Stagflation Hype, 20% Growth, Rates Improve

GDP the 3rd quarter GDP numbers (early estimate) showed a lackluster 2% annualized growth. Normally that would be considered a solid figure but Q2 growth was clocked at 6.2%. Some folks have warned of ‘stagflation‘ or a sustained period of high unemployment and high inflation similar to what Britain saw in the 70’s. Remember that inflation numbers feel high right now in light of recent lows but in the 70’s Britain saw 20% inflation and 11% unemployment rate. Currently our unemployment rate is less than 5% and the consumer price index is at 5.4% (4% when you strip out food and energy) and the Personal Consumption Expenditure index is at 4.4%. While inflation is up a bit from recent numbers we are nowhere near the elevated days of yore.

Rates – improved slightly this week as Mortgage Backed Securities (MBS) moved up nicely this week reversing a 6 week downward trend. Rates are up from this time last year approximately 1/8 – 1/4%

Home Values – increased 1.2% in the month of August and are up 20% year over year. This is the same year over year reading as July and the first time since early 2020 that we have not seen an increase in year over year pricing. Have we hit the apex in growth rate?

Inflation – the Fed’s favorite measure of inflation – the Personal Consumption Expenditures (PCE) was released yesterday. The headline figure showed inflation rose 0.2% in September to a year over year pace of 4.4% which is the hottest reading in 30 years. If you strip out the more volatile food and energy numbers the reading has remained stable at 3.6% year over year since June.

Fed chair Jerome Powell reiterated his position that it is time to Taper (slow their purchasing of MBS) but he has not signaled that it is time to raise the Fed Funds rate. Currently they have a balance sheet of roughly $8.5T and they will be slowing its growth likely starting in December.

Mortgage Applications to purchase homes were up 4% from the previous week. Year over year they are down 9%. Remember that inventory is down 13%, prices are up 20%, and cash buyers have increased significantly as well. Refinance applications are down 2% from the previous week and 26% on a year over year basis.

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