Given its influence on the direction of interest rates, there was much anticipation for the latest Consumer Price Index (CPI) release, with investors expecting to see improvement in mortgage-backed securities.
The CPI measures changes in the average price of goods and services consumed by households over time. It's a key indicator of inflation, indicating how prices have changed relative to a base period. The index includes items like food, housing, transportation, and more, weighted by their importance in household spending.
The U.S. Bureau of Labor Statistics (BLS) releases the CPI data around the middle of each month, reporting the changes in prices for various goods and services in comparison to the previous month and the corresponding month of the previous year. The CPI impacts interest rates by guiding the decisions of the U.S. Federal Reserve. When CPI shows inflation, interest rates might rise to curb spending, while low CPI could lead to interest rate cuts to stimulate economic activity, showcasing the close connection between CPI and monetary policy.
Digging into the Numbers
This month, all indicators pointed toward the CPI having a favorable effect on bonds, potentially reducing the cost of real estate financing. The July consumer price index report showed the overall inflation increased by 0.2%, surpassing estimates of 0.3% and generating optimism within the market.
Year-over-year inflation increased, however, moving from 3% to 3.2%. This increase aligned with projections but showed a slight decrease in comparison to last year.
A Closer Look at Housing Costs
Shelter costs exhibited a 7.7% year-over-year increase, which is 0.1% lower than previous reports. Rent prices, on the other hand, rose by 0.4% in the last month and displayed an 8% increase year over year. This ongoing friendliness in the housing market is encouraging for investors who continue to seek real estate investment opportunities.
Economic Indicators and Debt Trends
While initial jobless claims have risen, continuing claims experienced a slight decline. Interestingly, credit card debt has set a new record, with balances escalating from $986 billion in the first quarter of the year to an astounding $1.03 trillion.
Market Movement Analysis
By the end of the business day on August 10, the mortgage-backed securities had reversed their earlier gains for the week, closing below support levels. This downward movement pushed mortgage costs up, catching some off guard in an environment where it had seemed safe to float.
The 30-year UMBS 5.5 experienced an 80 basis point shift overall, settling at 63 basis points below the opening price point.
This shift translated into an approximate 0.625% increase in specific rate costs.
To put this in terms of dollars, if you were initially quoted an interest rate with zero costs when the market was at its peak, by the end of trading, the same rate could potentially cost you an additional $1,250 on a $200,000 loan.
Navigating the Shifting Landscape
Mortgage-backed securities continued to trade in a downward channel, persistently pushing interest rates upward.
Days like August 10 have a way of stinging rate shoppers harder than most. Staying well-informed about the market and what drives interest rates is crucial.
Aligning with professionals who can decipher technical data and provide experienced insights is wiser than relying on hope and inexperienced sales pitches. Timing the market is not easy to do, and is typically successful only for those already active in the market.
Conclusion
Embrace an active role in the market and always be on the lookout for sensible deals. Be prepared to pull the trigger at any time.
Don't let fluctuating interest rates solely dictate your real estate investment choices. Rates are on the rise, and I believe they will continue to rise. Remember that most wealth is created when a greater part of the population remains inactive or fearful.
About the Author:
Aaron Chapman is a veteran in the finance industry with expertise in complex transactions since 1997. He is ranked in the top 1% of over 300,000 licensed loan originators and closes over 100 transactions per month. Learn more at aaronbchapman.com.
Disclaimer:
The views and opinions expressed in this blog post are provided for informational purposes only and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
SecurityNational Mortgage Company, and its loan officers, unless individually licensed and specifically denoted in their credentials, are not qualified to, and are prohibited from representing themselves as accountants, attorneys, certified financial planners, estate planners, investment specialists, or tax experts, and will not advise you in those matters. Always seek the advice of a licensed professional. This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Aaron Chapman, NMLS#267844, SecurityNational Mortgage Company Inc., Co. NMLS# 3116, AZ Banker# 0904315, Equal Housing Lender. Any amounts, figures, payments, or loan terms stated are based on continually changing markets, rates, loan programs, and borrower-specific qualifications, and subject to change without notice. See loan officers featured for a personal consultation and accurate pricing.
This is not a commitment to make a loan. Loans are subject to borrower and property qualifications. Contact Loan originator listed for an accurate, personalized quote. The opinions expressed in this blog post are the opinions of Aaron Chapman. Such are not the opinions of SecurityNational Mortgage, is informational in purpose, and should not be construed as lending advice. Equal Housing Opportunity Lender. NMLS 3116 AZ Mortgage Banker #0904315.
