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Is Inflation Staying Cool this Winter?

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In this Issue

Last Week in Review: While lower oil prices are giving people reason to cheer, there was some disappointing news in the housing sector.

Forecast for the Week: A full slate of economic reports will be released ahead of the Christmas holiday.

Last Week in Review

"You make me wanna (Shout!)" These days, many people are shouting for joy as gas prices continue to plunge. But was the rest of the week's news cause to celebrate? Read on for details.

Falling gas prices were definitely a key factor leading consumer prices lower in November, as the Consumer Price Index fell by 0.3 percent. The inflation-reading gauge posted its largest monthly decline in six years. Low inflation is good news for Bonds, as inflation reduces the value of fixed investments like Bonds. This means low inflation is also good news for home loan rates, which are tied to Mortgage Bonds.

Over in the housing sector, November Housing Starts fell by 1.6 percent from October to an annual rate of 1.028 million units. Single-family starts fell 5.4 percent, while the volatile multi-family segment rose by 6.7 percent. Building Permits in November also declined. Despite these decreases, the housing sector has been improving overall. In addition, the recent strong Jobs Report for November is a good sign for economic growth next year—and that should help the housing sector continue its otherwise improving trend.

Also of significance: The Fed held its last Federal Open Market Committee meeting of 2014, and it noted that it will keep the Fed Funds Rate (the rate banks use to lend money to each other overnight) low until it feels that the economy can function normally with higher rates. This led to a rally in Stocks, while Mortgage Bonds and home loan rates remain near 18-month bests.

The bottom line is that home loan rates remain near some of their best levels of the year, and now is a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

- The first half of the week will be busy, with key reports on housing, inflation and economic growth.

- In the housing sector, Existing Home Sales for November will be released on Monday. November New Home Sales follow on Tuesday.

- The final reading on third quarter Gross Domestic Product will be closely watched when the numbers are delivered on Tuesday.

- Tuesday also brings several more key reports, including the Consumer Sentiment Index, Durable Goods Orders, Personal Income, Personal Spending and Personal Consumption Expenditures (the Fed's favorite measure of inflation).

- Weekly Initial Jobless Claims will be released on Wednesday instead of Thursday due to the Christmas holiday.

The Stock markets will close early at 1:00 p.m. EST on Wednesday, December 24, while the Bond markets will be closing at 2:00 p.m. EST. All markets will be closed on Thursday, December 25 in observance of Christmas. On Friday, December 26 there will be normal market hours.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving—and when they are moving lower, home loan rates are getting worse.


By: Michael Borodinsky

Vice President/Regional Builder Branch Manager | Caliber Home Loans

Call Michael: 732-382-2654

Email Michael:



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