All Things in Moderation

Vital Statistics:

Stocks are higher this morning after the consumer price index comes in better than expected. Bonds and MBS are flat.

Inflation at the consumer level rose 0.3% MOM and 3.0% YOY, according to the Consumer Price Index. Gasoline prices were the biggest driver of the increase (something different than shelter, for once). The index for shelter rose 0.2% MOM and 3.5% YOY.

Shelter inflation (YOY) is almost back to pre-pandemic levels:

Given continued downward momentum in rental and home price appreciation, shelter inflation is about to go from foe to friend in the fight against inflation.

Core inflation (ex-food and energy) rose 0.2% MOM and 3.0% YOY. We are over 6 months into the imposition of tariffs and the inflation indices have had nothing more than a negligible increase. Whatever fears of hyperinflation (or stagflation) have not materialized.

This clears the decks for a rate cut next week, and probably another one in December.

Existing Home Sales rose 1.5% to a seasonally adjusted annual rate of 4.06 million units. “As anticipated, falling mortgage rates are lifting home sales,” said NAR Chief Economist Dr. Lawrence Yun. “Improving housing affordability is also contributing to the increase in sales.”

“Inventory is matching a five-year high, though it remains below pre-COVID levels,” Yun added. “Many homeowners are financially comfortable, resulting in very few distressed properties and forced sales. Home prices continue to rise in most parts of the country, further contributing to overall household wealth.”

Sales increased in the Northeast, South and West, while falling in the Midwest. The median home price rose 2.1% YOY to $415,200. Inventory rose 14% YOY to 1.55 million units, which represents a 4.6 month supply.

Fannie Mae CEO Priscilla Almodovar has resigned and Peter Akwaboah, Fannie Mae’s current Chief Operating Officer has been tapped as Interim CEO. “Peter’s deep operating background, as the former Morgan Stanley COO of Global Technology, makes him the perfect fit for the Acting CEO position while the Board conducts its search for a permanent CEO. With the addition of Peter as Acting CEO and John Roscoe and Brandon Hamara as Co-Presidents, we now have a deep bench of three experienced leaders at the very top of Fannie Mae. This means a safer, sounder Fannie Mae, all while growing our great Fortune 25 Company,” Pulte continued.

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Vital Statistics:

Stocks are lower this morning after the government shut down at midnight. Bonds and MBS are up.

The government shut down at midnight as funding ran out. Worried about how the shutdown will impact the mortgage industry? The MBA has you covered. Main points:

The shutdown will impact HUD, which means FHA / VA / USDA loans may be slower. Of these three, USDA will be the most affected.

Fannie and Freddie are not government agencies, so the impact there would be limited.

New flood insurance policies will be on hold until the program is re-authorized. The IRS will still honor tax transcript requests.

The private sector shed 32,000 jobs in September, according to ADP. “Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that U.S. employers have been cautious with hiring,” said Dr. Nela Richardson, chief economist, ADP.

Education and health services added 33,000 jobs, while leisure and hospitality lost 19,000. Professional/business services and finance also declined. The Midwest bore the brunt of the job losses. Pay growth for job stayers was steady at 4.5%, while the pay growth for job switchers fell from 7.1% to 6.6%.

FWIW, the Street is looking for an increase of 50,000 jobs in Friday’s jobs report, assuming it comes out. BLS has said it will not release the jobs report if the government is still shut down, so this report carries additional weight.

Job openings ticked up slightly in August, from 7.21 to 7.23 million. The quits rate fell from 2.0 to 1.9%, which is further evidence of the “job-hugging” phenomenon where workers hold employees hold onto their current jobs, even if they are unhappy, due to economic uncertainty and fear of the labor market, rather than seeking new opportunities.

The labor market is weakening, and the Fed stayed tight for too long.

Consumer confidence fell in September, according to the Conference Board. “Consumer confidence weakened in September, declining to the lowest level since April 2025,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The present situation component registered its largest drop in a year. Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low. This is consistent with the decline in job openings. Expectations also weakened in September, but to a lesser extent. Consumers were a bit more pessimistic about future job availability and future business conditions but optimism about future income increased, mitigating the overall decline in the Expectations Index.”

IMO it looks like the weakening labor market is beginning to affect the consumer confidence numbers.

Mortgage applications decreased 13% last week as purchases fell 1% and refis fell 13%. “Mortgage rates increased to their highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data. After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizeable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “With the 30-year fixed rate now at 6.46 percent, refinance activity declined for all loan types, including a 22 percent decrease in conventional refinances and 27 percent decrease in VA refinances. The average loan size for refinances dropped to $380,100 from $461,300 two weeks ago as these higher rates eliminated the refinance incentive for many borrowers with large loans.”

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