Debt Ceiling Explained – the last time our books were balanced was during the Clinton Administration. Since then, 16% of debt was added during George W’s 8 years, 30% was added during Obama’s 8 years, 25% during Trump’s 4 years, and 12% since Biden took office. Due to massive amount of funds flowing in and out of the treasury, putting a definite date that we would default (not make payments on time) on our national debt is challenging. Even though we have flirted with default (most recently in 2011 and 2013) the US has never failed to pay its debt. If we did it would damage our reputation as a debtor (our credit rating) and increase the cost of borrowing for everyone. This is not to be confused with a government shutdown which happens when congress fails to agree on additional spending to fund government operations. The debt ceiling was created by congress during WW1 to streamline government borrowing. Removing the debt ceiling has been proposed but Biden recently dismissed the idea as ‘irresponsible’ . Congressed has raised the ceiling numerous times but recently it has become a political weapon during periods of divided government – leverage from policy concessions.
Mortgage Rates increased again this week. The FDIC assumed $114B in Treasuries and Mortgaged Backed Securities (MBS) after SVB and Signature went under. The FDIC has been selling these assets increasing the supply of MBS on the market which lowers the value and increases mortgage rates. Banks have also been selling their bonds to raise capital for depositors who are moving their money into treasuries and money market accounts. Interest rates are up 1.25% from this time last year.
Loan Performance – Core Logic released their Loan Performance Insights Report for the month of March and it showed delinquency rates have continued to decline and are down to 2.6% of homes with mortgages (About 65% of homes in the US are mortgaged). Loans in foreclosures continues to remain at a historically low level.
New Construction – new home sales, which measures signed contracts on new homes, rose 4% in April to a 683,000 annualized pace. This is the highest number in the previous 13 months and up 12% year over year. For new homes that are completed there is only 1.2 months of supply available.
GDP – the second reading of Q1 GDP showed the US economy grew at a 1.3% annual (slight increase from the first estimate of 1.1%) down from Q4 2022 of 2.6% annualized growth. Germany, the 4th largest economy in the world, is officially in a recession.
Mortgage Applications to purchase homes declined 4% last week and are down 30% year over year. Refinances declined by 5.4% last week and are down 44% year over year.