Food, Rent, and Home Prices Soar, Q1 GDP First Look

According to the World Bank’s food price index, food is 37% more expensive than it was 12 months ago. In some areas food prices have more than doubled and cooking oil has become such an expensive commodity that folks will store it under lock and key and use a syringe to moderate use. Ukraine is a huge wheat producer and one of their largest international ports, Mariupol, was destroyed. Some people are moving to rural areas to grow their own food but are finding fertilizer is also very expensive as most of the ingredients for it come from Russia.

Mortgage Rates increased again this week and are up approximately 2.125% from this time last year. The price of Mortgage Backed Securities (MBS) declined again this week – marking 2 consecutive months of downward skid. This decline in prices is due to rapidly increasing inflation and the FED taper of their purchase of MBS.

Home Values – The Case Shiller Index increased 1.7% in February and is up 19.8% year over year. The FHA index which tracks values on homes with conforming loans (Case Shiller is all homes) increased 2.1% in February and is up 19.4% year over year.

Bubble Fears? With interest rates shifting rapidly and home prices rising at a meteoric pace many people are having flashbacks to the 2007 housing bubble. Remember that a traditional bubble is fueled by burgeoning supply. In 2007 there were 3.81M homes for sale, right now less than a million homes are for sale and there are14M more households than there were in 2007. Higher interest rates does temper demand but there simply aren’t enough homes available. This lack of supply will continue to support home prices.

Inflation – the Personal Consumption Expenditures Index rose 0.9% in March pushing the year over year reading from 6.3% to 6.6% – a 40 year high. If you strip out food and energy prices the year over year reading decreased from 5.3% in February to 5.2%. This inflation index is approximately 2% lower than the Consumer Price Index (CPI) which is coming in at 8.5% – the primary reason is that the CPI puts a heavier weight on shelter and out of pocket medical expenses.

Rents on single family homes are up 13.1% year over year (from February) which marks 11 straight months of record gains. In Miami rents are up 39.5% from February of 2021. A shortage of Single family rentals combined with low unemployment and increasing home prices has caused single family rents to triple their rate of increase over the last 12 months. Rental vacancies from the US Census were reported at 5.8%, down from 6.8% last year.

GDP – the initial look of Q1 GDP – which needs to be taken with a grain of salt as it is revised 3 times before official recording – shows a 1.4% decline. In Q4 GDP increased 6.9% The textbook definition of recession is two consecutive quarters of negative GDP – this figure won’t be confirmed until September once the 3 revisions are available from Q2.

Mortgage Applications to purchase homes decreased 7.6% last week and are down 16.6% year over year. When factoring the increase of cash buyers the decline in purchase activity is closer to 13%. Refinances declined another 9% down 71% year over year. The number of folks applying for Adjustable Rate Mortgages made up 9% of applications last week. This is double what it was 3 months ago as the spread between the ARM and the 30 year fix has increased to approximately 1.125% If you think a recession is coming in the near future an ARM could be a good option as during a recession rates go down and there would be opportunity to refinance.

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