Economic Commentary and Calendar for April 2017
It’s April, Spring is here, Baseball is starting, and the weather is getting warmer. What else is warming up? The Economy and Housing. But the Fed doesn’t want it to get too hot – so, as everyone expected, they raised interest rates 1/4% citing “improving economic conditions”. Housing is also heating up as Home Prices continue to escalate. That’s great for current homeowners but tough on 1st Time Buyers. Let’s look at the Economic Data and Indicators released in March that are particularly important to the Mortgage and Real Estate business.
March 2017 Economic Data and Indicators in Review
Recapping the major Economic Data releases that affect the Mortgage & Real Estate business:
- The Federal Reserve raised the Fed Funds rate by .25% with a target range of .75% – 1.0%.
- The Labor Markets look healthy with improving job creation and wage growth.
- Inflation is plugging along with the CPI at 2.7%.
- Home Prices are escalating about 6.0% annually.
- GDP for 2016 looks like it will settle in around the 1.9% range.
Interest Rates and Fed Watch March 2017
The Fed did as everyone expected and raised interest rates by increasing the Fed Funds Rate .25%. That’s one down and two to go. This is the first of three interest rate hikes that we can expect from the Fed throughout 2017. Inflation and Wage Growth are both running ahead of the Fed’s 222 Target. When will the next rate hike occur? At this point, there is a 50% chance it may happen at the June FOMC meeting – but that’s 10 weeks away and a lot can happen between now and then.
222 Fed Target
- Inflation 2.7% CPI for the last 12 months
- Wage Growth 2.6% for last 12 months
- GDP Growth 1.9% for the last 4 quarters (Final revision in July)
Labor Market Data and Indicators
The March Jobs Report was better than Economist’s were expecting. While the Economy continued to add more jobs, the increase in Wage Growth slowed down. This is important because the Fed is watching Wage Growth more than Job Growth when making monetary decisions.
- The Economy added 235,000 new jobs in February (200,000 expected). This is a nice healthy increase. What sectors were hiring? Construction, manufacturing, health, education, business services, hospitality, temp, and government.
- The Unemployment Rate decreased to 4.7% from 4.8% last month.
- The Average Wage rose 0.2% in February pegging annual wage growth at 2.6% for the last 12 months. Remember that labor costs are a large component of inflation.
- The Labor Force Participation Rate rose to 63% from 62.9% in January.
Inflation Data and Indicators
Inflation continues to march along as expected. Health care and housing costs (rent) keep going up relentlessly. Energy prices fell slightly in February, but for the last 12 months they are up 29.8%.
- CPI rose 0.1% (0.0% expected), up 2.7% in the last 12 months.
- Core CPI (ex-food & energy) rose 0.1% (0.2% expected), up 2.2% in the last 12 months.
- PPI rose 0.3% (0.1% expected), up 2.2% in the last 12 months.
- Core PPI (ex-food & energy) rose 0.3% (0.1% expected), up 1.8% in the last 12 months.
GDP Data and Indicators
The third and final guesstimate for 4th Quarter 2016 GDP showed the economy grew at a 2.1% annualized rate (2.0% expected). This 3rd and final revision pegs 2016 GDP growth at 1.9% – below the Fed’s target of 2.0%. The Fed still expects 2017 GDP to come in at 2.1% – right on their 2.0% target. Remember that GDP is a notoriously hard number to pin down. That’s why each quarter has 3 revisions. It’s really a moving target and the revisions are more like guesstimates. There will be one last revision in July to finalize the annual 2016 GDP figure.
Consumer Data and Indicators
Consumer Confidence is the highest it’s been in 16 years as people are more optimistic about the Labor Market and Economic Conditions. January, February, and March are always tough months on Retail Sales. Consumers are recovering from their Holiday spending spree and waiting for warmer weather before they pry open their wallets again. Retail Sales was up modestly during February. What were they buying? Building materials – good news for housing and the mortgage industries. Consumers have not been buying cars, clothes, or going to restaurants the last couple of months. Next month tax refund checks hit the mail so we’ll see if the extra money spurs additional spending.
- Retail sales rose 0.1% in February, (0.1% expected). For the year Retail Sales rose 5.7%.
- The Consumer Sentiment Index fell to 96.6 from 97.6 – still a very optimistic reading.
- Consumer Confidence rose to 125.6 – the highest level since 2000.
- Consumer Spending rose 0.1% (0.2% expected).
International & Misc
England is in the news again. Not just because of the March terrorist attack but also Brexit. Britain has triggered Article 50 and formally notified the European Union it is leaving. This starts the 2 year process of negotiations for leaving the EU. Now there are rumblings that Scotland wants to secede from the UK – again – and rejoin the EU. Combine this with Greece’s financial issues and things are going to get very interesting in Europe this year.
Housing Data and Indicators
It was a big month for Housing Data. We have been talking about affordability and inventory issues for a couple of years. Now it is really affecting the market. Income is growing nicely but home prices are increasing even faster. When you combine higher home prices with higher interest rates – affordability gets a double whammy. Existing Home Sales took a big hit but this was partially expected after interest rates jumped in December. On the bright side, Housing Starts had a big jump. Builders are ramping up new construction to meet the demand of Millennials as they start forming new households. With warmer weather around the corner, builders are hopeful to start providing homes to new families at affordable prices against the headwinds of higher interest rates.
The Housing Data released in March shows conflicting data between multifamily and single family housing.
- Existing Home Sales (closed deals in February) fell 3.7% to an annual rate of 5,480,000 homes. The median home price for all types is now $228,400 – up 7.7% from a year ago. The median price for Single Family homes is $229,900 and $216,100 for condos. 1st Time Buyers were 32%, Investors 17%, Cash Buyers 27%. Homes are on the market an average of 45 days. Currently, 1,750,000 homes are for sale.
- New Home Sales (signed contracts in February) rose 6.1% to a seasonally adjusted annual rate of 592,000 units. That’s up almost 13% from a year ago when there were 525,000 New Homes for sale. The median price of a new home is $296,000, down from last month’s $312,900. This price decrease is attributed to the fact that many new homes sold last month were in southern markets where prices are lower. There are now 266,000 new homes for sale.
- Pending Home Sales Index (signed contracts in February) rose 5.5% to 112.3 from 106.4 in January.
- Housing Starts (excavation began in February) rose 3.0% to a seasonally adjusted annual rate of 1,288,000 units. Single Family Housing Starts rose 6.5% to 872,000 units as builders try to meet the demand for affordable homes.
- Building Permits (issued in February) fell 6.2%. Multifamily Permits dropped a huge 21.6% while Single Family permits rose 3.1%.
- Remember that New Home Sales, Housing Starts, and Building Permits, are notoriously volatile with a lot of statistical uncertainty from constant revisions and changes to the seasonal adjustment formula.
- FHFA Home Price Index was unchanged in January. Annually, home prices are up 5.7% from January 2016 to January 2017 according to FHFA.
- S&P CoreLogic Case-Shiller Home Price Index – The 20 City Composite Index rose 0.9% from December and is up 5.7% from January 2016.
Click Here for the April 2017 Economic Calendar. It is available as a printable so you can view it on your computer, or print it out to post in a visible spot so you won’t be surprised by interest rate changes due to the release of economic information. Click Here if you want a full 12 months of the 2017 Economic Calendar. Share this with a friend or colleague in the Mortgage Business. Click here to have this Economic Calendar and Commentary emailed to you at the beginning of each month.
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