Morning Report: Inflation returns 10/18/16

Posted on October 18, 2016 by Brent Nyitray

Vital Statistics:

Last Change
S&P Futures 2137.5 15.0
Eurostoxx Index 342.3 5.0
Oil (WTI) 50.4 0.4
US dollar index 88.1 -0.2
10 Year Govt Bond Yield 1.78%
Current Coupon Fannie Mae TBA 103.3
Current Coupon Ginnie Mae TBA 104.2
30 Year Fixed Rate Mortgage 3.54

Stocks are higher this morning on no real news. Bonds and MBS are down.

It looks like the Fed has made some progress in getting inflation up to its goal of 2%. The Consumer Price Index came in at 0.3% MOM. Ex-food and energy it is up 2.2% on a YOY basis. The Fed doesn’t really look at CPI all that much – it prefers the Personal Consumption Expenditure Index – but it looks like we are moving further away from the deflation ledge that central bankers fear.

What drove the increase in the core index? Owner-equivalent rent, which is a proxy for real estate prices. It rose 0.4%, which is the highest reading since 2006.

What does increasing inflation mean for the mortgage business? Assuming higher inflation translates into wage inflation, you should see a pick-up in the purchase business as Millennials get jobs / raises. On the other hand, the refi business is going to take a hit.

One Texas builder is focusing on the entry-level homebuyer and using USDA loans to help make the sale. LGI Homes, based in Houston, is marketing to people in apartment complexes with flyers discussing the monthly payment they could have if they bought. These are largely properties in the exurbs around Dallas and Houston, where lower land acquisition costs translate into lower average selling prices. ASPs for LGI are below 200k, while ASPs for new homes in general is over $350k. LGI reports seeing the steadiest demand in entry-level.

Sentiment for the builders is high in general. The NAHB Housing Market Index fell 2 points in October, from its record in September.

High property taxes got you down? Here is something you can do about it.

Filed under: Economy, Morning Report |

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17 Responses

  1. jnc4p, on October 18, 2016 at 10:29 am said:

    Jacobin knows who the enemy is:

    ” The Libertarian Party’s Dangerous Fusion

    Gary Johnson’s “socially liberal, fiscally conservative” fusion is a dangerous mix with deep roots in the Libertarian Party.
    by Andrina Tran”

    https://www.jacobinmag.com/2016/10/gary-johnson-libertarian-party-ron-paul-ayn-rand/

    Like

    Reply
    • ScottC, on October 18, 2016 at 11:47 am said:

      From the link:

      Only they could avoid the anti-freedom traps set by both the Right (legislators of morality) and the Left (champions of regulation and redistribution).

      If the Jacobin thinks that it is the right that is the legislator of morality, it hasn’t been paying attention for decades.

      Like

      Reply
    • jnc4p, on October 18, 2016 at 1:38 pm said:

      “Its two central precepts — the sanctity of individual rights and the non-initiation of force — enshrined the notion that a person had the right to choose his duties, regardless of the social consequences.”

      Works for me.

      “To view the libertarian fusion as a marriage of freedom ignores how it divides superiors from inferiors, excellence from mediocrity, and rights from duties.”

      Feature, not a bug.

      Like

      Reply
      • ScottC, on October 18, 2016 at 2:44 pm said:

        From the link:

        When the Left spoke of rights, it meant guaranteeing basic material standards: a living wage, health care, safe working conditions.

        Or, in other words, it meant something other than rights.

        Like

        Reply
        • Kevin S. Willis, on October 19, 2016 at 11:02 am said:

          No, it meant the new definition of rights. It’s the Orwell school of “now words mean what the state says they mean”.

          Not everything that is arguably a net positive or a general benefit is a “right”. Or, didn’t used to be, anyway.

          Like

  3. Let the mutherfuker burn!, on October 18, 2016 at 6:23 pm said:

    This is a moronic sentiment,

    “If you keep that in mind, you can resolve almost any issue, because you can find that common ground to interact with each other.”

    In this idiot’s mind there are no intractable differences.

    Like

    Reply
    • ScottC, on October 19, 2016 at 9:55 am said:

      McWing:

      This is a moronic sentiment,

      I only just saw where it came from. The Wise Latina is a veritable cornucopia of moronic sentiments.

      Like

      Reply
  5. markinaustin, on October 19, 2016 at 8:46 am said:

    Brent – I have QUESTIONS.

    Do we have a history of election affected short term pricing in domestic residential real estate?

    Would a Trump win [or an HRC win] cast a Brexit like pall on pricing as people scramble to sell?

    We are in the market for another duplex and are looking at one today in San Antonio. Would it be smart to wait until after Election Day?

    Conversely, would it be smart to temporarily liquidate mutual funds until after the election on the assumption that in the short term they will drop enough that selling today and buying back in 3 or 4 weeks would at least cover, even including fees?

    Or is there likely to be no discernible issue from election results in either market?

    Like

    Reply
    • Brent Nyitray, on October 19, 2016 at 9:24 am said:

      Mark,

      IMO real estate prices are pretty insensitive to politics, at least in the short term. I wouldn’t let the election figure into my thinking on whether to buy or sell.

      With stocks, I do believe they are vulnerable since the Fed is taking away support (remember the old saw: don’t fight the Fed). The problem is that there are no other good alternatives that are reasonably liquid, IMO. I generally don’t make changes in my long-term investments based on short term events like a presidential election. But that is just me. Some people are good at it – I am not.

      Liked by 1 person

      Reply

Be kind, show respect, and all will be right with the world.