Mortgage Market Update – Inflations and Interest

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This Week’s Update from Victor

The weather isn’t the only thing warming up today for our ‘Michigan Weather’ at it’s finest; home construction is on the rise while consumer inflation is heating up!

March brought some good news for homebuyers struggling with limited inventory. Housing Starts (which measure the beginning of construction on homes) were up almost 20% from February when bad weather hindered construction. Building Permits (which measure future construction) also ticked higher in March. Even more importantly, Housing Starts and Building Permits for single-family homes, which are in such high demand, also rose in March.

The high demand for homes has builders feeling confident, per the National Association of Home Builders Housing Market Index. This real-time read on builder confidence rose by 1 point to 83 in April. Any reading over 50 indicates that more builders view conditions as good than poor.

Consumer inflation was also on the rise, as the Consumer Price Index (CPI) jumped by 0.6% from February to March. The year-over-year reading also increased from 1.7% to 2.6%, which was a larger increase than expected. Read on to learn why inflation is expected to rise even further this spring – and why that matters for Mortgage Bonds and the home loan rates tie to them.

Though Initial Jobless Claims remain elevated, there was a nice improvement in the latest week, as the number of people filing for unemployment for the first time fell by nearly 200,000 to 576,000. The number of people continuing to receive benefits held steady at 3.73 million while Pandemic Assistance and Emergency Claims both declined. All in all, 17 million people are receiving benefits throughout all programs, which is down 1.2 million from the previous week.

There was also positive news from the manufacturing sector as the Empire State Index, which measures the health of activity in the New York region, came in above expectations at 26.3 for April. The Philadelphia Fed Index also beat expectations in April, rising to 50.2. In addition, Retail Sales were almost 10% higher from February to March, which was almost double expectations though the increase does make sense, given the recent stimulus payments. The question is, how long will these gains last once stimulus payments subside?

Lastly, read on to learn about the demand at the 10-year Treasury and 30-Year Bond auctions – and why this also matters for Mortgage Bonds and home loan rates.

Housing Starts Stronger Than Expected

There was some good news for homebuyers struggling with limited inventory, as Housing Starts (which measure the beginning of construction on homes) were up almost 20% in March after building in February was hindered in part by bad weather. This was much stronger than expectations. Housing Starts were also 37% higher than compared to March of 2020, though this figure is skewed as builders were not building this time last year due to the pandemic.

**Housing Starts for single-family homes, which are in such high demand, were up 15.3% from February to March and nearly 41% compared to March of last year.

Building Permits, which measure future construction, rose 2.7% in March and 30.2% year over year; again the annual reading is skewed due to the lack of building in March of last year. Permits for single-family homes were also on the rise, up 4.6% from February to March and almost 36% year over year.

Builder confidence remains strong due to the strong demand for houses around the country. The National Association of Home Builders Housing Market Index, which is a real-time read on builder confidence, rose by 1 point from March’s revised figure of 82 to 83 in April. Any reading over 50 indicates that more builders view conditions as good than poor.

Of the three components in the index, current sales increased by 1 point to 88 while future sales expectations decreased by 2 points to 81. Buyer traffic increased by 3 points to 75, which is the highest level since November. This speaks to the high level of demand for houses, given that home loan rates have ticked higher since last fall.

Consumer Inflation Heating Up

Consumer inflation moved higher in March, as the Consumer Price Index (CPI) rose by 0.6% from February. The year-over-year reading also increased from 1.7% to 2.6%, which was a larger jump than expected.

Core CPI, which strips out volatile food and energy prices, was up 0.3% in March and 1.6% year over year.

Of note in the report, rents are rising 1.8% across the country, which is down from 2% in the previous report. This overall reading is being weighed down by New York and San Francisco, as many markets are experiencing much higher rent gains. And it’s likely rents will start rising again in upcoming reports.

Part of the reason for the increase in the annual comparisons is that readings for the more current months are replacing the readings from 2020 when much of the economy was shut down due to the pandemic. While it’s expected that April’s inflation reading will also move higher, the Fed has stated that they expect rising inflation will be transitory.

Why is rising inflation significant?

Higher inflation typically drives home loan rates higher. That’s because inflation is the arch-enemy of interest rates since it erodes the buying power of the fixed return that a mortgage holder receives. While many factors influence the markets, I will be keeping a close eye on all the latest inflation data and its impact on Mortgage Bonds and the home loan rates tied to them.

Improvement in Initial Jobless Claims

Initial Jobless Claims decreased by nearly 200,000 in the latest week, as another 576,000 people filed for benefits for the first time. While this number is still elevated, the strong improvement from the previous week was nice to see. California (+70K), Texas (+65K), and New York (+57K) reported the largest number of claims.

Continuing Claims, which measure people who continue to receive benefits, remained steady at 3.73 million.

Pandemic Unemployment Assistance Claims (which provide benefits to people who would not usually qualify) decreased by 500,000, while Pandemic Emergency Claims (which extend benefits after regular benefits expire) decreased by 475,000.

The number of people receiving benefits throughout all programs is now at 17 million, which is down 1.2 million from the previous week and still higher than the 8 million people receiving benefits in all programs in the comparable week last year. We will see last year’s comparison figures move higher in the coming weeks, as we move into the timeframe of last year’s large shutdowns at the start of the pandemic.

It’s still a great time to refinance in our current market! Looking for strategies to purchase your next home? Call today for proven strategies to you win your real estate goals!