Inflation Reduction Act, Loans Perform, Peak Inflation?

The Inflation Reduction Act hopes to reduce inflation by: reducing the federal deficit, promote the production of certain goods (particularly renewable energy), limit the price growth of certain prescription drugs by allowing Medicare to negotiate cost with pharma companies. The nonpartisan Congressional Budget Office determined the bill will have a ‘negligible effect’ on inflation this year in next – it is more of a longer term play. Additionally the package includes $369B in spending to reduce greenhouse gas emissions and extend the Affordable Care Act. The bill also looks to bring $300B in revenue by imposing a 15% minimum tax on corporations making over $1B though a new excise tax on corporate stock buybacks.

Mortgage Rates – remained unchanged this week as the price of Mortgage Backed Securities (MBS) moved sideways. A ‘pennant formation’ has emerged in the technical trading pattern which could signal a positive move for MBS and could improve rates next week. Rates are up 2.5% from this time last year.

Jobs – the number of people filing for unemployment for the first time increased by 14,000 to 262,000. The four-week moving average is at its highest since late November. This report can be a forward indicator of a softening jobs market.

Inflation – the Consumer Price Index (CPI) remained unchanged after rising 1.3% in the month of June. The year over year inflation reading declined from 9.1% in June to 8.5% in July. The core rate, which strips out food and energy prices, remained at 5.9%. The Producer Price Index (PPI) which measures wholesale inflation fell 0.5% from the previous month and the year over year number declined from 11.3% to 9.8%. The core rate moved down from 8.2% to 7.6%. Gas prices are down 17%. Multiple inflation indicators tamed this week, we’ll see if we hit peak inflation.

Loans Perform – Core Logic released their Loan Performance Insights report for the month of May and it showed that delinquencies are at a 23-year low. Between April and May the percentage of loans 30+ days delinquent declined from 2.9% to 2.7% and year over year they are down 2%. The percentage of loans in foreclosure remained at 0.3%. Remember that approximately 35% of homes are owned free and clear.

Market Activity – in a survey of 3,000 real estate professionals showed that between July and August there was a definite slowdown in activity and pricing pressure. 53% of respondents cite their market as being active, 58% are showing price decreases which indicates listing prices are coming back down to earth – not that home values are actually declining. Nearly half of respondents are seeing sales pace a normal levels with homes selling near asking price.

Mortgage Applications to purchase homes fell by 1% last week and are down 19% year over year. Refinance applications declined 4% last week and are down 82% year over year. Refinances still make up 31% of transactions.

Podcast – Episode 2 is released! Audio version on Spotify

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