|10 year government bond yield||1.53%|
|30 year fixed rate mortgage||3.83%|
Stocks are lower this morning on trade concerns and lower than expected inflation readings. Bonds and MBS are flat.
Inflation at the wholesale level came in well below expectations, with the headline producer price index falling 0.3%. Ex-food and energy, it fell by the same amount. On a year-over-year basis, the headline rose 1.4% and ex-food and energy it rose 2%. While the Fed doesn’t pay too much attention to the CPI and PPI, it will certainly fuel fears that they are losing the battle against deflation.
Small business optimism fell in September, according to the NFIB. “As small business owners continue to invest, expand, and try to hire, they’re doing so with less gusto than they did earlier in the year, thanks to the mixed signals they’re receiving from policymakers and politicians,” saidNFIB President and CEO Juanita D. Duggan. “All indications are that owners are eager to do more, but they’re uncertain about what the future holds and can’t find workers to fill the jobs they have open.” The point about jobs is crucial to understanding the current economic environment. While there are fears that we may enter a recession, they are rare when the labor market is this tight, and we are more likely to see increasing wage growth and consumer spending. Not a recipe for a recession.
Home prices rose 0.4% MOM and 3.6% YOY, according to CoreLogic. They anticipate that home price appreciation will approach 6% in the next year, driven by lower rates. Of the top 100 metro areas, 37% are overvalued, while 23% were undervalued. The Rust Belt, interior California, and parts of the Northeast are the most undervalued.
Speaking of home price appreciation. California has enacted statewide rent control, which limits rent increases to 5%, and makes it harder to evict non-payers. Of course when you have a dearth of housing, artificially depressing the rate of return on that investment is a strange way of encouraging it. But this law is all about messaging, not substance. Notwithstanding the state of CA, housing affordability is at a 3 year high right now, according to Black Knight, driven by lower interest rates. This is quite the reversal from November last year when affordability was at a 9 year low.