreet charts or Doug Short charts. There is a lot of zombie (empty house with no specific reason) inventory, but is there enough for population growth?

      If you look at some of Doug Shorts new housing starts normalized against population growth, there should not be big a big surplus.

      In reading housing reports for my area (which tend to be 3 to 6 months behind), there are not enough affordable houses but builders are building a lot of house but they are the unaffordable ($500k and up). People could afford the payments on these when mortgage rates were 3% but not at 4.5% or higher.

      But when I look at inventory for sale in my area. It is still historically low. But I live in flyover land and listening to Jim Puplava, there has been what he calls an inward migration. People are moving from the expensive coasts to cheaper places in the center of the U.S. or to states with no state taxes.

      • Trucker guy says:

        Who then can continually keep buying homes that are priced out of reach of buyers?

      • HowNow says:

        ru82, take a look at what’s now happened to publicly traded companies in the housing sector. They’re all approaching, or are at, 52-week lows and are trading at P/Es of 6, give or take. The market adjusts very, very quickly to what is anticipated, and housing investments are being anticipated to be dead money. Nobody rings a bell at the top, and there’s no thud at the bottom.

        • HowNow says:

          Incidentally, don’t get too excited about those low P/Es. They could go N/A when quarterly profits go negative.

  14. John Apostolatos says:

    Wolf, do mortgage rates really follow the 10 year anymore, or just car payments? It seem to me that mortgages are tied to MBS manipulations (and CMBS) since the mortgage market is tied to MBS now unlike the 70s and 80s. It seems to me that the Fed support for MBS was the key in recent years in keeping the rates low for so long.

    • Wolf Richter says:

      Look at the first chart.

      It’s not that one “follows” the other. It’s that they’re running roughly in parallel (similar maturities, different structure, different risks). And there is a spread between them. And that spread is changing.

      • Shells says:

        I wonder if the market is pricing in an expectation that rates won’t be back down below 4% anytime soon– thus fewer refis in the future and a longer average holding period than 10 years. Perhaps 30 year morgages will, on average, be paid back in something more like 20 years (if higher mortgage rates lead people to not move around so much).

        • Shells says:

          also imagining that higher mortgage rates in the future might lead people to refinance mortgages less frequently.

        • COWG says:


          The spread indicates risk between a risk free investment ( 10 yr treasury) and in this case , a mortgage…

          In an environment where the lenders think there is more risk of a buyer default, the more spread between the two rates…

        • John H. says:


          I always heard this referred to as “extension” risk.

          Extension risk played a big part in the 1990’s with the unexpected fluctuations on mortgage prices. Several bond funds and many pensions and other institutions (including Orange County California, and some municipal pensions in Iceland and the Nordic countries) were forced onto the rocky shoals of a volatile bond market.

          Exciting times, perhaps to be repeated?

  15. cb says:

    @ Wolf –

    How is the thirty year mortgage rate set? What are the determinants of it?

    • Wolf Richter says:

      Lenders decide.

      • cb says:

        It’s always perplexed me that a prudent lender would commit their money to a 30 year fixed rate. Of course if you can create money from nothing to loan and earn interest on, that changes the calculus. Add to that all the government guarantees. Then the ability to package loans and securitize them. And interest rate suppression and manipulation and asset support (at the expense of others) from your protector, the FED,,,,,, maybe there is no need to be perplexed.

        • Wolf Richter says:

          Most of the mortgages are securitized and sold to investors (MBS). Banks have some mortgages on their balance sheet, but the amounts are pretty small, given the size of the banks. So the “lenders” — meaning the entity that originates the mortgage, such as a bank — make money off the fees. Investors get the interest income and the risk.

          In addition, the majority of the MBS are government guaranteed. So investors don’t have any credit risk.

        • cb says:

          @ Wolf –

          Excellent explanation. Thank you. And with that I will suggest that it not Lenders who set rates, so much as Government guarantees in conjunction with a dose of influence from a debt supporting,, interest suppressing FED.

        • Peanut Gallery says:

          Wolf is right. Most lenders sell their loans and book a “gain on sale” when sold.

          So they don’t have a long term interest in the loan itself, unless for some reason it can’t be sold. In which case then they would have to portfolio the loan.

          Imagine a world where banks could NOT sell loans and had to portfolio every mortgage they originated. That would be a very different housing market.

        • Augustus Frost says:

          One reason you may be perplexed is because it isn’t actually prudent lending.

          What Wolf is describing is another example of moral hazard.

          In an actual sound financial system, no one would be able to borrow at fixed rates for 30 years in an unsound currency (all fiat currencies), at such low rates, on such inflated and overpriced collateral, and with such low credit quality standards.

          US mortgage standards are weak and farcical, not strict.

          Government loan guarantees and rising real estate prices due to inflation have provided the illusion of safety for most of the time since this model was introduced in the 1930’s.

          It worked until 2006 right before the GFC. It appears to be working again thanks to the fake economy and the asset mania which also makes borrowers appear to be much better credit risks than they really are.

          It’s part of the debt mania, the biggest component of the asset mania, which is waiting to detonate with another supposed “black swan”. (The GFC was not a black swan event.)

          I’m not sure how many if any other countries have similar mortgages. The only one I ever heard of (anecdotally) is Japan but never read up on it.

        • Abomb says:

          Augustus Frost, can you or someone explain to me in simple terms how mortgages function in other countries?

          Canada’s system seems even stranger to me. If you have to get a new loan with new terms and rate every 5 years or so, how do you know the rate won’t explode beyond affordability at one of those times? It seems that system forces rates to be stable or ever decreasing. I probably don’t know what I’m talking about here.

        • cb says:

          Peanut Gallery said: “Imagine a world where banks could NOT sell loans and had to portfolio every mortgage they originated. That would be a very different housing market.”

          at one time, before the securitization of real estate that was the case.

          I will contend prices were cheaper and it was better for the working American

        • cb says:

          Augustus Frost said: “It’s part of the debt mania, the biggest component of the asset mania”

          Agreed. Thanks for the response. Thoughtful and well written.

        • HowNow says:

          This may be incredible, but I got it from a respected economist at a major university: In the early 1990s, and possibly earlier, there were no long-term mortgages. Those loans were paid monthly! There were some restraints for lenders, so they couldn’t jack up rates and confiscate the property. So, prior to govt. guaranteed loans, home ownership was scarce, bank panics were frequent – when recessions hit, and the middle class was almost non-existent.

        • HowNow says:

          Whoops! That should have read, “In the early 1900s…”, not 1990s.

  16. Gen Z says:

    Here in Canada, one can get a “two year mortgage” for 1.50% interest. Meanwhile, the savings rate at the Big 6 is on average 0.10% interest.

    • Peanut Gallery says:

      Lol, what’s the point of a two year mortgage?

      In Canada, how does capital gains taxation work? Is it similar to the US, where if you live in a home for two years as a primary residence, you can exclude capital gains taxes?

  17. Catxman says:

    RE: The Fed belatedly following the newfound reality of higher inflation

    It is in the nature of governmental institutions to be conservative with their public “faces” and pronouncements. What does it benefit the Fed to agree that inflation is here? If it tip-toes behind, it can still look wise and perspicacious even though it’s really benefiting from 20/20 hindsight.

  18. unamused says:

    “Is this spread heading to what happened in the 1970s and 1980s when the Fed battled blow-out inflation?”

    Very possible. The likelihood will increase if inflation continues to increase, which is also likely.

    The Fed appears to be hoping inflation will get under control with only modest intervention. That’s unlikely. And hope can be such a cruel, cruel thing.

    • Wisdom Seeker says:

      Goldfinger has popped the credit bubble: “Mr. Bond, I expect you to die.”

      No one’s talking about it in these terms, but the bond market is basically crashing. Just ask any 401K owner about their “total bond fund” or “total international bond fund”. Both are approaching 10% drawdowns from the Peak of the Everything Bubble.

      Outside of the 2008 and 2020 market panics, this is unheard-of since at least 1994.

      Lots of people who thought those were “safe” investments will be pretty damn unhappy when they read their quarterly statements in a few weeks.

      • COWG says:

        It will not be fun when they lose a lot of money thinking they were buying bonds instead of a piece of a fund that traded bonds…

      • Augustus Frost says:

        If the bond bull market from 1981 is over, rates will ultimately blow past that prior peak. Fundamentals and credit quality are far worse now than in 1981.

        It won’t be a straight unidirectional movement, but the losses are only beginning.

        • Wisdom Seeker says:

          I don’t follow the logic of why rates ultimately have to exceed the prior peak?

        • HowNow says:

          W.S. – the logic is that “Fundamentals and credit quality are worse than in 1981”. But… butt… if inflation actually peaks soon, the dire predictions won’t happen. No point in cutting off a leg when some physical therapy may be the neeeded fix. Hope springs eternal!

        • Wisdom Seeker says:

          @HowNow & Augustus – Hmm. I suspect you have it backwards? I agree fundamentals and credit quality are worse.

          Back in the 1960s-1970s debt levels were much lower, and people were more averse to excess debt. But that would also mean that it would take a strong change in interest rates to affect economic behavior.

          So I think that means the economy is now far more sensitive to interest rate changes. The bond market seems to be thinking that inflation will subside quickly, that the current small increase in rates will unleash enormous “creative destruction”. Otherwise long-term rates would be higher.

          I have 2 doubts about this scenario.

          The first one is that the government policy response seems to be to try to print-and-spend to mitigate the effects of the inflation. The same mindset driving the current extreme leverage and low credit quality is driving the government policy response. It may take a lot of bitter medicine to change that mindset.

          The second one is that I’ve been studying the Treasury interest rates (yield curves) from the 1960s and 1970s, and the longer-term bonds back then ALSO didn’t react – the bond market back then also didn’t believe it would take 20% interest rates to stop inflation.

          Love to hear your further thoughts!

        • HowNow says:

          W.S., as I remember, the cost of money (interest rates) were generally higher in the period that preceded the twin recessions of ’74 & ’82. I was in Los Angeles then. During the ’82 recession, the local news stations included a session on teaching the public more about the effects of interest rates and on the subject of debt, featuring an economist. I could hardly believe it! People back then were indebted, big time, on credit cards. NPR had a one-hour program on the subject – I bought the cassette for that broadcast to give to my prodigal sister who was always in debt.

          When the EU moved to the Euro, people in Greece, who were used to 14%+ interest rates on home and personal loans, were elated that the rates for interest went down to under 6%, give or take. That’s what fueled the indebtedness that brought the country to insolvency. This is what I think A.F. is talking about – that right now, we are sooo far removed from reasonable interest rates and levels of debt, that he thinks the blow-back or normalization (if it can be called that) will be even more punishing than those earlier busts.

    • historicus says:

      the April inflation numbers with the Ukraine effect in full play to date…..will be mind blowing IMO.

      J Powell is going to have his “Bridge Over the River Kwai” moment….
      “What have I done?”

      I hope Wolf allows this picture

  19. Isaac S. says:

    great financial report. thanks!

    Not only is the spread blowing out (risk premium?), but SFH affordability is crashing to 2008 lows, and may end up tying with 2007 bubble high.

    Below is a snip from an insightful article from another outling that. WOuld be great if Wolf expanded on, and dug deeper on this bad trend. Seems like a 2008 pre crash inflation scenario cooking…

    After a massive surge in housing prices during the pandemic and recovery, the sticker price of housing has soared. Now, with the Federal Reserve starting to raise interest rates and bond markets creaking under the stress, mortgage rates are up to 4.5% and are nearing the highest levels in over a decade. The result is that the cost of occupying a home (that is, monthly payment needed to cover the cost of a house) has soared. As shown in the chart below, the mortgage payment required to cover the median existing home price at the national average mortgage rate is up nearly 30% over the past year, the fastest advance since at least 1987.

    Fastest increase in basic homeownership costs

    Of course, affordability is also a function of income. If wages are rising rapidly, higher mortgage rates and home prices might be offset by more income to cover those payments. To account for this, we convert the monthly payment implied by the median existing home price and the national average mortgage rate into hours, dividing it by the average hourly earnings of non-managerial workers. As shown in the chart below, at the average hourly wage today, a worker would have to work 51.1 hours to cover a monthly mortgage payment. That’s the highest since August of 2008, and shows that the combination of higher home prices and mortgage rates means that housing is increasingly outpacing incomes. Of course, with supply still tight, demand could fall quite a bit without a big hit to home prices. But the housing market is getting harder and harder to buy in to for most Americans. That also doesn’t include the fact that down payments are rising rapidly. The median existing home required 2,756 hours’ worth of average hourly earnings assuming 20% down in February; that’s only been surpassed by the blow-off top for home prices in the mid-2000s. Assuming 5% down, which many first-time buyers are eligible for, the numbers look less scary with 689 hours’ worth of wages needed. But that’s still rising rapidly. Bottom line: housing prices are rapidly outpacing incomes, and that will suppress demand, even if it might not be enough to make up for record low inventories.

    • Wolf Richter says:

      In this rising interest-rate environment, the way a home becomes more affordable is that the price goes down. Why is this so hard to understand or accept? That’s how it happened in 2006-2012, following the rate hikes into 2006.

      The Fed is now constantly mentioning housing costs. The Fed is trying to put a lid on them by raising rates. House prices are going to come down when rates are rising this fast this far (they’ve got further to rise).

      • John Apostolatos says:

        “In this rising interest-rate environment, the way a home becomes more affordable is that the price goes down. Why is this so hard to understand or accept?”

        Of course this is unacceptable. Without the bubble in stocks and real estate the perceived wealth effect would evaporate, and along with it the collateral to borrow more.

        • JeffD says:

          Exactly. The “wealth effect” is more aptly named the “leverage effect”, or the “asset bubble effect” but those name are too accurate and honest to be palpable.

        • JeffD says:

          Sorry… palatable. It’s been a long day.

        • HowNow says:

          “palpable” works, too.

      • Gabby Cat says:

        Funny the home builders we are talking to just sent out a mass email that supply issues are causing them to raise the base price of every house $35K. Now every builder, subdivision or build on your lot, will not build a house under $500,000. In 2019, the same house was $380K and came with finished basement and patios. We are back to 2006, in which you pay for the lightbulbs to be installed or install them yourself. Disgusting! If history repeats itself we have two more years of this!

        • Wisdom Seeker says:

          It will go faster this time, for at least 3 reasons:
          1) The bond market is moving much much faster than in 2006.
          2) Market participants know what happened in 2006 and many don’t want to get burned again. In 2006 most people were much more naive.
          3) Corporate participation is much greater and they don’t sit on their hands when the market turns. Ask Zillow.

        • So lumber prices down 22%, means this hasn’t worked through the system. these houses were built with expensive lumber, (bad business decision?) or indeed supply of housing is tight, and somebody wants to make a whole bunch of money?

      • Isaac S. says:

        re “the way a home becomes more affordable is that the price goes down. Why is this so hard to understand or accept? ”
        Outside of the GFC, which was a liquidity crisis, that has never really been true in urban metros like San Francisco. I expect this time is very different any how, b/c the past 10 years was under building SFHs against population, and NIMBYs block nearly all affordable construction nationally, and mega money hedge funds/Wallstreet prop up SFH prices to make more on renting SFHs the worse the affordability of SFHs get.

        So, who say SFHs ever have to become affordable? So, long as NIMBYs constrain inventory of affordable multifamily housing, rents will soar, which will prop/push up SFH prices ever higher.

        So, tt might end up looking nationally like SF has been for the past 30 years, where people have to rent, hyper-roomate, and save up until the 50s to buy a house, b/c prices never drop to be affordable.

        • Wolf Richter says:

          Isaac S.,

          “Outside of the GFC, which was a liquidity crisis, that has never really been true in urban metros like San Francisco.”

          There have been many many cities with sharp and long home price declines – in some cities home prices collapsed and stayed down (Detroit, Tulsa, many others). Home prices in Tulsa became and remain affordable.

          The thing is there haven’t been many SIMULTANEOUS housing market downturns to where the nationwide average prices tanked. That happened in the Financial Crisis. And that across-the-US simultaneity is rare.

          For example, in San Francisco, home price peaked in Apr 1990 and then declined until 1996, when the dotcom bubble started taking off. Over these six years, home prices fell 11% (data from Case-Shiller).

        • HowNow says:

          Another factor, Isaac, is that some cities. by statute, will not increase supply, unless they allow vertical development. There are coastal cities that will absolutely not increase the housing supply (all lots are developed) or allow increasing the square footage of existing homes! These are typically in highly affluent areas where demand is still substantial while new supply is suppressed.

      • Isaac S. says:

        Wolf, re “There have been many many cities with sharp and long home price declines”

        those are almost always places where the local/regional instustry engine dies/fails.

        re ” in San Francisco, home price peaked in Apr 1990 and then declined until 1996, ”

        I doubt that will ever repeat again. SF Bay Area housing prices are closely tied to the stock market, and the Fed world has changed since the 90s, where the Fed must always keep the stock market growing much faster than CPI so that pension funds do not go bust and crash the economy. Also, in the 90s, there was very little Euro$ hot money from EMs looking for a safe-heaven home. Going forward, China (for CA & LV) and Russia (For NY) will also keep those housing markets pumped up, even in down stock markets, like they do in Canada, London, etc. Also, in the 90s was before NIMBY ordinances were passed that blocked all affordable housing construction, and most all new housing. So, the fix is in on all fronts in SF Bay, prices only go up or stay flat for a short time (like 2017).

        • Wolf Richter says:

          Isaac S.

          “I doubt that will ever repeat again.”

          What the heck are you talking about? It already DID repeat and much much worse, during the Housing Bust. Home prices in San Francisco plunged by 43% from June 2006 to Feb 2012 (Case-Shiller).

          I didn’t mention it in my comment because I took for granted that you knew it from having seen the below chart in one of my gazillion articles on this topic.

          In other words, it happened TWICE in SF in a 20-year period (1990 – 2011). And it’s going to happen again. Last year, 4,000 housing unites were completed in SF, while the population declined by 6% (Census). Every year, 2,000 to 4,500 housing units are completed in SF. Nobody counted on a declining population. Rents are down 22% from the peak in July 2019 (Zumper)

          From my last “Most Splendid Housing Bubbles Series”

        • Isaac S. says:

          Of course I know about the 90s and GFC1 housing price crashes!

          re “In other words, it happened TWICE in SF in a 20-year period (1990 – 2011). And it’s going to happen again. ”
          Apparently, you did not read my post that explained why I don’t expect that can/will repeat again, or if it did, it would not last long or go nearly as deep. This post GFC 1 world is too financialized w/ a global CB/Fed Put like never before. The Fed cannot ever reduce its balance sheet, incl. MBS, in addition to all my other points made.

          re “Last year, 4,000 housing unites were completed in SF, while the population declined by 6% (Census). ”
          you are wrong to expect that is the trend. population is quickly returning to the urban core and places are reopening and rehiring fast.

          re “Every year, 2,000 to 4,500 housing units are completed in SF. Nobody counted on a declining population. Rents are down 22% from the peak in July 2019 (Zumper)”
          you are talking about the high end (condos). hardly any SFHs are built in SF. There was an oversupply of high end condos in SF since 2017, and who cares if they have to lower prices, does not affect SFH prices much. If you chop off the over built high end condos/apts, I strongly expect that 1 bdrm rents in SF are nearly back to pre-COVID levels, esp, at the lower half of the market. are their any charts about this?

    • cb says:

      Issac said: “at the average hourly wage today, a worker would have to work 51.1 hours to cover a monthly mortgage payment.”

      Calculation? Sounds on the low side.

      • Isaac S. says:

        @cb, well that does sounds reasonable to me. I got it of a Seeking Alpha article, but Wolf doesn’t let me post evidential article links.

        I would figure an affordable mortgage payment is 33% of monthly wages income at 40hrs/wk. So, 51 hrs to pay mortgage, would be ~1.3 times longer work , or ~42% of income to housing, which is deemed unaffordable by most metrics. That forces descretionary demand destruction, esp. if food and energy prices soar at the same time.

        • cb says:

          @ Issac –

          thinking out loud ………….

          40 hrs in a work week
          4.3 weeks in a month
          40 * 4.3 = 172 work hours in a month
          article said 51.1 hours to cover mortgage
          51.1/172 = .2965
          30% of monthly gross earnings to cover mortgage

      • Wolf Richter says:



        avg. hourly earnings = $31.58
        51.1 hours x $31.58 = $1,613 mortgage payment
        30 year fixed at 4.5% at $1,613 monthly payment = $318,000 mortgage.

        Median price of existing home = $357,000 (NAR)
        minus 10% down: -35,700
        = to be financed amount: $321,300

        But that’s not how it works because if you earn $31.58 gross, you might only take home $26 (assuming 20% total withholding), and you have to make the mortgage payment from the take-home pay.

        So it’s a lot tougher if we do that same calculation at $26/hr:

        51.1 hours x $26 = $1,328 mortgage payment
        30 year fixed at 4.5% at $1,328 monthly payment = $262,000 mortgage.

        That’s not going to buy a median house outside of some cities such as Tulsa maybe. It’s not going to buy even a doghouse in more expensive cities.

        • ru82 says:

          In mentioning Tulsa, I remembered that Tulsa is even offering $ 10k for people to move there. Surprisingly, there still are affordable cities in the US. and some will pay you to move there.

          Tulsa Remote is a 1-year program that gives selected applicants, among other incentives, $10,000 in cash or toward a home purchase. Since its inception in 2018, the program has received more than 50,000 applicants and accepted around 1,200 people

        • Wolf Richter says:

          Yes, they would pay me to move there since I’d bring my own work-at-home-media-mogul-empire-headquarters job with me. Bringing your own job with you is a requirement to get the $10K. They’re pretty desperate. Nice city though. Lived there for many years.

        • Isaac S. says:

          Wolf, great reminder re taxes. I knew the housing burdon was at least 40% pre-COVID so I think I shortened the work week to help boost my calc to get there.

          BTW, I track Essex (ESS) Con Calls to follow the pulse of the West Coast, esp. SF Bay & So. Cal. There last CC did not dissapoint. it is all a good read, but I think you and your followers will particularly find the below snips interesting, esp. the part about So Cal. rent affordablility trend getting much worse, but SF Bay is much better (likely b/c job recovery still lags). SF is coming back fast, incl. tourism, so I expect that nicer rent affordability will get much worse by end ’22.

          ESS CC snips:
          Yes. This is Mike, and maybe Angela may have a comment too here. But generally speaking, the good news is that incomes are moving and that affects us in terms of our guidance, but it also helps us charge more rent or allows us to have higher rent levels and helps us much more than what it cost us on the operating expense side. So we’re pleased with higher income levels, and we’re seeing that throughout our portfolio. And in terms of numbers, so Southern California, for example, has a rent to median income. This is the median – this is not our data, this is a general data that comes from our data vendors, but using median rents and median incomes, we’re currently at 26.9% rent to income in Southern California versus the long-term average of 22.3%, so well in excess of that average. And then conversely, in Northern California, we’re currently at 22.1% rent to income versus a long-term average of 23.1%, so well below in that regard. Seattle is a little bit different. It’s at 21.1% versus 18.7%, respectively. So it suggests that it’s higher in the rent to income versus the long-term average, although that market has changed pretty dramatically in terms of it going from being a lower cost to a higher cost or higher rent market over the last 10 years or so. So I’d say, it’s fundamentally changed its nature. Does that help answer your question?

          For example, in Los Angeles County, Downtown LA net effective rents are flat from pre-COVID levels, while suburban areas, such as Long Beach and Santa Clarita are up 15% to 20%. We attribute the underperformance of the urban core to the damaging lockdowns in 2020, which resulted in severe job losses in restaurants and the service sectors. More broadly, recoveries in the urban core and major tech companies have been slowed by ongoing government restrictions, worker shortages and delayed return to office plans. While the large tech companies generally did not experience job losses, their hiring slowed during the pandemic and many employees relocated in the initial phase of the pandemic due to citywide shutdowns.

          As of December 2021, the U.S. has recovered about 96% of jobs lost in the pandemic compared to only 78% for the Essex markets. Obviously, we are disappointed that many tech employers pushed back their office re-openings during the surge of the Omicron variant over the holidays. However, the data indicates that most large tech employers will adopt a hybrid office environment and therefore, the return to office should be a significant catalyst for housing demand in our poorest performing markets. With job growth now exceeding the U.S. average, we believe that our recovery is well underway and several observations support our positive outlook.

          As highlighted on previous earnings calls, there has been many large investments in office space by the large tech companies this past year, contributing to positive net office absorption in 7 of our 8 major markets, representing 4.8 million square feet of space. Available office sublease space has begun to decline in San Francisco, San Jose, Los Angeles and Seattle, which supports our belief that many companies are moving forward with their return to office plans. As expected, there is a resurgence in service and hospitality-related hiring as our cities recover, with year-over-year increases in leisure hospitality employment ranging from about 29% in Ventura to about 56% in San Francisco. Recent immigration policy changes from the White House announced last week should also support the positive momentum that we are seeing in job growth at the higher income levels.

          For many years, Santa Clara and San Mateo counties disproportionately benefited from foreign immigration. However, during the COVID pandemic, stricter immigration policies during the previous administration drove net foreign immigration to a 30-year low. We suspect that the recently announced immigration policy changes will contribute to job growth, particularly in the Bay Area. Venture capital investment in the Essex markets continues unabated. In the fourth quarter, approximately $37.5 billion of capital was invested in West Coast-based companies or approximately 40% of the total venture capital deployed in the United States and representing 124% year-over-year increase. The West Coast remains a leader in venture capital, which is a driver of global innovation and in turn local economies and job growth. The top 10 tech employers in our markets continue to seek talent and with open positions listed in California or Washington reaching 47,000 in the fourth quarter, far exceeding the pre-COVID peak by 62%.

      • Isaac S. says:

        @cb, here are links to the charts, if Wolf allows to post it. if correct, they indicate that homes are still more affordable to blue-collar workers than there ever were pre-GFC. I figure the charts are correct b/c interest rates crashed, and inflation rate was relatively lower, so affordability should go up. This is very odd to me, b/c, post GFS , nesters grew to record highs home builders production fell to record lows. Something does not add up for me about that. Maybe the answer is related to gig economy wages not being counted, something like the phony unemployment rate is achieved by not counting the millions of bogus SNAP/disability working age people (losers). Maybe Wolf can do an article explaining this apparent conundrum, b/c he’s always complaining about how housing is more unaffordable than ever.

      • HowNow says:

        You’re not including dual income earners. Approx. 53% of homebuyers have dual income.

    • Augustus Frost says:

      There is an article on CNBC from earlier this week claiming that the median payment has increased 31% based upon the combination of higher rates and prices.

      I did not verify the calculation but it sounds ballpark accurate.

      Given that prices are set at the margin and how broke most Americans are in actuality, I see no possibility that the marginal homebuyer can afford to pay 31% more.

      This calculation did not include changes to insurance, property taxes, utilities and maintenance.

  20. Isaac S. says:

    inflationary demand destruction is ever near.

    Check this out from Macy’s:

    Macy’s Inc. CEO Jeff Gennette recently told WSJ they tried to raise prices on some mattresses and sofas by $100 and were met with fierce consumer push back. Clothing brand Bella Dahl hiked shirt prices by $20 and immediately saw sales crater. “There was a revolt,” said Steven Millman, Bella Dahls’ brand officer. “If we go any higher, we’ll do half the sales.”

    • Wolf Richter says:

      Isaac S.,

      This is not demand destruction. Consumers should have done this a long time ago and we wouldn’t have this rampant inflation. This is “price competition.”

      It’s not that they didn’t buy a mattress (= demand destruction), but that they bought the mattress from another retailer and Macy’s lost the business to that retailer (= price competition), while demand remains the same.

      • cb says:

        Agreed. It is price destruction. Inept retailers are trying to raise prices beyond what the market will bear, and are harvesting the fruit of their ineptitude. High prices shift demand, or as you pointed out, direct buyers to an alternative elsewhere.

      • 91B20 1stCav (AUS) says:

        …what happens when management’s press releases become more attractive reading than analyzing actual balance sheets…

        may we all find a better day.

      • Isaac S. says:

        Wolf, good point as to the Macy’s anecdote, but it is not price competition when all competitors have raised their prices, and inventories can be sold at/near current prices. The fact that we’ve hit the “price competition” point on discretionary goods, IMHO, is an early signal that demand destruction, begetting more need for ever lower “price competition” has begun, esp. given the horrible consumer confidence and horrible fuel consumption polls/data I posted. This must mean that as energy, food, and rents inflation will force demand destruction on discretionary energy and discretionary goods, hence stagflation turning into recession. So, one tells us about the other. Why not?

        If I recall right, gasoline retail consumption is very correlated with general retail goods consumption.

      • wakarimasen says:

        Earlier they felt so rich by the stimuli to pay any price. This is gone now.
        The amount of stimuli are the real reason for all this mess. If people were just compensated of their income loss perhaps the inflation were really just temporary.

  21. phleep says:

    So the cost of mortgage credit is increasing, just as it should in a rising interest rate environment. And due to the inflation, we need to be going there. And if the fed hikes too fast, it fears 9I assume), it might cause panic selloffs and recession. It is trying to steer between the rocks of inflation and recession. No conspiracy theory needed.

    As in the GFC, it is easy in hindsight to classify the Fed’s moves as foolish. Knaves or fools? I tend to think fools, most often.

    The spreads I wildly guess, are maybe a different reading by banks of credit risk between consumers’ expected future mortgage repayment/default rates and treasury total returns? If we have a recession, as one scenario, I imagine default rates will spike. Maybe banks are concerned about this too?

    • COWG says:


      Lending standards are set by institution underwriting…

      With the Fed backing the housing market, the lending standards were looser than normal…

      Without the Fed backstopping housing, the lending standards will be tighter if the loans are to be securitized…

      In a world of high house prices, inflation, and rising rates, the mortgage rate will have to reflect the lending risk (borrower) and the possible decline in the collateral ( the house)…

      Thus the spread…

      The mortgage rate will reflect the lenders risk premium over a 10 year relatively risk free treasury vs issuing a mortgage…

      Simply, with the Fed backing housing and the value of housing going up, low mortgage rates…

      Without Fed backing, housing will probably decline, high mortgage rates…

      I think I got that right but feel to correct me…

      • Gomp says:

        Right on phleep

      • Lune says:

        Actually, for so-called conforming loans, i.e. loans that can be sold to Fannie Mae and the other GSEs, the government sets minimum lending standards. The banks follow these standards or else the loan will be ineligible to be sold and securitized.

        But technically, the banks can set whatever lending standards they want for non-conforming loans, as long as they either hold the loans themselves or securitize them to private investors (the GSEs won’t buy them). Which is why there were so many crappy loans like NINJA loans and no-money-down loans made pre-2007, and which caused huge losses for private investors.

        But the banks learned their lesson. Nowadays, the main source of non-conforming loans are so-called jumbo loans where the amount lent is higher than the GSE limits. And these generally have stricter requirements than conforming loans because investors now generally demand higher quality loans in the packaged securities they buy.

        Anyway, I just wanted to point out that while currently, private lending standards are stricter than GSE’s standards, that’s not always the case. In 2005/2006, lending standards for non-conforming loans were significantly lower than the GSE standard. It all depends on what risk appetite private investors have.

      • Augustus Frost says:

        “In a world of high house prices, inflation, and rising rates, the mortgage rate will have to reflect the lending risk (borrower) and the possible decline in the collateral ( the house)…”

        What you are really describing is any uncertainty that the mortgage guarantee will be honored. It’s “US government guaranteed” and to my recollection more explicitly than pre-GFC though don’t remember if it’s now with “full faith and credit”.

    • OutWest says:

      Throw in supply chain problems and there is no upside from my perspective. The US better start making more stuff, and soon…

  22. Gen Z says:

    But how many American politicians in Congress earn rental income from their properties?

    The Deputy PM/Minister of Finance (former journalist) OWN RENTAL PROPERTIES. Conflict of interest.

    Canada is in such a huge political mess that the Deputy PM stands to become richer from a housing bubble.

    • cb says:

      They all earn rental income. Either from renting real estate, or renting money (interest on money, and maybe even dividends in todays world of the FED put should be considered interest).

      We have become a rentier society. Those at the top are rent receivers and those at the bottom are rent payers. An efficient form of Master and servants.

      • Gen Z says:

        This is exactly why the FED and BOC are dragging their feet to combat inflation. They are beneficiaries of the real estate and stock bubbles. This should be treasonous to the American & Canadian citizens.

  23. Hypersonic says:

    Mr. Richter,

    Assuming this analyst is correct in assumption the US equity markets face at least 10 year bear market and possibly longer, I would also assume this would put a pretty huge dent in housing prices right?

    Note the analyst called the top in precious metals in 2011, the bottom in gold in 2015, got his subscribers out of the market before the COVID crash happened, then told them to get back in at the lows. I think he is one of the best Elliotticians in the world and his analysis has been spot on. I’m not trying to sell you on him, I just fear he is right and that some very scary times are ahead of us. He even hired a banking research firm to take look at which banks would be most solvent to survive the bear market (so he and subscribers can park cash in them) and expects many to go out of business all together or have bail-ins. Only 15 out of 4000 made the cut!

    Appreciate all your work and thank you!


    • nsa says:

      Exactly who are you talking about? Bobby Prechter resurrected the stock price work of Ralph Elliott, an obscure 1930s financial guru. Backtests (Norman Fosback) of Elliott Wave Theory indicate its ability to predict is little better than a coin flip….leading some to refer to it as the Idiot Wave Theory. The various Elliott patterns, squiggles, and wiggles are subject to interpretation, with the numbering and lettering usually assigned in retrospect. Predicting something that has already happened is usually quite easy. Anyone actually placing bets based on projected Idiot Wave patterns will soon be residing on a park bench under a blue tarp, eating uncooked ramen, and drinking ice house or worse.

      • HowNow says:

        Ah yes, Norman Fosback, author of Stock Market Logic. Great read if you’re tempted to believe in “technicals”. There are a few that survive his scrutiny: seasonality and rsi, but don’t bet the farm…

    • Chris from texas says:

      Which analyst?

    • JeffD says:

      Two kinds of bear markets, both leading to lower wealth:

      (1) hyperinflationary (2) deflationary.

      Asset prices increase rapidly in scenario (1), so no journalist ever calls it a bear market.

  24. A says:

    Powell pushed this reckless economy to the breaking point. Everything is priced for perfection and borrowing costs at 5% is imperfect.

    To quote the band Tool, “the only way to fix it is to flush it all away”

    • Abomb says:

      Is this the first time Tool has been quoted on Wolfstreet? Lol, how do I upvote this?

  25. gorbachev says:

    If the fed removed everything what would interest
    rates be .My guess is 6%. Our biggest expense is
    housing and most of that could be solved if we used less space.Most everything else we could hold off until
    prices were better.It seems our wants are holding us back.

    • COWG says:

      A good guess would be 5% on the 10 year, 7% on the mortgage by the end of the year…

      The only variable would be be what would be the housing price drop… the Covid run up was around 80% overall price increase from 4-5 years ago…

      I would probably expect about 20% off that inflated value leaving outlays for the house about even with today…

    • Lune says:

      6% doesn’t even cover inflation. Over historical times (i.e. the past several hundred years and longer), the risk-adjusted real rate of return on money is estimated to be ~4%. That would mean that Treasures should be priced at 4% *above inflation*, and mortgages should be priced at at least 1-2% higher than that (to compensate for the risk of default). That would yield: 10% inflation + 2% default risk +4% return = 16%…

      • COWG says:

        Wolfs charts didn’t go back far enough to show around 2000… mortgage rates were around 9%… 10y around 5ish… low inflation…

        Your calcs are spot on…

        People who have grown up in the last twenty years of this environment are not going to know what has hit them…

        For many, it’s already too late… buckle up…

  26. Kunal says:

    Wolf, it’s amazing that you still believe in Fed and that Fed is a good organization. Fed has no intentions of containing inflation because it’ll crash asset bubble and cause recession which Fed will never allow. So all these rates will move around as long as there is no crash. The moment there is a crash QE will again begin with full force. Investors know this that’s why assets n stocks are still rising.
    Powall is real criminal or perhaps his masters are.

    Even smartest and diplomatic minds like El Erian openly claims that Fed has no credibility left.

    • Gary says:

      “Most reckless fed ever! But no serious damage was done and they are the best fed ever!”

    • Gen Z says:

      What difference does it make if a recession happens?!

      The largest telecoms Rogers and Shaw merged together yesterday, with assent from the Canadian government. First thing they did was MASS LAYOFFS.

    • Swamp Creature says:


      They DO have credibility. That is, credibility to do everything wrong all the time and every time. Just like our dear leader.

  27. RedRaider says:

    Been playing with a dynamic yield curve lately and noticed something interesting.

    In pre-Obama years, the yield curve looks like it’s “anchored” on the long end and the short end moved up and down. There’s some “flickering” on the long end but it’s basically anchored.

    Under Obama, it’s the short end that’s anchored and the long end that does the moving.

    Under Trump it returned to the pre-Obama years.

    Under Biden it seems to have returned to the Obama years.

    This could be due to a “natural” interest rate cycle. But I think something else is afoot.

    • RedRaider says:


      Since early 80s the 30 year yield has been falling. Which seems to indicate there’s more lenders than borrowers. Could this be due to the sheer size of the boomer generation and their investment needs? If so, we can expect the 30 year yield to continue falling. And how far can the Feds boost short rates when the long rate is falling? And the markets think the Feds will be boosting rates 6-8 times this year? Lucky if they get in more than 2-3.

      • Augustus Frost says:

        No, it’s due to the bond mania which is easy to prove.

        We have the lowest aggregate interest rates ever (slightly rising now) even as loan quality and credit standards are also the lowest ever.

        How does that make any sense?

        Outside of real estate, lenders don’t even know the meaning of loan collateral. Other supposedly “secured” loans are predominantly “backed” by someone else’s debt and where it isn’t, by absurdly inflated stocks or other “assets”.

        Real estate loans are backed by ridiculously overpriced collateral.

        It’s a house of cards and the only thing holding it up is manic psychology.

        The actual societal and economic fundamentals are mediocre to awful.

        The example of demographics you gave isn’t the controlling relevant factor, as there is no long -term evidence to support this supposed causality. It’s based upon the assumption that the post-WWII experience in the US or developing economies is representative of the future when no knows it and there is absolutely no basis to believe it, especially since the US and the West collectively is destined to lose its dominant position economically and geopolitically not too far in the future.

        • HowNow says:

          Augustus, I read your comments carefully and genuinely appreciate most of what you write. But the house of cards phenom has been going on since the Roman Republic, or earlier. Our economy isn’t agrarian, and the kinds of employment are now so abstract that only a caveman can understand it. Lending is and always has been based on a wing and a prayer, but it’s still happening. That’s not to say that it can’t lose a hell of a lot of air. Bank “loan quality” is everything. If the bank’s portfolio starts to smell, they’re likely to see their capitalization sink, unless they cook their books. Of course some are, in fact, too big to fail. I wouldn’t invest in a financial stock – you never know how much they’ve lent Argentina. I just wouldn’t bet against the whole friggin’ system. I think the historical rise of the market, over time, is a decent indicator. The real challenge is how can civilization survive (economically) on a reverse-growth trajectory? We need to reverse the massive consumption or we’ll cook our own books.

      • cb says:

        It is due to money creation. Flood the world with dollars and the value of them, as well as the rent(interest rate) on them goes down.

    • historicus says:

      I will point to what the FED intentionally did…
      They pounded the long end down to FORCE investors to take more risk.
      This was admitted to by former Fed Governor Fisher in the PBS documentary “The Power of the Federal Reserve” which can be seen on PBS web site. (Fisher comments circa 7 minute mark)
      The maturities on the Fed balance sheet point to this…it is proof the Fed focused on longer maturities.
      As Judy Shelton said in a WSJ article a few months ago…
      “More than 97% of the $2.6 trillion in mortgage-backed securities owned by the Fed won’t mature for at least 10 more years. The maturity horizon on the Fed’s $5.6 trillion in Treasury securities is more varied; still, only about 20% will come due in the next year, while 38% will mature in one to five years, and 42% have maturity dates longer than five years out. ”
      Judy Shelton, WSJ 12/23/2021

      In short, the Fed ….in complete violation of their third, carved out mandate of “promote moderate long term interest rates” intentionally dropped long rates to record lows with their purchases. Moderate means “not extreme” … and record lows are extreme by any metric. This is why you will not find this third mandate EVER mentioned by the Fed nor on their website or publications. One must go to the Federal Reserve Act of 1977 to find it……all you get otherwise is “dual mandate” mantra.

      The Fed skews all they touch, and the yield curve is a prime example. I suspect they do this so at to allow them to point to the long end and say …”See, people arent worried about inflation.” How wrong have they been….how wrong are they now?

      • Lune says:

        “More than 97% of the $2.6 trillion in mortgage-backed securities owned by the Fed won’t mature for at least 10 more years.”

        This is a little inaccurate. Yes, technically these are all 15 or 30-year mortgages. But as Wolf has shown, principal gets paid back with each monthly payment. These aren’t like treasuries where you only get interest for 30 years and then a lump sump payment of your principal back when the bond matures. At year 29 of a mortgage, the remaining principal is a tiny percentage of what you started with. So it’s incorrect to compare maturity rates of MBS with treasuries.

        Second, people 30 year mortgages are very rarely held for all 30 years. People re-finance, and they sell their house and buy a new one. Historically, the average duration of a “30 year” mortgage is 10 years.

        When you combine both of these factors, the calculated “maturity curve” of the MBS on the Fed’s balance sheet is probably about the same as its treasury holdings, or maybe slightly higher. But it’s certainly not 30 years as your quote implies.

  28. JeffD says:

    So this is interesting. You have two historical “givens” battling each other:

    (1) The spread between 30yr mortgages and 10yr Treasury yields reverts to the mean of about 1.9%. You graphed this above.

    (2) Prime rate is always above CPI. Graphed here:

    Unstoppable force meets immovable object?

  29. John Apostolatos says:

    Never Have So Few Homeowners Had Reason to Refinance

    That’s according to an analysis by Brean Capital. And the figures might be even lower than that. Taking out borrowers that are unlikely to be able to refinance or to bother, such as homeowners with relatively low loan balances, only about 0.15% of loans can be refinanced, according to a look at conventional 30-year mortgage bonds by FHN Financial.

    Applications to refinance home loans have plunged, dropping about 60% since August, according to data from the Mortgage Bankers Association on Wednesday. Those kinds of drops in refinancings can end up being painful for mortgage bond holders, tying up their invested money for longer periods of time and preventing them from reinvesting as much at higher yields.

    Now some investors are betting it won’t get much worse from here, and are looking to buy the securities. Mortgage bonds have lost about 4.6% this year as bonds have broadly weakened, but they’re generally performing better than Treasuries and corporate bonds, and the securities notched gains on Wednesday, according to Bloomberg index data.

  30. Jackson Y says:

    With the stock market firmly back in bull mode (Dow & SP now only 5-6% from records) and the jobs market still sizzling (fewest initial weekly claims since 1969), the Federal Reserve really needs to use the upcoming meetings to squeeze out every 0.5% rate increase the market can absorb.

    • COWG says:


      The Fed can kill inflation or it can protect the stock market ( where it forced people)…

      It can’t do both… it will try and fail…

      When the 10y hits 4% or above, a lot of the money in the stock market will start coming out… and the carnage will start…

  31. Seattle Guy says:

    I have seen an 80% drop off in refinances since 2021…and we are getting 2 and 3 rate increases A DAY from the big lenders. FNMA also added a bunch of LLPA (loan level price adjustements for risk) in Dec 2021 on all 2nd homes and Rentals…putting their pricing well into the 5.5% range.

    The pricing on Private Portfolio lenders (No DOc Loans) is rising FASTER than the FNMA posted increases as they suddenly discovered RISK???

    So many folks scrambling to finish their rehabs/flips and/or new construction as prices and rates rise while they wait. It is a lousy time to be a lender…I see the changing wholesale reps – (6 this year) as their layoffs start and consolidate.

    Someone, please explain how the S+P 500 500 is still at 4500 and the Nasdaq100 is at 14800…..How is that even possible???

    • Depth Charge says:

      “Someone, please explain how the S+P 500 500 is still at 4500 and the Nasdaq100 is at 14800…..How is that even possible???”

      Almost $11 TRILLION in stimulus money injected in the past 2 years. That’s eleven thousand billion dollars – and that’s ON TOP of normal GDP. Seems a bit excessive, right? And the FED was “caught off guard” by raging inflation….

      No supply chain is equipped to handle that sort of excess demand, yet Weimar Boy Powell continues to blame “supply chains” for his grotesque monetary abortion that he shat out all over the place.

      • cb says:

        Thinking out loud …………………..

        How did $11 Trillion get injected with only $4 Trillion ($4.6 ?) of newly created money (expanded FED balance sheet) ?

    • SilentC says:

      This is a great comment Seattle Guy, I did not know rates were spiking for second homes. I think the S&P will sober up at some point but it has benefit around the margins from war-related flows out of international stocks and technically higher rates are less scary than inflation to equity investors in my view at least. That said there is so much downside risk outside of the more defensive value names and energy.

    • BigAl says:

      Seattle Guy,

      “Someone, please explain how the S+P 500 500 is still at 4500 and the Nasdaq100 is at 14800…..How is that even possible???”

      The explanation is that there’s gobs of money out there and only so many places to put it.

      a) It’s not going into US treasuries at the current yeids
      b) Real interest rates are still highly-neagive – so it’s not going there
      c) Much of the emerging market world are facing serious issues from higher energy and food prices. So – at the moment – not a lot of money is finding it’s way there (Note: I think that that will change)
      d) Some are calling China “un-investable”. So some foreign money is leaving China. I think that that will reverse soon.
      e) Precious metals – which is doing well – but not easy/convenient to hold
      f) Crypto (which is doing well these past couple weeks)
      g) Real estate (going gang-busters, but not liquid and has a high buy-in price)

      We aren’t at SHTF stage yet, so money is largely staying in stocks.

      • sunny129 says:

        Seattle guy

        Mkt is raising b/c right now, it is calling Fed’s rhetoric so far BLUFF! The past record supports that view. It has also seen Fed ‘jawboning’ when they announced Corp/Junk bonds buying in 2020 but actually a little. The ‘jaw boning did work at that time.

        Inflation will continue to rage, unless there are several 50 basis points towards 3% -3,5%! Mr Powell is NO Mr Volcker!

        As per there are several ‘niches’ to buy in the short and intermediate terms like Energy including oil and gas, pipelines, LNG production and shipping companies, Metals needed for EV production and batteries (Nickle, Tin, Aluminum, Copper, Agriculture ETFs, Fertilizers potash, Nitrogen+) Grains – Wheat, Spoya, Corn ,Seeds++
        These remain on the upside until Ukraine is resolved, unlikely in the short term. Rest is subjected to vagaries of inflation and rate increase! Volatility is assured!
        If Mr Powell was really seriously about inflation, he would have started 50 basis points and QT immediately! It is his ACTIONS and not repeated WORDS of rhetoric and jaw boning! Cannot keep on blaming on Covid, supply chains and now, of course Putin!?

        • sunny129 says:

          ‘It’s not going into US treasuries at the current yeids’

          The yield on 10 y now, is DOUBLE that of S&P 500 and may keep going up!
          There are may be ‘reversal’ either in late 2023 or 2024, unless stagflation!?

  32. historicus says:

    DC….FYI and to your point….a point questioners of the Fed seem to miss

    ““Obviously the pandemic disrupted the economy and contributed to inflationary pressures, but U.S. production is higher today, and U.S. ports are moving 27% more goods than before the pandemic. Inflation, driven by excess demand, always faces supply-chain problems as production struggles to keep up. But supply-chain problems increasingly are the result of inflation rather than its cause.”
    WSJ 1/13/2022 Phil Gramm and Mike Solon.

  33. unamused says:

    Well, somebody’s sure getting rich off all this, and it sure isn’t me.

    • historicus says:

      Blackstone CEO took down 1.1 Billion in compensation for 2021.
      He must be benefiting from inflation…….and if so, he must have known the Fed would not do their duties…for the last time inflation was this high, Fed Funds were over 8%. Things would be much different, wouldnt they?
      Now if that is the case… did he “know” and “unamused” and “historicus” didnt know?

      • Anthony A. says:

        The Blackstone CEO needs to make more money if he wants to have a big yacht like the Big Boys have. After taxes, that $1.1 Billion is much smaller.

        • Dan Romig says:

          Ameriprise Financial is headquartered in my hometown. It’s CEO, Jim Cracchiolo, drew a $1,025,000 salary in 2021. His take home compensation for 2021 was $63.2 million. And in 2020, it was $63.3 million in total.

          Shit, he’s down a hundred grand from the year before. But for two years combined it was $126.5 million. Not bad, eh?

          Stock price for AMP:
          $165 Start of 2020
          $102 1 March 2020
          $314 Now

          Market Cap = $34.7 billion

        • ru82 says:

          I doubt if he pays any or much at all on the 1 billion. Plenty of loopholes

  34. georgist says:

    Something is coming down the tracks.

    Anecdote: work for a large multinational in tech. They can’t come to terms with the rise in wages. The internal complexity is such that I think if they had to mark their dev wages to market the accountants would inform them their business is done, time to close the doors. So much pointless activity has been enabled by ultra-low rates. They are trying to ignore this change but people are quitting. In tech your assets are in people’s heads. They are walking out the door. When the last guy who understands how things really work leaves, you are done. And the clock is ticking.

    Regarding house prices, a “crash” will only occur if sales are forced. How many people are struggling now with higher energy / food costs? As the Fed raises rates to induce a recession, how many will be thrust right over the edge when they lose their job?

    Will politicians respond by “helping” people with direct bailouts? In Canada this week the Quebec govt gave everyone earning under $100k $500. The median income is just over $60k. Good idea Legault. Now do it again this month. And next. And next. Oh you are out of track? Too bad.

    Anything and everything to avoid price discovery. Anything to avoid telling the boomers their houses are worth nothing.

    • sunny129 says:


      Once the recession hits either in late 2022 or early 2023, mkts slide, loss of jobs will lead to slide in housing.

      Fed is barely pretending to rise rates and start QT, down the road Inflation continues to rage affecting food, rent and gas. Supply chains squeeze remain at Chinese ports. Energy is inching up and volatile.
      40-50% at the bottom don’t have savings of $400! Pay check to pay check with the constant aid of DEBT (CC)! Wage growth is awfully lagging behind inflation. The real rate is Negative.

  35. Spencer Bradley Hall says:

    Ben Bernanke bankrupt half the home builders, hence supply cratered. Bankrupt-u-Bernanke also decimated the financing of mortgages by introducing a remuneration rate on IBDDs greater than money market funding rates, inducing nonbank disintermediation.

    The FED, confusing money with liquid assets, injects outside money, repressing interest rates, stoking asset bubbles. This reduces the real rate of interest for saver holders.

    • HowNow says:

      SBH, I seriously doubt that bankruptcy stat. The builder bankruptcies in the Volcker era were substantial, but I don’t know how much. And the oil bust in Texas, OK, AZ, CO, Alaska, drove many residential builders under. Builders I know take out LLCs like they were candy and dump the projects as necessary.

  36. unamused says:

    “Mortgage Rates Are Rising Much Faster than Treasury Yields. What’s the Deal?”

    That’s capitalism baby. Cha-CHING!

    • VintageVNvet says:

      sorry una,,, but let’s be clear, very clear,,, this kind of ”stuff’ IS NOT ”capitalism” per se, but, rather, corrupt cronyism of the kind that screws WE the PEONs so that the oligarchs who OWN THE FED,,, and also, clearly OWN the corrupt political puppets, can benefit.
      JP Morgan was likely the first best example of this in USA,,, but, to be sure, he was just following the examples of the similar situation(s) in UK and Europe where the rich folks, AKA oligarchs, had been doing similar for ever,,, and continue to do so these days…
      WARS fought, apparently, for various GOOD causes,, democracy, more freedoms for WE PEONs, etc., eventually come down to protecting the ”rights” and wealth of the oligarchs and nothing more.
      WARS continuing these days EXACTLY the same, with the Russian ”600”, in power since the czars A PRIME example.

    • Jon says:

      Not really. That’s central bank financing.

  37. Zark Muckerberg says:

    Powell need to do more saber-rattling and for good measure, shake the metal fence. 10 year treasury is nearing 2.5%

    • Anthony A. says:

      I am waiting for 5%, then I will buy those five percenters with both hands.

      • COWG says:

        You and a whole bunch of others who don’t want to be in the stock market, brother….

        I think 4% will do the trick…

        • BigAl says:

          What “trick” would that be?

          You mean issuing 50-year and 100-year treasury bonds to ensure the 30 year-bond doesn’t reach 4%?

          Remember that as treasury yields rise…all the treasuries on the Fed’s balance sheet start to incur losses. At a certain point this becomes a problem.

      • Beardawg says:

        How about a 1980s dip, like in the above chart, where 10YR yield is like even with inflation ?? Massive buy !!

        • HowNow says:

          Easy to say when looking in a rearview mirror. When those rates hit their high marks, they did so because people thought that hyperinflation was completely baked in. They were bracing for 100% rates.

  38. Mike E says:

    Wolf, if you have the time/patience, can you elaborate on this statement: “In terms of the $1.8 trillion in RRPs: if the Fed does $100 billion a month in QT, it will take about 18 months to burn through the $1.8 billion in RRPs.” I thought RRP sucked cash out of the system, like QT. Am I wrong?

    • Wolf Richter says:

      “I thought RRP sucked cash out of the system, like QT. Am I wrong?”

      Yes you’re correct (No, you’re correct?). But it doesn’t permanently remove it. RRPs are mostly money market cash that money markets don’t know what to do with, and so they engage in reverse repo transactions with the Fed and give the Fed this cash, and they earn a little bit of interest on it, now 0.3%. So this is in essence excess cash in money market funds.

      QT removes liquidity from the market, and this liquidity comes at first from two liquidity storage tanks:

      1. Cash in money markets, and they put some of this cash into RRPs
      2. Cash in bank accounts, and banks put some of this cash on deposit at the Fed, the so called “reserves.”

      So on the Fed’s balance sheet, QT will end up lowering RRPs and reserves. RRPs can and will go to zero. Reserves will drop but will never go to zero and will remain high even at the low point (such as $1.5 trillion, my guess).

      Both RRPs and reserves are liabilities on the Fed’s balance sheet.

      QT will also lower the assets (Treasuries and MBS) on the Fed’s balance sheet, which is what everyone will be talking about. But I will make sure to cover both assets and liabilities when QT kicks off.

  39. BigAl says:

    The traditional 30 year mortage – 30 year T-Bond spread is ~2%. “Traditional” being before the Fed began to load up on MBS.

    I’d normally cheer rate normalization – but I really don’t see this as acting as much of a brake on rising home prices because: a) Very small supply of existing homes b) Much of the buying action concerns large institutional buyers who are using cash.

    Returning to the matter of mortgage rates – something’s got to give because:

    a) Clearly the secondary market isn’t satisfied with current mortgage spreads
    b) There isn’t yet evidence that the Fed will go beyond a 2.75% ceiling rate. Sure they may get there quicker (Bullard and Powell have strongly suggest this) , but the treasury markets aren’t yet signaling a rice beyond that.

    It seems clear that the re-fi windfall for banks is over…at least for now.

  40. Michael Engel says:

    1) Mortgage rates are high, not high enough, because LTV Loan To Value is very high.
    2) The higher LTV the higher the risk. JP ordered the banks to increase rates, to analyze their portfolios, on the cusp of a potential recession.
    3) The German 3M is (-)0.706, the German 10Y is +0.59. Gravity between US
    and the German rates is the cause of divergence between Mortgage
    and US 10y rates.
    4) If the RE risk is growing what about c/c.
    5) Is AAPL c/c safe.

  41. Bobber says:

    I heard the mortgage rate reached 4.95% today!!!! Big jump.

    March and April home sales are going to be ugly.

  42. SpencerG says:

    I think the answer to the question in the title is that 10 year bonds are sold to sophisticated buyers who know that interest rates will not go up permanently in those ten years. So to find buyers sellers must discount them a little.

    But mortgages are sold to average Schmos who think they are LUCKY to be “locking in a rate” that is higher than it ought to be. Works out well for the mortgage companies who can sell those mortgages for a bit more than they could otherwise. But not so well for the home buyer.

    • historicus says:

      “10 year bonds are sold to sophisticated buyers who know that interest rates will not go up permanently in those ten years. ”

      Like the experts that said no inflation. Give me an effing break.

      IF inflation drops to the Fed’s illegal target of 2% … for the next 9 years (which is highly unlikely) ….and with this first year 8% inflation….
      lets do some math….for the “sophisticate buyers”.
      8 + (9×2) = 26 and with compounding, the “sophisticated buyer” is looking at a 2.4% yield in the face of 10 yr inflation of over 30%.

  43. joe says:

    question: if the FED decides to reduce the balance sheet by letting bonds simply run off (don’t reinvest a maturing bond) are the proceeds of the maturing bond handing over to the treasury? if so, cannot a $9 trillion balance sheet monetize a lot of government spending?

    • Wolf Richter says:


      1. No. The proceeds of these redeemed bonds are essentially cash (in the electronic “credit” sense) that the Fed destroys. Just like QE “created” money, QT “destroys” money. QT is the reverse of QE. This is why this is called “tightening.”

      2. Not under the current setup. On the contrary, QT will make it more expensive for the government to borrow (higher interest rates).

  44. SoCalBeachDude says:

    According to the TAYLOR RULE, which is still part of the Federal Reserve policy guidance mechanism, the FEDERAL FUNDS RATE (Interbank lending rate) should be IMMEDIATELY INCREASED TO 9.5% to send the appropriate guidance to the bond markets and to stop any transitory inflation dead in its track. It is long past time for the Federal Reserve to stop being nattering nabobs who are unable to follow their own clearly established policy guidance, and just get the job done like that great hero PAUL VOLCKER did back in the early 1980s which worked very effectively.

  45. SoCalBeachDude says:

    Mortgage rate surge won’t reverse home prices – Bloomberg

  46. SoCalBeachDude says:

    Home sales may drop 25% by the end of Summer, says analyst – Fortune

  47. SoCalBeachDude says:

    MarketWatch: 2-year and 10-year Treasury yields reach highest levels since May 2019 with 10-year now at 2.49%

  48. SoCalBeachDude says:

    Global Bond Plunge Wipes Out $2.6 Trillion In One Year

    Bloomberg: Global bond markets have suffered unprecedented losses since peaking last year, as central banks including the Federal Reserve look to tighten policy to combat surging inflation.

  49. Shelly says:

    First time on this blog and a newbie…
    Can anyone explain , if the fed decides to sell mortgage bond holdings , how will it be priced when the rates for 30 yr are ~5% now?Who takes the “loss” or the mechanics of how the pricing works?

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