After nearly 40 years of selling cheap goods the Dollar Tree is now the ‘$1.25 Tree’ after seeing third quarter profit margins roughly 5% lower than the same period last year. The price of Spam (known for being a cheap, shelf-stable protein source, and delicious in musubi & fried rice) increased 10% over the last two year to $3.15 per can after seeing a 43% increase in sales. New York Chain Two Bros Pizza increased their hallmark $1 slice to $1.50 (pictured is a smaller shop still hawking cheap slices).
Rates increased slightly this week as inflation numbers continue to tick up. There was a 25 basis point rollover (this happens every month as MBS are finite) so the price of MBS securities dipped more on the graph than was actually reflected in the price sheet. The Fed is expected to accelerate their pace of ‘tapering’ meaning they will reduce their purchasing of MBS another $15B per month. This will likely add to volatility in the MBS market.
Inflation – the Consumer Price Index (CPI) increased by 0.8% in November and is up 6.8% year over year. The Core Reading, which strips out the more volatile food and energy elements, rose by 0.5% and is up 4.9% year over year.
Jobs – the number of folks filing for unemployment for the first time dropped to 184K, the lowest number since 1969. In metropolitan areas 253 of 389 areas had jobless rates below the U.S. rate of 4.3% and 386 of these metro areas had lower unemployment rates than this time last year. The JOLT survey showed that there are roughly 11M job openings nationwide. The percentage of workers quitting their jobs decreased slight from a September high but remains relatively high at a rate of nearly 2.8%. This will continue to add wage pressured inflation as companies struggle to bring on new workers and retain current employees.
Home Values increased 1.3% in the month of October and are up 18% from this time last year. Core Logic anticipates marginal gains in the 12 months going forward but their estimates should be taken with a grain of salt as their recent predictions have been out of line. Goldman Sachs projects 16% appreciation, Zillow is at 14%, and Fannie Mae anticipates 7.5%. Remember that even 5% growth on a $400,000 home is $20,000 in equity gain.
Rent Growth – the CPI inflation index is showing a relatively tame rent growth of 3.1% nationwide. Experts point to the CPI index methodology as flawed because a portion of it asks homeowners what they would theoretically rent their homes for. Apartment List shows that rents increased 0.1% in November and a massive 17.8% increase year over year. This is a stark contrast to the 2.6% average from 2017-2019.
Mortgage Application volume increased by 2% last week, however this does adjust for the Thanksgiving Holiday. Purchase demand fell 5% and are down 8% year over year while refinances increased 9% week over week and are down nearly 40% year over year.