Mortgage Market Update - Inflation Cools, Home Building Ticks Up, the latest Retail Sales and Unemployment Data - 11/20/23

Hey everyone, it's Larry Bailey from Mortgage Workflow Partners. This is for the Week of November 13, 2023, in Review:

Inflation continued to cool in October, while we saw an uptick in construction despite dampening homebuilder confidence. Plus, the latest Retail Sales and Jobless Claims suggest a slowing economy. Here are last week’s headlines: 

• Easing Consumer Inflation a Welcome Sign
• Huge Progress in Wholesale Inflation 
• Are “Better Building Conditions” Ahead?
• Housing Starts Rise but More Supply Is Needed
• Retail Sales Suggest a Slowdown
• Continuing Jobless Claims Hit a Two-Year High

00:00 Introduction
00:22 Encompass Journey to the Web
01:08 2023 in Review
02:07 Continuing Jobless Claims
03:10 Progress in Wholesale Inflation
04:57 Housing Market Update

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Transcript

0:00

Hey, welcome everyone. Larry Bailey here with Mortgage Workflow Partners. Today is another episode of the Weekly Newsletter. This information is coming to you from MBS Highway, your trusted source for mortgage market intelligence. To cover the week of November 13, 2023 in review, I do want to make you aware that 2024, if you're using the Encompass platform, or if you're thinking about using the Encompass platform, make sure you head over to our brand new website. We're focusing it on the Encompass Journey to the Web. We've actually been working with clients since the beginning of 2023, preparing everyone as best as we can for those that we're listening to get started. And get everybody ready for the Journey to the Web in 2024. It's happening. It's going to happen. We've seen the technology that's been updated. And by the way, you can use a lot of this right now. You can actually automate your service orderings. Right now. Um, so if you have any questions, please get over to the mortgage community. Get over into the new space. The Encompass Journey to the Web. That's where we can collaborate as a community. Or certainly, if you have any questions, reach out to me. Over at Mortgage Workflow Partners. You can reach us at info at mortgageworkflowpartners.com. Let's get into the weekly newsletter. So again, this is for the week of November 13, 2023 in review. Um, the inflation continued to cool in October. We saw this in the news a little bit if you were paying attention to that stuff. While we saw an uptick in construction despite dampening home buyer confidence. Plus the latest retail sales and jobless claims suggest a slower economy. Here are last week's headlines. First story is easing consumer inflation a welcome sign. The next story is huge progress in wholesale inflation. The next story is our quote better building conditions close quote ahead. Next story is housing starts rise but more supply is needed. Next story is retail sales suggests a slowdown. Um, there's a family hack in there. If you like cornbread, check it out. We'll get to that. And the last story is continuing jobless claims hit a two year high. Just as a side note, if you're listening to this on podcast, thank you very much. Sincerely, but if you want to see the video, you can see the screen share head over to mortgage community. You can check all the information out over there in the market updates space. So the first story is easy. Using consumer inflation and welcome sign. Uh, we can see on, on screen here, we've got a graph and it basically outlines the, uh, the CPI, the headline year over year, as well as the core year over year. October's consumer price index, which is the CPI, showed that inflation was flat compared to September, with this monthly reading coming in below the consensus estimate of 0.1%. On an annual basis, the CPI fell from 3.7 to 3.2%, near the lowest level in more than 2 years. The core CPI, which strips out volatile food and energy prices, increased 0.2%, while the annual rating declined from 4.1% to 4%, reaching a 2-year low. Declining gasoline and used car prices and moderating shelter costs helped keep a lid on inflation last month, even in the face of rising costs. As a side note, last Tuesday, that was the 14th, that's when I did the previous weeks and that day is the day this CPI came out and the markets roared. Stock market went up, the bottom market improved significantly, um, so that's all good news when it comes to mortgage interest rates. Bottom line here with this story though is inflation has made significant progress lower after peaking last year with the headline reading now at 3.2%. Remember, it was all the way at 9.1% and the core reading is at 4% now and that's down from 6.6%. So as a reminder, the Fed has been hiking its benchmark Fed funds rate, which as a reminder is the overnight barn rate for banks, not mortgage rates. And they've been doing this to try to slow down. Their latest rate hike was in July and that was the 11th since March of last year, pushing the Fed funds rate to the highest level in 22 years. The Fed did not hike their, the interest rate, the Fed funds rate at their September or November meetings. So could they continue to assess? So that they could continue to assess the incoming inflation and labor sector and other economic data. Has there been enough progress for another? Another pause at the Fed's next meeting? I don't know. We're going to find out on December 13th. So stay tuned. Here's the next story and this is all about huge progress in wholesale inflation. So the producer price index, which is the PPI, that's the wholesale. stuff, which measures inflation of the wholesale level fell by 0.5% in October, making the largest monthly drop since April 2020. On an annual basis, the PPI declined from 2%. 1.2% all the way down to 1.3%. The core PPI, which also strips out volatile food and energy prices was flat for the month with a year-over-year reading down from 2.7% to 2.4%. Although these numbers were below estimates, all of them, all below estimates. Bottom line here in this PPI piece is the latest PPI report is another encouraging sign that inflation is using with October's 1.3% every year reading an extraordinary, extraordinary sharp drop from last year's 11.7% peak. We were at 11.7% on the, on the PPI. We're down to one. 1.3% now. So if that's not a sign of good news, um, on which is typically foreshadowing, foreshadowing CPI, I don't know what is plus the PPI tends to lead the way for CPI. Which I just said, which suggests good progress moving forward. I'm just giving my own insights. Like I know that this stuff is on screen and I always pre-typed and I could just talk and feel like another talking head, but that's not who I am. Um, but no, this is really, this is significant stuff. Now, of course, again, these are my own personal comments, but now everybody's going to be watching for recession, recession, recession. They're going to see to how far down are we going to go before we level out. And that's this idea of a softball. Landing, um, and you can, you can explore the politics of it all. But the reality is the economics are, um, exactly where we would want them to be. We wish they would have been there sooner, but we're. A multi-trillion dollar worldwide economy and these things take time. So the next story is our quote building. Excuse me. Our quote. Better building conditions. Close. Go ahead. So there's a home builder sentiment graph on here. And again, if you're, if you're not watching this over at the mortgage community, feel free to go over there. It's free to join. I don't know why you wouldn't. So the National Association of Home Builders, the NAHB housing market index fell six points to 34 in November, keeping builder sentiment below the key break even level of 50. This marks the fourth straight monthly decline. This sentiment has fallen 22 points since July, reaching the lowest level since last December. All three components of the index move lower with current sales conditions down six points to 40 for future sales expectations to pick up. 5 points to 39 and buyer traffic falling 5 points to 21. Listen, the bottom line here is high mortgage rates were key reasons cited for declining builder confidence. Yet, quote, recent macroeconomic data point to and improving conditions for home construction. in the coming months' close quote. This is per NAHB's Chief Economist, Robert Dietz. Plus, there was other good news for buyers as more builders, about 36%, reported cutting. My, my vibe on this is like, come on builders, like you're really, this is the thing that bothers me. And again, if you can't tell from my inflection of my voice, please listen. Closer because it kind of ticks me off that literally we have a complete housing shortage in the country. And the, in my personal opinion is the only reason why I would be unhappy as a builder right now. Is because I'm not making hundreds of thousands of dollars per unit. Like I was in, you know, a few years ago. Like give me a break. Like seriously, you've got. Absolutely skies a limit. You could put a house up on every corner and have somebody buy it. Um, it's just they're not happy with the amount of profits they're making and I'm sorry. You gotta get to work and you gotta produce these houses. That's your job. Just like I'm in mortgage. I gotta get to work and do mortgages. I gotta get people money one way or another and in this particular case, this whole segment is all about getting information to you. So, um, so no, I don't I don't buy this. this whole thing like home builder sentiment. I just I just don't and whoever's a home builder out there. Listen to me. If you disagree with me, come out to the mortgage community and let's talk about it. Like I'd love to understand this better on why it's why it's a you know, why it's bad. I'd move right now or why it's uh, you know, why the sentiment is looking down. Here's the next story. Things start to rise, but more supply is needed. So there's a story on your new new home construction. And then the housing starts which measure the start of construction on homes unexpectedly rose. Wow, home builder sending it down. But listen, we're going to keep on building houses. Yeah, unexpectedly rose in October for the second straight month. 1.9% from September while the largest share of the increase came in multifamily units, which by the way is where a lot of money can come from because your cost of constructing those homes is less per unit. And you can typically sell maybe, you know, it's a good, it's a good bet. In other words, it's by 0.2%. Building permits, which are indicative of future supply, also rose in October after declining in September. Permits for single family homes reached the highest level in a year. Again, I live in Haynesport, New Jersey, and I, it's just a small little blink of a town in Burlington County, New Jersey. I think there were like two houses for sale last month. This month I walked, I literally, where I walked my dogs, there were three houses for sale. They were gone inside of a week. Inside of a week. So, um, again, home builders put up a house, you'll sell it. Like, I don't, I don't get it. I don't see what the big deal is. So what's the bottom line here with this housing start story? Alicia Huey, the NEHB's chair, noted that quote, Despite higher interest rates in October, the lack of existing home inventory supported demand for new constructions in the fall close quote. Hmm. I think I heard someone just say that recently, Alicia, on this podcast. Yet even with the uptick in housing starts, more supplies still needed to meet the man. Yep. Thought I heard that too. And again, guys, I'm reading this for the first time with you. And that's the reason why I have these reactions. Like I don't pre read this and then present it. That's weird. I just read it and I come to these information just like you were reading it. In case, you know, like we were face to face in a room somewhere. Like I'm a pal reading a story. In fact, when we look at the pace of completed homes that will be coming to market around 1.4 million homes annualized and subtracted. The roughly 100,000 homes that need to be replaced every year due to aging will still be below demand as measured by household formations, which is trending at about 2 million. Even looking at future supply, the building permits are at 1.49 million annualized. We're still much lower than we need to be if we wanna match demand. The bottom line is that the more that more demand then supply will continue to be supportive of home values It'll also be supportive of home products Home builder profits. Sorry. This story really got got to me. If you didn't, if you couldn't tell. There's such an enormous opportunity in home building. And by the way, this is a shout out to first signature lending. Like if you own land, you got somebody that knows somebody who owns land and you want to build on that land yourself. Um, get over to first signature. Uh, the website is triple w dot one s t s l dot com. Uh, talk of Matt Bridgman over there. Tell Mary Bailey sent you and um, the construction lending over there is phenomenal. So go to it, Matt. All right. Where are we in this story? I feel like I completely off track here. So the next story is retail sale. They'll suggest a slowdown. Retail sales, retail sales fell 0.1% in October, making the first monthly decline since March, albeit a smaller one than economists had forecasted sales were up 2.5% when compared to October, 2020. But they're slow and shirbly given that sales in September were 4.1% higher than a year earlier. Guys, everybody's waiting for Black Friday, like seriously, I'm going to tear this one. Sorry guys. For those that are listening, I'm, I'm just I guess in a mood. So the bottom line here is retail sales are clearly trending lower as they fell .1% in October after rising .9% in September, plus last month's report showed a clear bias towards spending on Not Discretionary Items versus Discretionary Ones, which also suggests an economic slow down. Again, with the Fed looking for signs that our economy is cooling, will this report help convince members to pause rate hikes once more in December? I don't know. Like, I don't know what these numbers are. Um, I don't know. I just walk into stores and I see everybody buying everything. Like, I, I don't know. That's just me. So, we'll see what happens. Next story is continuing jobless claims hit a two-year high and this sucks. Uh, so initial jobless claims reached a three-month high up 13,000 as 231,000 people filed for unemployment benefits for the very first time. What's more, continuing claims increased 30,000. 32,000 with 1.865 million people still receiving benefits after filing their initial claim. This is the highest level of continuing claims since November 2021. It is. And we talked about this beginning of the year, like literally it's, it's gone up. A lot in terms of continuing claims. So the bottom line here is initial jobless claims remain relatively low on a historic basis, suggesting that employers are trying to hold on to workers. Though the number of first time filers has begun to trend higher. Plus continuing claims have risen for eight straight weeks up by 207,000 since September, suggesting that's becoming harder for people to find employment once they let go. And that's true. Again, I focus on the mortgage industry, right? I see it everywhere. I see it everywhere. Um, where people are being let go and it's like almost impossible to find employment. Um, the one thing I will say here, and this goes out to everyone, I've been saying this publicly. You have to show people where your value is relative to them. In other words, if you're out there looking for a job, the way you stand out is the way you present yourself on how you're going to make a difference for the company. If you're out there just shotgunning your resume and you're just hoping for a hit, that's all you're going to get is hope for a hit. But if you actually focus in on a company and maybe you have to do this. Just a thousand times, but you focus in on a company and how you're going to make a difference for them. Um, number one, it'll make you committed to the position that you're applying for. But number two, on the other side, the person who's looking to hire might That's what I said. That's what I said. You might actually see something in you that they don't see in anyone else, which is a desire to help them be better, make more money, get to where they got to go, whatever it is. Make a difference for the employer that you're looking to go work for. Back of the week, so this skillet cornbread courtesy of Pioneer Woman makes for a delicious Thanksgiving side or breakfast treat. Here's what you do. You preheat that oven to 450 degrees Fahrenheit in a bowl. You combine one cup yellow corn meal, a half a cup all-purpose flour, one teaspoon salt, one tablespoon baking powder. In a measuring cup you're going to add in one cup of buttermilk, one half cup milk, one egg, and stir together. It better be a big measuring cup. That's like one of those big johns. And you're going to add a half teaspoon baking soda and stir all that. Pour that milk mixture into the dry ingredients and stir until combined. In a small bowl, melt a quarter cup of butter. Slowly add that butter and stir it in until it's just combined, meaning don't open. Overdo it. In an iron skillet, melt two tablespoons butter over medium heat. Pour that batter into hot skillet and spread to even it out. Cook on the stovetop for one minute and then bake for 20 to 25 minutes until golden brown and edges are crispy. And then eat it! They never say that. Eat it. And here's what we're looking for this week, the week of October, excuse me, November 20th. I still think we're in October. The week of November 20th. Hey listen, we have a few a few key reports being released ahead of Thanksgiving holiday. That's Thursday 23rd, and I do sincerely hope everybody has a Thanksgiving that means something to you. Um, a lot of people have different mixed emotions about this. Um, holiday and, and what it means and what it's, what it's meant in the past. So, um, the best thing I would say is, uh, for me, it's a moment for remembering and for. Sharing time with those that you love, uh, best of what you have. So Tuesday brings an update on existing home sales for October and the minutes from the feds November 1st meeting. Look for the link in the description. I'll see you next time. Ladies Jobless claims on Wednesday. My name is Larry Bailey with Mortgage Workflow Partners. I want to thank you very much and we're always here to help out. Take care. Bye bye.