Friday Market Update for the Week of October 15th 2021

Happy Friday, Brian Manning here with the weekly update. I’m super pumped because it’s the Friday before Fall Fiesta number seven. I’m ready for this year. I hope you guys are, it’s going to be really fun. Let’s talk about what’s going on in the market. So Monday this week, markets were closed, stock markets were open but bond markets were closed. So that means mortgage companies were mostly closed on Monday. Tuesday this week. Let’s see. So it’s been about five weeks since the pandemic unemployment assistance has phased out which is really Labor Day weekend but what’s interesting is that in the month of August 4.3 million people left the labor force and unfortunately, that was very heavily weighted towards the hospitality industry. So why did 4.3 million people leave? I have no idea. Where did they go? I have no idea. But the whole employment market is just kind of crazy right now. But that’s a lot of people to exit out of the labor force.

Also, we got CPI this week, that’s the consumer price index for the month of September, on a month over month basis, CPI increased by four tenths of a percent. That was more than expected. And on a year over year basis, the inflationary measure of the consumer price index went from 5.3% to 5.4%. So we’re really seeing inflationary pressures everywhere. Thursday this week, we had the minutes released from the Fed meeting, the Fed meeting took place on September 22nd. They’re usually pretty market moving, so the minutes came out and it basically showed that everyone is collectively agreeing to start the tapering. So right now, like we’ve talked about, the Federal Reserve is in this form of what’s called quantitative easing, it’s an emergency measure in place for monetary policy to help keep the US economy under control financially, it started at the beginning of last year with the beginning of COVID. And right now they need to really figure out how to unwind it because it’s really agreed for when they said that we’re kind of no longer in these… in the emergency situation that we were in at the beginning of last year. So our guess is that the Federal Reserve will begin tapering, probably in December of this year, and then their process of tapering will wind down this bond buying program, probably through like June of next year. So that’s fine. But the other question is right now there’s trillions of dollars on the Federal Reserve’s balance sheet, and they’re also reinvesting the trillions of dollars. So what I mean by that is when they have mortgage backed securities that the Federal Reserve owns, if someone sells a home, or they pay off their mortgage, or they refinance and they pay off the mortgage, the Federal Reserve, instead of reducing their balance sheet, is taking those funds and reinvesting them. So right now, they’re reinvesting like $60 billion a month. So even if the Federal Reserve goes through this tapering process that would end in June, there’s still no talk of what’s going to happen with the reinvestment of mortgage backed securities and treasuries, and that is definitely helping keep rates low right now. Also, there was no mention of a rate hike in the Fed minutes so who knows what’s going to happen there.

Also, this week, we got PPI. PPI is the producer price index that measures inflation on the wholesale level, on a month over month basis, PPI was up a half a percent, alright? So wholesale level cost of goods are increasing. On a year over year basis, the PPI reading went from 6.6% to 6.8%, the highest level ever on record. So again, inflationary pressures everywhere. Also, we got the Cass freight shipping index. So Cass freight looks at the cost of shipping goods around the US from one place to another. And so Cass freight shipping showed in the month of August the costs were up 27% and in September, they were up 31%. So we’re still seeing a tremendous amount of pressure on supply chains. When you see Cass freight shipping index and you see those costs go up, that has an impact on the PPI, when shipping costs go up, cost to produce goods goes up. That’s why you see the impact on the CPI because that’s impacting us as consumers. So just like I said, inflationary pressures everywhere. Goldman Sachs today, though, released a report. Goldman Sachs predicts that housing appreciation for the year of 2022 will be up 16%. They see still a very strong robust housing market for all of us in the year 2022. I would probably agree with them, but we just simply look at supply and demand. Certainly, demand right now is still at an all time high, demand is going to remain at an all time high and supply, inventory of houses for sale is still at an all time low. So just purely a simple imbalance of supply and demand is definitely going to still continue to press us forward with probably high appreciation as Goldman Sachs would say, anticipated is 16% in 2022.

I’m around a weekend, if you have any questions, let me know. We really hope to see you at Fall Fiesta, that’s taking place this Sunday, the 17th and if you have any questions, reach out to us. We’re more than happy to help you in any way we can. Happy Friday.