Once again we find ourselves hitting a debt ceiling that legally inhibits the U.S. from borrowing additionally funds. Some folks are purposing the minting of a TRILLION-dollar coin to solve this problem and pay our bills. There is a law that states that the treasury, in their discretion, can mint and issue platinum coins of any denomination, quantity, specification, and design. The idea is simply the Treasury department makes a $1T coin, gives it to the Fed, and suddenly has $1T in their bank which could be used to pay government salaries, social security benefits, and other budgetary needs. While some folks may be interested in the loophole, the Treasury doesn’t seem to be considering as an option. The Fed could decide not to accept the coin anyway. It also begs the question: since the debt ceiling is an artificial construct in the first place, is a trillion-dollar coin that absurd of an idea?
Mortgage Rates improved this week as Mortgage-Backed Securities (MBS) continue on their upward trend. The decline of inflation will continue to be a boon for MBS. Mortgage rates are down approximately 2.5% from this time last year.
Home Sales increased by 2.5% between November and December. New Home sales, pending home sales, and mortgage applications are up over the last month. Year over year pending home sales are down 33% which is an improvement from 38% in the previous report.
Inflation – the Personal Consumption Expenditures (PCE) index rose 0.1% in December and is up 5.0% on a year-over-year basis. This is a nice improvement from the previous report of 5.5% and a peak of 7% in June. The core rate, which strips out food and energy (and the Fed cares most about), has declined by 1% since its peak of 5.4% in February. Fed rate hikes have certainly impacted inflation. Consumer spending is also down 0.2% from November – since consumer spending accounts for a major portion of GDP it would not be surprising to see negative GDP in the first two quarters of this year.
New Construction – signed contracts on new homes increased 2.3% in December and are down nearly 27% year over year. Supply remains tight, only 1.4 months of completed new homes are available. Year over year the median price is up nearly 8% on new homes. New construction typically constitutes 10% of the overall market.
Loan Performance – the CoreLogic Loan Performance Insights report shows that loans continue to perform extremely well. In November 2.9% of mortgages were 30 days or more late, which is down 0.7% from November of 2021. Foreclosure rates remain extremely low at 0.3% of all loans. Remember that over 1/3 of homes in the US are owned free and clear without mortgages. Homeowners have seen a 15.8% year over year increase in their equity which is a huge contributor to folks making their payments and staying in their mortgages.
Mortgage Applications to purchase homes increased 3% last week and are down 39% year over year. From a volume perspective this represents a 25% increase from the previous week, activity is up nicely. Refinances rose 15% and are down 77% year over year.