Quietly, away from the Musk/Twitter hysteria, this may have been a big week for the US economy.

Why?

There were several data points that clearly reinforced how rapidly circumstances can change while also revealing the tension at the heart of the economy that presently confronts central bankers and policymakers.

Navigating between the Scylla of a recession and the Charybdis of a serious inflationary cycle, taking hold has never appeared trickier but there are starting to be some good signs on the latter side of the equation.

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The first big data point, however, came from the other side of the Strait of Messina. This was that the average rate on a US 30 year fixed mortgage surpassed 5% for the first time since 2018.​

In a way, 5% is a purely symbolic barrier but breaching this level also emphasizes just how incredibly swift the change in US interest rates (and US home affordability) has been this year.

As we have stated on some other topics, the rate of change can be (can be!) more important than the level when it comes to determining the trajectory of the US economy.

Given time, many economic activities can and will adjust to a new, even elevated, level. That is the wonder of capitalism and human ingenuity. Today's expensive oil is tomorrow's solar farm (or oil fracking).

Both cheaper solar panels and the engineering brilliance of extracting tight oil have their roots in the 1970s oil crisis.

But an incredibly rapid rate of change makes it difficult to plan or adjust and so you often get stasis or worse.

And the current rate of change in US mortgages has been almost the fastest ever.

For instance:

• At the end of March - all of a week ago - the 30 year rate was 4.67%

• The rate easily surpassed 5% this week and the jump over the last 3 weeks has been the largest % increase since May of 1987.

This will very likely have an impact on the housing market. It probably already has.

We began the year (this year!) at just over 3%. At 4% we said this was a rapid increase but very manageable because of high demand and little supply. At 4.5% we repeated a similar message but said that some demand would be curtailed

However, at 5% (and rising!) mortgage costs could finally begin seriously dampening the red hot housing market. What was affordable at 3% or 4% will start to become hard at 5% or 6%.

To illustrate why, here is a simple breakdown:

• The average sale price for a new US home is roughly $510K today contrasted to $410K at the start of 2021.

• At these numbers and a 30 year fixed mortgage rate at 5.02% today vs. 3.32% a year ago, the average cost of a mortgage is $2,195 per month now versus $1,440 a year ago.

• Here is an online mortgage calculator to do your own, if you wish.

That is well over 50%+ difference in monthly cost for the price of shelter in a single year.

Thus, it is becoming harder and harder to think that even the resilient real estate sector will be able to ignore these types of increases.

You don't need to be a Federal Reserve governor to realize that shelter costs rising 50% a year and wages rising 10-20% that something will have to give.

The US housing market might not be the only market turning over, however.

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