Mortgage Credit News by Louis S Barnes - July 23, 2021

Late July is the traditional beginning of the Silly Season summer drought of news, and desperate media running “Man Bites Dog!” stories.
This week, the bond market and fear, Covid and climate fear, other fears, and then some extraordinary good news.
Interest Rate Drop. Long-term rates fall when the investment world is frightened of overdone Fed tightening, recession and credit loss. Will Rogers in the Depression, remarking on near-zero interest rates: “I’m not so concerned about the return on my money as the return of my money.”
Since an April peak at 1.75%, a cascade began in June down to 1.14% on Tuesday, although back to 1.30% today and bottom forming. Mortgages still near 3.00%. As there is no recession to worry about, what are we worried about? Covid is one answer, especially for the outside world. But Europe is vaccinating very quickly, and the yield on German 10s collapsed from negative 0.11% in May to negative 0.41% today, and may not be bottoming.
In the void of straightforward explanations, wackos are loose: on the Right the government-haters see a plan to inflate away debt, and on the Left these low rates encourage infinite borrowing. If either were true, rates would be rising, not falling.
Covid. We have all heard the increased infectiousness of Delta, but his week a common-sense example. Dr. Michael Saag, top infectious disease person in Alabama, in real trouble with Delta because of vaccine refusal, only 20% of age 18-35 vaccinated: “With the original virus, you would have to be in a closed space within three or four feet of someone for about 10 minutes to pick up infection. With the Delta variant, about one minute.”
Good charts below, local infections rising even among 80%-vaccinated, and globally several billion people without the option. Delta is causing another economic slowdown and supply chain gaps overseas, extent and duration unknown, but not enough to explain the stone-drop in long-term rates, not in a world heavily in debt.
Climate? CO2 warming is real. My prof at Brown, the paleoceanographer and chair of the geology department John Imbrie, who verified the previously ridiculed orbital cause of recent ice ages, in 1967 presented possibly the first charts of prospective CO2 warming. The CO2 models have their weaknesses, but strong verifications: they postulated early signs of warming in high latitudes, and at night, and so it has been, strongly so. More signals abound, but more precursor than immediate.
However. Today’s incessant and usually baseless climate porn worries people, but probably not into buying bonds. It is July and hot in the northern hemisphere. The ENSO water temperatures in the Pacific are normal, between Nino and Nina phases, which brings anomalies.
The nation has an urban-rural economic and cultural divide -- and east-west in climate. East of Kansas when a tree dies, its roots rot, then the poor thing falls over and rots altogether. West of mid-Kansas, which Major Stephen Long’s team (Long’s Peak) in 1806 named the Great American Desert (and he didn’t make it over the Rockies to see the next thousand miles of the real thing), when trees die they just stand there until they burn. The damned bear in the ranger hat, and well-intended precursors held back the inevitable for a hundred years, and now we’re catching up.
Also in the west, every summer a high-pressure system sets up somewhere between Kansas and Utah (a “heat dome,” eek and oooOOOooo) pumping hot desert air north and around its clockwise circulation, clear into Canada. If it slides into Kansas, its backside picks up tropical moisture and the Rockies enjoy monsoon. If centered over CO, we are a cinder. If the high slides unusually far west, the northwest bakes -- as early 2021, while CO and south and east of us have been relatively cool and moist, our prairie still green. A little warmer, but all normal -- as, Lord knows, is drought.
Thinking? We need CO2 action, but doing something is the pointless refuge of the activist unless we know at what cost and benefit (global). Doing something is not necessarily better than doing nothing.
Beware of those who demand proof of the negative. Example: the quarter of the nation who demand proof that the last election was not stolen. Climate certainty is so great that if there is a flood, prove that it wasn’t caused by warming. Prove that the nation does not need $4.5 trillion in new “infrastructure” spending.
Three legit worries. China’s descent into Orwellian horror and nationalist aggression can disrupt the great engine of wealth, global trade 1990-2021. Second, Europe’s inability to look after itself... the world tends to fill vacuums in unpleasant ways. Third, the increasing American embrace of ultimate individualism, and refusal of responsibility to the whole.
I wish we spent more time worrying about real things which we might do something about, like each other. But, nevermind -- on to great good news.
Housing Theory. No particular data, no charts or murky equations. We need a theory to explain the nationwide explosion in prices and unquenchable demand. None of the old ones work: rates are low, but they have been low before and not created anything like this. Credit is tough, even too tough. The Fed and Congress have been a flood of cash, but with the credit channel blocked, hard to see how the flood lapped up to all of these houses.
We know we have a supply problem. Few understand that the shortage is land, not buildings. In particular, a national semi-permanent shortage of land for single-family homes within commuting distance of cities. We have attached housing, old and new, but Covid supercharged the desire for a house -- not so much a yard as more interior space. And the intuition that houses are better investments because we can change them over time, as opposed to condos and townhouses which can be redecorated but not changed.
But, demand!?!? Where in hades commeth demand and authentic purchasing power which would shoot prices up 25%-50% in one year?
As a non-technical person... anti-technical person... I can be trusted. The worst-measured, worst-understood aspect of the US economy is the fountain of wealth from IT. We do not grasp the pervasiveness or magnitude, stuck in old job classifications and 19th Century worry about automation hurting jobs and incomes. Economists have failed to understand the supercharge of productivity, and politicians failed to understand the left-behind and why.
The IT incomes crossing my desk in loan pre-approval are frequently double the necessary amounts even in single-income households. A $200,000 family income near any center of IT employment, which is near any city, is routine -- one partner at 140K, the other at 60K. That family qualifies for a million-dollar loan without breathing hard.
We have the housing story upside-down, worrywarts in charge as any of our other preoccupations. The evident, well-founded, well-funded demand for housing is the greatest American success story ever not to be covered.

The 10-year T-note in the last year, the last three days’ trading added in green. Having reversed from a too-big, too-quick rise, a good idea now to consider a reversal of the overdone reversal.

Boulder County, 330,000 of us, 290,000 over age 12... 79% have had at least one dose of vaccine, yet our cases are up. Delta “breakthrough” of the vaccinated is real, but nearly all asymptomatic or mild. Nationally, 99.5% of hospitalizations are un-vaccinated. Boulder County has not had a Covid death, needled or not since Memorial Day:

The world is in a lot of trouble. Play with this rate of vaccination engine from U Oxford, pick your nation or region.

If you have good eyes, you can make out “Great American Desert” on Long’s map: