McDonald’s, Oil, and Nickel, Home Equity Gains, Inflation Update

McDonald’s, one of the first businesses to enter post-soviet Russia, has temporarily closed down their 850 locations. The Golden Arches are considered an indicator of peace – very rarely are wars fought in countries with McDonald’s. Biden announced a stop on purchasing oil from Russia which supplies 3% of our imports. Russia contributes 1/6 of the world’s high-grade nickel, a key component in electric car batteries, which caused the price of nickel to double this week.

Rates increased this week as the price of Mortgage Backed Securities (MBS) dipped again returning to their downward trend that has caused mortgage rates to increase over 1% in the last 2 months. Inflation continues to put pressure on Mortgage Rates.

Inflation – the Consumer Price Index (CPI) increased 0.8% in the month of February and is up 7.9% year over year – the hottest reading since 1982. If you strip out food and energy the index is still up 6.4% – well above the Fed’s target of 2%. Gasoline is up 38% year over year, and used cars are up 41.2% over the same period.

Jobs – the number of people filing for unemployment for the first time increased marginally to 227,000 which is similar to numbers we were seeing pre-covid.

Home Equity – homeowners with mortgages (roughly 63% of all properties) have seen their equity increase by $3.2T between Q4 of 2020 and Q4 of 2021, which is a 12 month increase of 29.3% The number of homes ‘underwater’ (negative equity – owing more than the value) decreased by 24.9% to 1.1M homes or 2.1% of all mortgage properties – the lowest level in 12 years. In 2021 home prices rose 18% which is up from the 8% gain in 2020 and the highest single year increase in CoreLogic’s 45–year history.

Mortgage Applications to purchase homes increased 9% from the previous week and are down 7% year over year. If you factor the increase of cash buyers (27% of the market), purchase activity is down closer to 4%. Refinances were also up 9% from the previous week and are down 50% year over year.

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