Mortgage news for July 2021 remains positive.
- Inflation at the consumer and wholesale levels came in much hotter than expected.
- Fed Chair Jerome Powell pointedly commented about this.
- Plus, Initial and Continuing Jobless Claims reached post-pandemic lows.
The Consumer Price Index (CPI) rose by 0.9% in June. Meanwhile, the year-over-year reading increased from 5% to 5.4%. This marks the highest annual increase in almost 13 years! Core CPI, which strips out volatile food and energy prices, almost doubled expectations. It was up 0.9% in June, while year-over-year Core CPI saw the highest increase in 29 years! However, several important nuances also emerged, especially regarding rent prices. See details about these and mortgage news, below.
Wholesale inflation soared. In fact, the Producer Price Index (PPI) rose 1% in June and 7.3% on a year-over-year basis. This was up from 6.6%) Core PPI also rose more than expected.
Economists recommend monitoring Inflation because rising inflation impacts Mortgage Bonds. Also, it is tied to home loan rates. People debate whether the factors impacting inflation are transitory. Fed Chair Powell made important remarks about this last week.
Initial Jobless Claims declined by 26,000 in the latest week. Fewer people filed for unemployment benefits. In fact, the number who filed hit 360,000, a post-pandemic low. The number of people who receive regular benefits also struck a post-pandemic low of 3.2 million. Meanwhile, pandemic-related benefits declined as well. A total of 13.8 million people continue receiving benefits throughout all programs. This figure is down 334,000 from the previous week. This data reflects the impact of states who ended extended benefits.
Retailers celebrated as sales rose by 0.6% in June. This was better than the expected 0.4% decrease. However, May’s figure showed a loss of 1.3% to a loss of 1.7%. Nevertheless, optimism remains among small businesses. Per the National Federation of Independent Business Optimism Index, figures rose to 102.5 in June. This marks the first time that figure climbed past 100 since last November.
Inflation Much Hotter Than Expected
The Consumer Price Index (CPI) measures inflation on the consumer level. It rose by 0.9% in June. This figure exceeded the expected 0.5% increase. The year-over -year reading increased from 5% to 5.4%. That marks the highest year-over-year figure in almost 13 years!
Core CPI outstrips volatile food and energy prices. It was also up 0.9% in June, almost double expectations. On a year-over-year basis, Core CPI increased from 3.8% to 4.5%. This marks the highest year over year increase in 29 years!
Rents rose 0.2% in June. This reveals an increase of 1.9% on a year-over-year basis. Owners’ equivalent rents rose 0.3% in June and 2.3% year over year. However, the data reveals several important things.
“If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?”
This question is subjective. For instance, most people could only venture a guess about the worth of their home on the rental market. Conjecture is how the CPI tries to account for the change in home prices. In fact, this component makes up 24% of the CPI report!
This data regarding rent lags other rental indexes. Those showed 5%+ increases in rental prices. In other words, one could argue that even though consumer inflation remains hot, it could be hotter still, since this calculation of the index leaves room for interpretation.
However, on the other side of the coin, not everyone feels this type of inflation. For example, people only experience housing or rental inflation if they purchase or start a new lease agreement.
Wholesale inflation grew more than expected. The Producer Price Index (PPI) rose 1% in June and 7.3% on a year-year basis (up from 6.6%). Core PPI, which eliminates food and energy prices, rose 1% in June and 5.6% on a year-over-year basis. This annual reading exceeded expectations as it was up from 4.8%.
Jobless Claims Reach Post-Pandemic Lows
- The number of people filing for unemployment for the first time fell by 26,000 in the latest week. Initial Jobless Claims reached 360,000. California (+58K), New York (+33K) and Texas (+32K) reported the largest number of claims.
- People continuing to receive regular benefits also decreased by 126,000 to 3.2 million.
- Pandemic Unemployment Assistance Claims (providing benefits to people who would not usually qualify) and Pandemic Emergency Claims (which extend benefits after regular benefits expire) fell as well, by 334,000 combined.
- All told, 13.8 million people still receive benefits throughout all programs. This is down 334,000 from the previous week. This number declined by roughly 800,000 over the past two weeks. Although this data lags (due to the time between when people find employment and subsequently report it), we are seeing the impact from some of the states that cut extra benefits ahead of the Labor Day expiration.
Mortgage News: Housing Inventory
According to the National Association of Realtors, construction of long-term housing fell 5.5 million units short of historical levels over the past 30 years. To address the issue, the report shows that contractors would need to add over 2 million housing units per year.
Construction figures climb. However, even if building continues at the current pace, it will take more than 20 years to close the 5.5-million-unit housing gap. This further proves that inventory levels will remain tight for the foreseeable future, and this week’s upcoming reports on Mortgage News, Housing Starts, Building Permits and Existing Home Sales will provide important news on construction and inventory as well.
The 10-year Treasury Note Auction and Tuesday’s 30-year Bond Auction showed investors measuring the level of demand. High demand, reflected in the purchasing of Bonds and Treasuries, pushes prices higher and yields or rates lower. Weak demand, on the other hand, signals that investors think yields will continue to move higher. This can negatively effect rates.
Mortgage News Watch This Week
- Housing news highlights the week ahead. Beginning Monday, July’s National Association of Home Builders Housing Market Index is a near real-time read on builder confidence.
- June’s Housing Starts and Building Permits follow on Tuesday, with Existing Home Sales for June being released on Thursday.
- Also on Thursday, the latest weekly Jobless Claims data will be reported, while Wednesday’s 20-year Bond Auction has the potential to move the markets.
Mortgage Bonds continue to trade in the middle of a wide range between support at the 50-day Moving Average and overhead resistance at 103.782. The 10-year ended last week trading at 1.30% after testing support at 1.29.
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