There is a reason why our founders abhorred a strong federal government with its own bank: Allowing centralized control over the country’s financial system would lead to greed, ineptitude, and disaster.
The Federal Reserve either refused to step in ahead of time or did not see the 2007 housing and financial collapse coming — either one is bad — and it now appears as though the Fed’s policies are about to cause the next housing and lending industry crisis.
Here’s the setup.
For the past two years, our country has seen some of the worst economic decisions made by some of the dumbest people on the planet: Members of Congress and the Biden administration. Ostensibly in response to the pandemic, lawmakers backed enduring lockdowns and business closures ‘to slow the spread’ of the virus, which did not happen anyway, regardless of how many times businesses were forced to shutter.
As a result, Congress felt compelled to pass successive “COVID relief” bills which flooded our economy with trillions of dollars, even as there were fewer goods and services to buy. And once Democrats controlled all lawmaking branches of government, they passed more bills that spent trillions more — all of which caused a massive spike in prices (call it “Bidenflation”). Since the feeblest president of all time took office, neither he nor his Democratic administration or Congress have done squat to bolster the supply chain and encourage more domestic production of goods so that the goods-to-money ratio fell, which would have brought inflation under some semblance of control.
Instead, Biden’s handlers have put the onus on the Fed to take on the responsibility of curbing inflation, so the central bank is doing that by raising interest rates, which is aimed at curbing spending, so theoretically, prices should begin to drop as fewer Americans spend money, thus allowing the money supply-to-available goods and services ratio to balance out.
Only, by raising rates, the Fed is killing off one of the country’s economic drivers: The housing and lending industry. So we’re about to see a repeat of the 2007-08 crisis.
Climbing mortgage rates are hitting both potential homebuyers and refinance candidates. Total mortgage applications decreased 13.1% last week to the lowest level since December 2019, according to the Mortgage Bankers Association. Applications to refinance dropped 15% weekly and were 56% lower than one year ago.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 4.06% from 4.05%, with points rising to 0.48 from 0.45 (including the origination fee) for loans with a 20% down payment.
Those higher mortgage rates combined with high prices and low inventory pushed applications to purchase a home down 10% weekly and 6% lower than one year ago. This was the third straight week of declines for purchase applications.
“Higher mortgage rates have quickly shut off refinances, with activity down in six of the first seven weeks of 2022,” noted Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“We have previously suggested that the strength in the U.S. housing market is being driven in part by a change in locational preferences as households react to the COVID pandemic,” Craig J. Lazzara, managing director at S&P DJI, added.
“More data will be required to understand whether this demand surge simply represents an acceleration of purchases that would have occurred over the next several years rather than a more permanent secular change. In the short term, meanwhile, we should soon begin to see the impact of increasing mortgage rates on home prices,” he said.
In a video report, CNBC noted that home mortgage applications have dropped 50 percent year-over-year since 2021, while refinancing applications — a huge part of the industry’s business — have fallen by a whopping 70 percent, leading those lenders to cut staff and lay off personnel.
Our financial system and economy are being run by morons. Prepare for the next wave of foreclosures as housing values fall in response to a dramatic decrease in demand.
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