Morning Report: Strong energy prices boost the CPI

Vital Statistics:

Stocks are lower after the CPI came in hotter than expected. Bonds and MBS are down.

The Consumer Price Index rose 0.6% MOM and 3.7% YOY based on rising energy prices. Ex-food and energy, prices rose 0.3% MOM and 4.3% YOY. The monthly numbers were 0.1% higher than expectations. Bonds initially sold off on the report, but seem to be crawling back to flat on the day.

Gasoline rose 10.6% MOM, which was the big contributor to the headline number. Transportation services was the big contributor to the core number, which I assume is being driven by energy prices.

Mortgage applications fell 0.8% last week as purchases rose 1.3% and refis fell 5.4%. “Mortgage applications decreased for the seventh time in eight weeks, reaching the lowest level since 1996,” said Joel Kan, a Mortgage Bankers Association economist, in a release. “Given how high rates are right now, there continues to be minimal refinance activity and a reduced incentive for homeowners to sell and buy a new home at a higher rate.”

Mortgage Credit Availability increased in August, according to the MBA. An increase means that standards are loosening. That said, mortgage credit availability is still extremely tight with the index stuck at levels we saw a decade ago.

“Credit availability in August increased slightly but remained close to the very low levels last seen in January 2013,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The overall increase was driven by an increased number of loan programs that included parameters such as cash-out refinances and mid-range credit scores. The conforming index dropped to its lowest level since 2011, while the jumbo index increased after three monthly declines. Industry capacity continues to decline as lenders reduce staffing and simplify their product offerings to reduce costs and raise profitability. While this dynamic has led to lower credit availability, it has also provided some lenders with new opportunities to expand some of their product offerings, and we saw some of that growth in the jumbo space last month.”

Home prices 8.7% quarter-over-quarter and 2.8% year-over-year according to the Clear Capital Home Data Index. The best performing region was the Northeast, while the slowest was the West Coast. Tight inventory is supporting home prices despite higher mortgage rates. The list of top-performing MSAs reads like a laggard list since 2008: places like Rochester NY, Cleveland OH, and Pittsburgh PA were some of the fastest-growing regions.