Wednesday's Scoop: Forgiving☀️

Hey friend - Happy Valentine’s Day! I hope you get some appreciation from your partner or a little packet of M&Ms with a punny card from a secret admirer in the office.

Checking back with this poll again today to make sure we didn’t miss anyone:

Here’s what you need to know today…

1. Surging mortgage rates have deterred home buyers.

2. Business supply costs have been falling.

3. Commercial real estate has a debt problem.

S&P 500: 5,000.62
1Mo: +5% | 1Yr: +21% | 5Yr: +80%

The market bounced back from yesterday's freakout about the January inflation report showing living costs rising more than expected. Updates from companies in real estate and consumer goods pointed to cooling prices.

Mortgage costs keep climbing, scaring away home buyers. The Mortgage Bankers Association said applications to purchase a home fell 3% last week, down 12% from a year ago, thanks to an uptick in rates. Shifting expectations about when policymakers will reduce short-term rates sent long-term rates soaring last week. The average rate on the 30-year fixed-rate mortgage rose to 6.9%, the highest in two months.

Businesses’ costs keep falling. The Labor Department’s revised producer price index (PPI) for December was lower than initially projected, showing wholesale prices falling 0.2% after declining by 0.1% in November and 0.4% in October. [🤓] The continuing decline in energy prices primarily drove this. The year-over-year measure was up only 1%. Falling business supply costs have led to higher profits for companies who keep raising prices. Companies may consider discounting as shoppers continue to push back on higher prices.

Commercial real estate has a looming debt problem. The Mortgage Bankers Association estimated that 20% of all outstanding commercial and multi-family real estate debt in the US will come due this year, raising concerns about plummetting property values. Borrowing costs have skyrocketed over the past few years, and refinancing loans will demand a hefty expense that many owners may not be able to cover, forcing sales at less-than-ideal prices. About a quarter of all office space loans are coming due this year, and office property values are already down 35% from their peak in 2022, thanks to hybrid work diminishing demand. It’s a problem that could have ripple effects through the economy.

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Is the Producer Price Index (PPI) the same as the CPI?

The Producer Price Index (PPI) is another important indicator for economists tracking inflation. Inflation is the rate at which things get more expensive.

Unlike the Consumer Price Index (CPI), which looks at a set basket of stuff your average consumer spends money on and tracks how much it costs each month, the PPI tracks the prices of wholesale goods - like how much Ford pays for the tires it installs in its cars before selling them to you. The rate of change in those prices is inflation.

Prices rarely decline. Inflation, aka rising prices, is only a problem when it's really fast (3%+ per year).