Happy Friday, Brian Manning here with the weekly update. My gosh, we have all kinds of stuff to talk about this week but before we do, just want to remind you – Fall Fiesta coming up, Sunday, October 17th. Super pumped, doing it outside of the park this year in Boulder. We got tacos, Margaritas, we’re going to create a fall studio scene, we have a professional photographer coming in to do family photos for people, take a look at our website. It’s in the email here in the link for information on the event and how to RSVP. Can’t wait to see everybody there.
Let’s talk about what’s going on in the markets because it’s all kinds of news this week. So Monday this week, we had stocks that were lower, all based on Evergrande information coming out of China. So it’s a company in China that has about $300 billion in debt. And there’s just concerns right now that they will not be able to meet their debt payments that are coming due and if they don’t meet their debt payments, what the impact will be economically in China and around the world. So we’ll have to wait and see but certainly, all eyes on this company right now to see what’s going to happen.
Tuesday this week, we got housing starts. So housing starts looked okay, you know, the headline number on a month over month basis was up 4%. But that really takes into account single family residences and multifamily. So if we just look at single family residences, single family residences were down 3%, which is really just meaning that we’re still under supply in the housing market. Also new permits were flat. So we did not see an increase or a decrease of new permits and completion, so homes being completed and delivered to the marketplace were down 5%. Another interesting statistic is that homes that were permitted last year, but were not yet delivered this year is up 50%. And that’s just due for so many various reasons. So still seeing supplies… Still seeing challenges in supply for inventory.
Wednesday this week, we got existing home sales. On a month over month basis, they are down 2%, still seeing inventory on a year over year basis down 13%, new construction is down, completion of homes is down, inventory on resales is down so you’re going to see, of course, a lower than expected lower existing home sales because inventory is just really tough to come by.
And then probably the most impactful this week on Wednesday was we had Jerome Powell, President the Federal Reserve speaking, wrapping up a two day meeting. Okay, so the Federal Reserve really has two tools that they can use towards monetary policy with stimulating the economy. The one they have is what’s called the Fed Funds Rate, which is when you hear rates drop down to near zero levels as the Federal Reserve dropping rates, the other is their asset purchasing program, could also be called quantitative easing. So right now the Federal Reserve as a result of COVID has been actively purchasing mortgage backed securities and US treasuries. If you’ve watched any of these videos, we’ve talked about this in the past. So Federal Reserve is buying $80 billion a month of US treasuries, and they’re buying $40 billion a month in mortgage backed securities. Typically, these asset purchases used to add stability into the US economy and also force rates down to spur consumer spending are really used in emergency conditions. Well, this really started March-April of last year knee deep in COVID and the question really be, are we really in emergency conditions anymore? No, probably not. So now the Federal Reserve has to, at some point in time, start to unwind this bond buying program. So Jerome Powell on Wednesday said that he really thinks that US economy has met his standards of what he’s looking for in employment, he does not need to see a blockbuster report for the month of September for them to start tapering. He’s kind of opening up the gates right now for the tapering and what that means is they’re going to start reducing their asset buying programs. So they eventually will slow down on their purchasing of mortgage backed securities and US Treasuries, I kind of believe, in the November 3rd meeting, at the end of that, that Jerome Powell will announce the initiation of their tapering and that’s probably going to start in like December.
So that means they’re going to purchase less mortgage backed securities and less US Treasuries, alright? Now, the one question is the US, the Federal Reserve, they have an $8 trillion balance sheet right now. So there’s $8 trillion that they’re holding, that’s for round numbers, in US treasuries and mortgage backed securities. And right now they’re reinvesting those. So what that means is, if they own a mortgage, and that mortgage is paid off. So the borrower refinances their loan, or they sell the home and the mortgage gets paid off, the Federal Reserve is taking that money that they got from the mortgage that was paid off, and they’re reinvesting it and they’re buying additional mortgage backed securities. So the question is, and no one’s really talking about this right now, and we have to see what’s going to happen is, if the Federal Reserve tapers out of their bond buying program, what’s going to happen with this $8 trillion balance sheet, and if they just taper out of their purchases right now at $40 billion a month in mortgage backed securities, they still keep reinvesting $60 billion a month from their current balance sheet, does it really have an impact? Well, we’ll have to wait and see what happens.
So yesterday, Thursday, they kind of started what’s called the taper tantrum. So if we look at what’s going on in the markets here, this is a snapshot of mortgage backed securities. This green candlestick right here is Wednesday. So there’s kind of a wild ride on Wednesday. This is when Jerome Powell started talking. So since this is a snapshot of mortgage backed securities, this is the cost of the bond and mortgage rates will go opposite. So opposite of what this is doing. So Wednesday was a little bit of a wild ride. Yesterday, you’ll see here, the taper tantrum really started, investors started to freak out, certainly going to be an impact on mortgage rates. So you did see a slight increase of mortgage rates yesterday, maybe going to get a little bit stability back today but as you can see from, you know, about August 3rd through today, we have now started to slowly see a very slight rise of mortgage rates. We’ll have to wait and see what happens. As we talked about, there’s a lot of moving parts right now. We have the Federal Reserve, we have to wait until November to see what they’re going to say, we have to see if there’s any word of reinvesting with this $8 trillion balance sheet. I don’t really know what’s going to happen but it’s going to be interesting to see how it impacts everything. I know this is a long update for today. I’m sorry, but there’s a lot of news to get out.
I’m around all weekend. If you have any questions, let me know. Call me, text me. Whatever works for you, I’d love to help you. Happy Friday. Have a great day.