Morning Report: Inflation moderates

Vital Statistics:

 LastChange
S&P futures4,47513.2
Oil (WTI)71.090.65
10 year government bond yield 1.33%
30 year fixed rate mortgage 3.07%

Stocks are higher this morning after inflation data came in lower than expected. Bonds and MBS are flat.

Prices at the consumer level rose 0.3% MOM and 5.3% on a YOY basis. This monthly increase was the lowest since January. Ex-food and energy, they rose 0.1% MOM and 4% YOY. Higher energy prices have been the big driver for the index, however food has also been a big factor as well. Interestingly, owners equivalent rent (which is a function of housing prices) rose only 0.3% MOM and 2.6% YOY. While this number is an artificial construct, it should generally correlate with housing prices. According to just about every real estate index, prices are rising in the high teens percent.

Small business sentiment increased 0.4% in August, according to the NFIB Small Business Sentiment Index. “As the economy moves into the fourth quarter, small business owners are losing confidence in the strength of future business conditions,” said NFIB Chief Economist Bill Dunkelberg. “The biggest problems facing small employers right now is finding enough labor to meet their demand and for many, managing supply chain disruptions.”

Biden is expected to nominate Mike Calhoun to run FHFA. It sounds like the left is not happy with him due to his Wall Street contacts. Supposedly he is in support of he utility model for Fannie Mae and Freddie Mac.

The share of mortgages in forbearance fell 15 basis points to 3.08% last week. “The share of loans in forbearance decreased by 15 basis points last week, as forbearance exits jumped to their fastest pace since March. The fast pace of exits outweighed the slight increase in new forbearance requests and re-entries,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Servicer call volume jumped last week as summer came to an end and many borrowers reached the end of their forbearance terms. We anticipate a similarly fast pace of exits in the weeks ahead, which should lead to increased call volume and a further decline in the forbearance share.”

The housing market is beginning to cool off, according to Redfin. Redfin agents reported that 59% of all sales involved bidding wars last month. “Sellers are still pricing their homes very high, but a lot of buyers have had enough and are no longer willing to pay the huge premiums they were six months ago. Instead of 25 to 30 offers on turnkey homes, we’re now seeing five to seven,” said Nicole Dege, a Redfin real estate agent in Orlando, FL, where the bidding-war rate dropped to 57.5% in August from 78.9% in July. “Buyers are getting a bit more selective. I have one seller who recently put his four-bedroom single-family pool house on the market, but the roof was shot. He had to lower his asking price to $423,000 from $427,000 and agree to spend around $7,000 to replace the roof in order to attract bidders. Six months ago, he would have easily been able to sell that home as-is without dropping the price.”

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