February 23rd, 2021 9:06 AM by Richard Sardella MLO.100007700/NMLS 233568
Building materials see price increases as 2021 gets underway
While prices for resale homes are being driven up due to both lack of inventory as well as demand, prices for new homes will no doubt continue to rise due to prices that must be paid for goods used in residential construction. Excluding energy, goods prices rose 2.1% in January (not seasonally adjusted) and have increased 6.8% over the past 12 months, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics.
According to EyeOnHousing’s David Logan, the index for inputs to residential construction, including food and energy, also increased over the month (+2.5%) as energy prices climbed 5.1%. “Prices paid for softwood lumber (seasonally adjusted) rose 13.9%. Lumber prices have remained extremely volatile since the 88.5% increase between April and September 2020. Since falling 22.9% between September and November, softwood lumber prices have risen 28.7%.”
He also reports that the lumber PPI is now just 0.8% lower than the record high set in September and —barring a record decline in softwood lumber prices over the next two weeks—the index will increase further in February as prices have continued to climb in the weeks after the January survey data were gathered.
There have been nominal price movements and tariffs on Canadian lumber, but cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar, with the USD weakening 12.8% since March and falling 3.6% since lumber prices began rising again in November.
CNBC’s Diana Olick reports that while consumers want more newly built, affordable homes, builders are finding that hard to deliver, especially as prices for framing lumber spike ever higher. “Lumber prices inched above $1,000 per 1,000 board feet before falling back below that milestone. The high of double the price from just three months ago and a record.
Source: NAHB | CNBC | TBWS
How Rates Move:
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Higher
Rate markets are trending sideways to slightly higher so far today. Last week the MBS market improved by -54bps. This was enough to move rates higher last week. We saw high rate volatility throughout the week.
This Week's Rate Forecast: Higher
Three Things: These three areas have the greatest ability to impact rate markets this week. 1) Stimulus, 2) Central Bank, and 3) Domestic.
1) Stimulus: The potential sidecar Bill for a massive infrastructure spending spree would be another cool trillion on top of the $1.9T spending bill. This will continue to negatively impact all long-term bonds that are very reactive to growth and inflation.
2) Central Bank: We will hear from Fed Chair Powell on Tuesday and Wednesday as part of his economic testimony in front of (virtually) the Senate Committee on Banking and the House Financial Services Committee. We also get a key interest rate decision from the Reserve Bank of New Zealand and hear from ECB Chair Lagarde.
3) Domestic: Other than Monday, we have a very robust calendar for economic data. The bond market will pay the most attention to the Fed's key measure of inflation, Core PCE, as well as Chicago PMI and Personal Income/Spending. Second-tier reports will be a revision to the last QTR GDP and Consumer Confidence.
Treasury Dump: Here is this week's Treasury note auction schedule.
This Week's Potential Volatility: High
Rate volatility spiked last week as rate markets moved a bit higher. We're looking for the same this week. Many things have the volatility to impact rates this week; the most significant is the economic data denoted above. If the data shows growth and inflation, look for rates to push higher for the week on increased volatility.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.