Morning Report: Allergic reaction to the CPI

Posted on February 14, 2024 by Brent Nyitray

Vital Statistics:

Stocks are rebounding after yesterday’s allergic reaction to the hotter-than-expected CPI report. Bonds and MBS are flat.

The Consumer Price Index rose 0.3 MOM in January and 3.1% on a year-over-year basis. Shelter accounted for two thirds of the increase. The core rate of inflation rose 0.4% MOM and 3.9% on a YOY basis. The core rate has been steadily rising on a month-over-month basis since the summer:

The stock and bond markets tanked on the news, with the S&P 500 falling 1.37% and the yield on the 10 year rising to 4.32%. The Fed Funds futures didn’t change that dramatically for March, however the December futures are now pricing in 4 cuts this year, with 3 cuts as the next likeliest scenario.

Guild Mortgage is acquiring Academy to become the 8th largest non-bank mortgage lender in the US. “Guild and Academy share a commitment to the purchase mortgage market and believe in local sales and fulfillment that builds on our customers for life strategy. Our aligned core values attract employees dedicated to serving their communities and delivering on the promise of homeownership,” said Guild Chief Executive Terry Schmidt. “This transaction represents two like-minded organizations joining forces to continue to grow stronger together. Each acquisition we’ve completed has brought new talent to Guild, making us a better company. We’re excited to extend a warm welcome to our new Academy teammates and build on their talent with the support of Guild behind them.”

Mortgage applications fell 2.3% last week as purchases fell 3% and refis fell 2%. “Application activity was weaker last week, as mortgage rates moved higher across the board. The 30-year fixed mortgage rate was up to 6.87 percent – the highest rate since early December 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications remained subdued as elevated rates continue to add to affordability challenges along with still-low existing housing inventory. Refinance applications declined and remained depressed, with rates still higher than a year ago.” 

This graph gives a vivid illustration of how much the US has under-built housing since the real estate bubble. The average age of the median home is 40 years, up from 31 during the bubble years. Over a third of the US housing stock was built before 1969, and 60% were built before 1980.

Given the paltry inventory of for-sale homes, renovation loans should be a potential opportunity.

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