Stocks are higher this morning after the CPI didn’t turn out worse than expected. Bonds and MBS are still getting slammed as global investors turn their noses up at sovereign debt.
While Treasury yields are up, Japanese yields rose 7 basis points overnight, while Australian yields are up 12 basis points. So far, it doesn’t appear that this increase in long-term yields is slowing down the global economy, which is the only thing that can stop the inexorable run up in yields.
Consumer inflation rose 0.4% MOM and 3.4% YOY according to the Consumer Price Index. Ex-food and energy, the index rose 0.3% MOM and 2.4% YOY. Gasoline accounted for a third of the increase in the index. Shelter inflation rose 0.3% MOM. The monthly core rate increase was a touch above expectations, but the rest of the numbers were in line.
Shelter inflation was up 3% YOY, but that seems overstated given that the home price indices are rising at 2% and average asking rents are flat / falling in most MSAs. I think there has to be something off in the way BLS is calculating shelter inflation. The numbers aren’t making sense any more.
Home price appreciation rose 1.5% quarterly and 1.9% annually last month according to the Clear Capital Home Data Index. The hip-to-be-square trade continues as the Northeast and the Midwest experienced faster growth than the West and the South.
While housing advocates claim there is a supply shortage driving up home prices, if you look at new homes for sale, that doesn’t appear to be the case, like at all. New homes for sale overall are similar to levels we last saw in the 2006 real estate bubble. In the South, there are more homes for sale than there was in 2005-2006.
So why is there this constant drumbeat of supply narratives in the media? The issue isn’t supply per se — it is supply in the places where demand is strongest. The chattering classes are overrepresented in cities like Los Angeles, New York City and Washington, D.C. These areas are already dense, and additional supply has been tilted towards luxury apartments. The point is that housing advocates generally don’t live in places like Akron, OH where real estate is cheap and that colors their opinions.
Existing home sales fell 2% to a seasonally adjusted annual rate of 3.98 million units. The median home price increased 1.6% YOY to $429,100. “Mortgage rates and home sales move in opposite directions, so it’s not surprising to see a mild dip in home buying activity due to high mortgage rates,” said NAR Chief Economist Lawrence Yun. “Still, home prices are rising, and existing home sales are actually up 1.6% year-to-date through the first eight months of the year. Homebuying demand, despite higher interest rates, is no doubt being supported by rising wages, which grew 3.1% in August, along with 643,000 net new jobs added since the start of the year. Job creation and wage growth typically drive housing demand.”
“The number of months it would take to exhaust the total inventory at the current sales pace has grown to 4.9 months’ supply—its highest level in over ten years. The ample supply of homes for sale on the market is giving homebuyers better opportunities to negotiate,” Yun added.
