It looks like last month may have been a noise event. This month, shelter inflation tracks back up and non-shelter inflation tracks back down. Although, there is still a chance this is the beginning of an uptrend. The three month average non-shelter inflation rate is above 2%.
Year-over-year CPI less food, energy, and shelter, remains 1.3%.
In real estate, I see some reports of positive activity, but bank lending has flat-lined. On the other hand, quarterly numbers for 2016 4Q flow of funds show mortgage lending continuing to accelerate. Is this because more lending is coming from non-bank sources, or is this because the flow of funds data is older, and it will show a slowdown in the first quarter?
The Federal Reserve report on Mortgage Debt Outstanding does appear to show a transition beginning from mortgages held at banks to mortgages originated through Fannie & Freddie. This is to be expected when short term rates are rising and the yield curve is flattening.
So, I suppose one question will be, can the GSEs create enough mortgage growth to overcome the decline in bank lending? It does appear that since mid-2016, there has been a loosening up of lending standards among conventional mortgages, so that there have been more mortgages with low down payments and more sales of existing homes at the low end of the market. This is a positive development. I suspect a good amount of healing, recovery, and price appreciation in those markets will need to happen before that leads to an increase in new housing starts in those markets. I suppose that means that the first result of any loosening will be healing of middle class balance sheets, and increases in the real housing stock which might reduce rent inflation would come later.
Maybe we will see a bottom in the dropping homeownership rate, too, if Fannie & Freddie become more active. Here are the year-over-year and quarterly change in mortgages outstanding for 1-4 unit homes, for each conduit.
If Fannie and Freddie allow themselves to grow, it appears that they could counter the decline in bank lending.
PS. Notice in the YoY graph how the feds knocked the wind out of the GSEs when they took them over in 2008. Fortunately, GNMA took on some mortgage growth. In the end, I lay most of the defaults at the feet of federal management of the GSEs. They pulled the rug out from under the lower tier housing market after September 2008, and most of those defaults happened in 2009-2012. Maybe, finally, the GSEs will start to support that market again. Of course, the Fed is pulling against bank lending at the same time. Goodness help us if we ever manage to get all four cylinders running at the same time in the housing market. I suppose if that happened, I would recommend a long position in the laundry business. Somebody will need to clean all the bubble mongers' messed underpants.