Inflation Cools & Rates Plummet; More Inventory ≠ A Housing CRASH
CPI Inflation numbers came out surprisingly cool this morning – indicating it was flat month-over-month and down year-over-year (it was 9.1% in June but 8.5% in July).
8.5% inflation is still sky-high and probably under-reported too, but the bond market loved it and rates plummeted (because the reports were much lower than expected).
Rates plummeted because nothing scares bond investors (who buy mortgage-backed securities too) more than inflation because nothing strips away yields faster than inflation.
What this means is that Jeff Snider, of Eurodollar University Podcast fame (who I cite often) was probably correct: our inflation was largely a result of supply chain bottlenecks in the face of excess demand caused by too much stimulus (and not the result of too much money creation like famed economist, Steve Hanke and many others fervently believe).
Irrespective of who is right, it does appear that inflation is waning and that rates will continue to fall as a result. Although, we should expect more bounces up and down, as economic data rarely moves in a straight line.
More Inventory ≠ A Housing Crash
I stole this (with permission) from Barry Habib and MBS Highway – which should make it that much more credible given Barry’s track record of accurate predictions.
Many members of the media are implying that we are facing housing Armageddon because inventory levels are up over 22% from their lowest levels in February.
But, Barry reminds us that this is just a normal occurrence that happens every spring and summer – as this seasonal buildup is largely a result of parents listing homes to accommodate school schedules.
MOST IMPORTANTLY – the amount of existing homes for sale is currently HALF of what was available pre-COVID! So, this huge increase in inventory is actually from historic lows!
In addition, HALF OF THE HOMES counted as inventory are actually under contract – so, truly available inventory is far less than the headline number.
Finally, as we often repeat, an increase in inventory from such insanely low levels is actually a good thing because it makes purchasing a home a lot easier.
I suspect this is partially why we have seen a major uptick in the number of contracts we have received in recent days, as it appears that many of our previously “discouraged buyers” are coming back to the market.
To paraphrase a misquote by Mark Twain, because Twain actually never said it 😊, the death of the housing market is greatly exaggerated.