The Port of Duluth? Appreciation and Inflation Strong

Supply chain problems create opportunities and ports on the Great Lakes (2,000 miles from the ocean) have re-opened their doors to accepting cargo. Apparently the distance from Antwerp, Belgium to Baltimore is 100 miles different from Antwerp to Cleveland. While this will help alleviate supply chain issues we don’t anticipate the Great Lakes taking over as the winter months and ice present route challenges.

Rates – moved sideways this week after trending up for the last month. There continues to be volatility as Mortgage Backed Securities (MBS) maintain their downward trend and the market responds to inflation (remember that inflation is the arch nemesis of mortgage rates). Interest rates are up 3/4% from this time last year.

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Jobs – after spiking up last week the number of people filing for unemployment for the first time decreased back to pre-covid claim levels. The first reading of Q4 GDP (which usually is revised significantly) showed an annualized growth of 6.9% beating expectations and out performing Q3 annualized growth of 2.3%.

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Home Values – the Case Shiller index showed a 0.9% increase in home values during November. Year over year values are up 18.8% which is slightly lower than the previous months reading of 19%. The pace of appreciation is easing.

Personal Consumption Expenditures

Inflation – the Fed’s preferred measure of inflation, Personal Consumption Expenditures, showed the index increased 5.8% year over year which is a 0.1% increase from last month. The Fed focuses on the ‘core rate’ which strips out the more volatile food and energy prices, (food and energy prices are more dependent on weather & geo-political factors which the Fed can’t control) rose 0.5% from the previous month and is up 4.9% year over year – the hottest reading in 40 years.

Fed – the Fed released a statement this week hinting that they would begin quantitative tightening (QT), or reducing their balance sheet after they hiked the fed funds rate. They did not say by how much or how many rate hikes they would do. As a reminder, and contrary to common thought, when the Fed hikes their rates it is actually good for mortgage rates because the Fed hikes rates to slow down inflation. If they do reduce their balance sheet of MBS it will hurt mortgage rates.

Mortgage Applications to purchase homes fell 2% this week and are down 11% year over year. Refinances fell 13% and are down 53% year over year. Refinances now only make up 56% of transaction, down 10% from their previous high last year.

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