Commentary: This morning's much anticipated January Consumer Price Index data showed that prices rose at their quickest pace in more than a year last month. Contrary to my expectations - the mortgage market rallied on the news.
The government said the core rate of inflation at the consumer level, (a value that excludes the more volatile food and energy costs) increased 0.2% -- posting its largest month-over-month gain since October 2009. Overall inflation at the consumer level was up 0.4% in January - climbing at the same pace as registered in December.
At this juncture it appears credit market participants are taking the position that since wages and job growth are stagnant -- higher prices for basic necessities will keep a damper on overall economic growth by limiting household discretionary spending -- which in-turn limits economic expansion and job creation. I can see where this argument can reasonably be justified - right up to the point job creation begins to accelerate - which will be the exact point at which the sleeping inflation beast will awake from its long nap and once again begin to wreak havoc on the cost of everything from ice cream cones to mortgage interest rates.
For the moment, the good news is that the labor market story remains dismal. More Americans that projected filed first-time claims for unemployment insurance during the week ended February 12th. Applications for jobless benefits rose by 25,000 to 410,000 during the period. The number of net new jobs created over the past three months has averaged 83,000 - far less than the number required to absorb the natural growth in the working population. But that may soon change.
There is a small but growing camp of analysts that are projecting hiring will soon improve and by the end of the year job creation will be running at over 200,000 jobs per month. If these "tea-leaf readers" prove anywhere close to accurate the pace of acceleration in the job market together with the already rising inflation pressures at the consumer level will make it very difficult - if not impossible - for mortgage interest rates to make any sustained move to notably lower levels. But all is not lost here. The affordability index for prospective home buyers is expected to be near its best level in decades even as mortgage interest rates begin to inch higher in the face of rising employment. Believe it or not - such an outcome will probably spawn one of the most active periods of mortgage originations we have seen in years.
It wasn't raining when Noah began to build his ark.
Be patient - be disciplined - and play it by the numbers.
THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
