Morning Report: Inflation remains below the Fed’s target

Vital Statistics:

 LastChange
S&P futures335022.6
Oil (WTI)37.17-0.24
10 year government bond yield 0.68%
30 year fixed rate mortgage 2.92%

Stocks are higher this morning after we end a volatile week. Bonds and MBS are up.

Inflation at the consumer level rose 0.4% MOM and 1.3% YOY. Ex-food and energy, it rose 0.4% MOM and 1.7% YOY. You can see that inflation has been on a general downtrend since peaking around 1980. The Fed is deeply concerned about inflation going below 0%, and has set a 2% target rate.

Here are some possible changes to the QM rule. Note that a change in administration will bring in a new head of the agency, which could mean other possibilities. The CFPB wants to get away from the current QM patch, which allows loans guaranteed by Fan and Fred to be exempt from the 43% debt-to-income limit.

Fannie Mae says that about half of all lenders expect profit margins to increase over the next 3 months. FWIW, on its second quarter conference call, Rocket mortgage guided analysts to to contracting margins this quarter. As refis dry up, lenders will get more competitive, although that might not be a Q3 phenomenon.

“This quarter’s MLSS results align with the strong housing recovery amid the larger economic downturn due to COVID-19,” said Doug Duncan, Fannie Mae SVP and chief economist. “Purchase demand growth expectations for the next three months reached the highest third-quarter readings since survey inception. For the third consecutive quarter, lenders’ profitability outlook has remained a strong positive.”

Manhattan apartment vacancies hit 15,000, up from 5,600 a year ago. “The rental market is weak and getting weaker,” said Jonathan Miller, CEO of Miller Samuel. “The first-time buyers in outlying areas are largely coming from the Manhattan rental market.” Rents are falling as well, as studio rents are down 9% and one-bedroom rents are down 5%. Landlords are on average offering 2 months of free rent.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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