Morning Report: Tame CPI cheers markets

Vital Statistics:

Stocks are higher after the Consumer Price Index fell last month. Bonds and MBS are up.

Consumer prices rose 0.4% MOM and 4.9% YOY in April. This was slightly below street estimates. Ex-food and energy, prices rose 0.4% MOM and 5.5% YOY. Shelter was the biggest driver of the increase, followed by used cars and trucks. The shelter component should pretty much disappear as we reach the 2022 peak in house prices in June.

Mortgage applications increased 6.3% last week as purchases rose 5% and refis increased 10%. “Mortgage applications responded positively to a drop in rates last week, as the Fed signaled a potential pause at the current level for the federal funds rate in anticipation of inflation slowing and tightening financial conditions that will slow economic and job growth. Mortgage rates for all surveyed loan types decreased over the week with the 30-year fixed rate at 6.48 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased 5 percent last week but were still more than 30 percent below last year’s level. Lower rates from week to week have helped buyers in the market, but limited for-sale inventory remains a challenge for many homebuyers. Refinance activity jumped 10 percent to its highest levels since September 2022, although there is only a small pool of borrowers who can benefit from refinancing with rates at these levels.” 

NY Fed Chairman John Williams said that it will take a couple of years for inflation to get back to the Fed’s 2% target. He also cautioned against forecasts for rate cuts this year: “First of all, we haven’t said we’re done raising rates,” Williams told CNBC’s Sara Eisen during a Q&A session after his speech. “We’re going to make sure we’re going to achieve our goals and we’re going to assess what’s happening in our economy and make the decision based on that data. I do not see in my baseline forecast, any reason to cut interest rates this year.”

Loan Depot originated $5 billion in the first quarter of 2023, which was a 23% decrease from the fourth quarter. That said, gain on sale margin increased substantially from 145 to 243 basis points. “The first quarter of this year remained challenging for the housing market as virtually all participants grappled with the impacts of ongoing volatility in mortgage interest rates, persistent cost inflation and the lack of available homes for sale,” said President and Chief Executive Officer Frank Martell. “Although the affordability and availability of new and existing home sales remains challenging for the industry overall, we expect to continue to benefit from seasonally higher revenues and our ongoing cost reduction program. Assuming the expected benefits of continuing seasonal volume increases and cost productivity, we expect to deliver improving financial results over the course of the second and third quarters of 2023.” The company is forecasting for gain on sale to improve again in the second quarter to a range of 240 to 280 basis points.


Author: Brent Nyitray

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

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