Has the Federal Reserve managed to stall out the residential real-estate market — as well as spook the stock market? Janet Yellen’s concession yesterday about inflation’s “stagflationary effects” already emerging probably didn’t build any confidence among investors, but the sharp drop in mortgage closings and residential sales raises fears of broad economic woe.

CNN Business reports that the April figures on residential sales fell for the third straight month:

Home sales fell for the third consecutive month in April as rising mortgage rates and affordability challenges pushed many would-be home buyers out of the market. Still, prices continued to climb, reaching an all-time high.

The median price of a home in April was a record $391,200, rising 14.8% from a year ago, according to a report from the National Association of Realtors. While price growth was robust, it was a slower annual pace of increase than in recent months and determined buyers pushed their budgets to the edge to buy a home before mortgage rates climb further.

The price increase marks more than a decade’s worth of consecutive year-over-year increases, the longest running streak on record.

But as the average rate on a 30-year mortgage crossed over 5% in April, the rising cost of financing a home pushed some prospective home buyers out of the market. Sales of existing homes, which include single-family homes, townhomes, condominiums and co-ops, dropped 2.4% from the prior month and 5.9% from one year ago.

And that trend may be getting worse. Weekly mortgage demand fell sharply this month, both in new sales and in refinancing, CNBC’s Diana Olick reports, even though rates actually declined slightly on lower demand:

Mortgage rates actually fell slightly last week, but the damage has already been done to housing affordability. Both refinance and purchase loan demand dropped, pulling total mortgage application volume down 11% for the week, according to the Mortgage Bankers Association’s seasonally adjusted index.

Mortgage applications to purchase a home declined 12% week to week and were 15% lower compared with the same week one year ago. That was the first weekly drop in homebuyer demand since the third week in April. Mortgage rates have risen over 2 full percentage points since the start of the year, and home prices are up more than 20% from a year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.49% from 5.53%, with points increasing to 0.74 from 0.73 (including the origination fee) for loans with a 20% down payment.

Inflation isn’t helping consumers feel particularly flush either.

Olick also points out that the April residential sales figures are the lowest in the pandemic:

Sales of previously owned homes in April fell to the lowest pace since the Covid pandemic started, according to the National Association of Realtors.

Existing home sales declined 2.4% compared with March to a seasonally adjusted annualized rate of 5.61 million units, the group said. Sales were 5.9% lower than in April 2021. That is the slowest rate since June 2020, which was artificially slow since the economy was struggling with sweeping shutdowns due to the coronavirus.

This count represents closings during the month, so it reflects contracts likely signed in February and March, when mortgage rates were rising. The average rate on the 30-year fixed mortgage started February at 3.66% and ended March at 4.78%, according to Mortgage News Daily. It is now hovering around 5.45%.

Those are hardly the only ominous signs about inflation’s impact on economic activity, direct or indirect. Falling operating-margin numbers from discount retailers Walmart and Target tipped Wall Street into heavily negative territory this week, including this morning. CBS reported early in the afternoon that the S&P 500 is on the verge of bear-market status, and analysts are now worried that Fed action will push the economy into a full-blown recession:

Wall Street is increasingly worried about the potential for a downturn in the face of headwinds including the stiffest inflation in 40 years and rising interest rates. Tightening monetary policy could create a bumpy landing — and even a recession — causing economic growth to slow. Grim quarterly earnings reports from retailers such as Target and Walmart this week have fueled investors’ concerns.

“It’s a gloomy morning as stocks tumble pretty much everywhere on the planet,” Adam Crisafulli, president of investment advisory firm Vital Knowledge said in a research note. “The Walmart/Target blow-ups cast an extremely negative pale over the tape, kicking over the modest stability witnessed in markets Thurs-Tues.”

The skid has put the S&P 500 on the cusp of a “bear market,” which is when a stock index falls 20% or more from a recent high for a sustained period of time. With today’s slide, the S&P 500 is down 18.7% from its most recent high of 4,796 on January 3, while the Dow is 14.4% below its most recent peak. The Nasdaq had already entered bear territory and is down 29% from its most recent peak in November.

As if the market needed any more pessimism, inflation eroded first-quarter earnings at a more upscale discount retailer, Kohl’s. Overall year-on-year sales fell by over five percent, and the clothing/household retailer is resetting its expectations for the rest of the year:

Kohl’s Corp. KSS 3.71%▲ slashed its sales and profit targets amid a sharper-than-expected pullback in consumer spending, but executives said suitors remain interested in buying the department-store chain ahead of a bid deadline.

While the first quarter started strong, company officials said, demand weakened as inflation spurred consumers to tighten their belts without the lift from last year’s government stimulus to help spending. Overall sales for the quarter fell 5.2% from a year earlier.

“Their wallets are being squeezed and so they’re coming into the store and they’re being a bit more mindful of the brands they are buying and what is going in their basket,” Kohl’s finance chief Jill Timm told analysts Thursday.

The results are the latest warning sign this week on the retail environment, sparking a major selloff of shares across the sector. Large retailers, including Target Corp. TGT -4.91%▼ and Walmart Inc., WMT -2.21%▼ are increasing their sales at rates far slower than they did during the height of the pandemic, and now profits are falling on higher costs.

Even where revenues are stable, it’s mostly because inflation pushed prices up to cover for softer sales. That’s what Home Depot and Lowe’s are seeing, both of which had benefited from home-improvement impulses during the pandemic lockdowns:

Shoppers are also switching from discretionary purchases to lower-margin items like groceries and other household staples, pressuring company profits. Home-improvement chains Home Depot Inc. and Lowe’s Cos. are seeing transaction counts fall, but revenue is being supported by higher prices for items across their stores.

We might be seeing the end of several small bubbles this year, thanks to a sudden and deliberate contraction in money supply. Home sales and consumer spending have been on a tear over the last couple of years thanks to government stimulus and rapid monetary expansions, but in truth those bubbles probably started a dozen years ago with the Ben Bernanke quantitative easing expansions. It’s clear that our current hyperinflationary environment was caused in large part by Bernanke’s policies, and then triggered by Joe Biden’s hyperstimulus. It will take a significant recession to wring out those bubbles, but at least those should be less likely to cause a financial crash than the dot-com and mortgage bubbles over the last 22 years.

Or so we hope. In the future, we should calculate our policies to avoid the bubbles in the first place.