Key Economic Indicators, Data, and Events that Affect the Mortgage Industry August 2017

Key Economic Indicators, Data, and Events that Affect the Mortgage Industry for August 2017

It’s August and kids will be going back to school soon. Speaking of going back – are we back to 2006 with “Asset Inflation” creating another bubble in Real Estate? Real Estate and stock prices have been on an upward trajectory for the past 5 years – consistently out pacing both Inflation and Wage Growth.  We can see this reflected in the affordability issues home buyers are facing. The big questions for Mortgage Professionals are: A – If this keeps up, when will it become a bubble? B – If the bubble bursts, how far will prices drop? It’s an interesting topic for discussion with your fellow mortgage colleagues. Enough bubble talk – let’s review the key Economic Indicators, data, and events from July 2017 that are important to Mortgage Professionals.

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July Economic Indicators and Data in Review

Recapping Key Economic Data released in July that affects the Mortgage & Real Estate business:

  • The July FOMC Meeting was uneventful with the Fed leaving interest rates unchanged.
  • The Economy added a healthy 222,000 jobs during June.
  • The Unemployment Rate is hovering around 4.5%.
  • 2nd quarter GDP Growth clocked in at 2.6% – a nice increase from 1st quarter growth of 1.2%.

 

Interest Rates and Fed Watch

July had a Fed Week with an FOMC Meeting July 25th & 26th. As expected, the Fed didn’t alter interest rates and didn’t say very much in the prepared statement after the meeting. The Fed’s statement said they will start to unwind their balance sheet (called Quantitative Tapering) “relatively soon” but didn’t specify a start date. The Fed also acknowledged the recent drop in Inflation, but they believe this is “transitory”. They expect Inflation will return to the 2.0% level. All in all – an uneventful FOMC Meeting this month.

222 Fed Target

  • Inflation                       1.6% CPI for the last 12 months
  • Wage Growth              2.5% for the last 12 months
  • GDP Growth                2.6% for the 2nd quarter (annualized with 2.1% Year over Year)

 

Housing Market Indicators July 2017

The Economic Indicators for Housing continued a trend that has persisted all year – the low inventory of homes is limiting sales and escalating prices. The inventory of existing homes for sale continued to decline in June and is now 7.1% lower than 12 months ago. Homeowners just aren’t putting their homes up for sale. But there’s good news – Single Family Starts surged in June as builders started construction on New Homes to meet demand. An interesting statistic hidden in all the data was that the average price of New Homes sold actually decreased because many buyers chose to purchase lower priced new houses.

Economic Indicators for the Housing Market

  • Existing Home Sales (closed deals in June) fell 1.8% to an annual rate of 5,520,000 homes. The median price for all types of homes is now $263,800 – up 6.5% from a year ago. The median Single Family Home price is $266,200 and $245,900 for a condo. First Time Buyers were 32%, Investors 13% (56% paid cash), Cash Buyers 18%. Homes were on the market an average of only 28 days. There are 1,960,000 homes for sale (7.1% lower than a year ago).
  • New Home Sales (signed contracts in June) rose 0.8% to a seasonally adjusted annual rate of 610,000 units. The median price of a new home is $310,000, and the average sales price is $379,500. There are now 272,000 new homes for sale – the highest since 2009.
  • Pending Home Sales Index (signed contracts in June) rose 1.5% to 110.2 from 108.6 in May. The index is now up 0.7% in the last 12 months.
  • Housing Starts (excavation began in June) jumped 8.3% to a seasonally adjusted annual rate of 1,092,000 units. Single-Family Housing Starts rose 6.3% to an annual pace of 849,000 units which is up 10.3% from June 2016. Multifamily Starts rose 13.3%.
  • Building Permits (issued in June) rose 7.4% to an annual rate of 1,254,000. Single-Family permits rose 4.1% to 811,000 units, and Multifamily permits rose 13.9% to 443,000 units. 
  • New Home Sales, Housing Starts, and Building Permits are notoriously volatile indicators. They carry a lot of statistical uncertainty from constant revisions, changes to the seasonal adjustment formula, and are heavily influenced by weather.
  • FHFA Home Price Index rose 0.4% – home prices are now 6.9% higher than a year ago.
  • S&P/Case-Shiller Home Price Index rose 5.7% for the 20 City Composite index YoY.

 

Labor Market Economic Indicators

The July Jobs Report showed the Economy is humming along at a moderate pace. The 222,000 new jobs is a nice jump but 16% – 35,000 new jobs – came from the government sector. The Unemployment Rate continues to hover around the 4.5% range. This is fairly low, but it hasn’t created significant wage pressure. Who was hiring?  Healthcare, education, state and local governments, and construction (good for the mortgage biz). The next Jobs Report is Friday, August 4th.   

  • The Economy added 222,000 new jobs during June (178,000 expected).
  • The Unemployment Rate rose to 4.4% – up from the 16 year low of 4.3% last month.
  • The Labor Force Participation Rate fell to 62.8 from 62.7.
  • The Average Wage rose 0.2%, pegging wage growth at 2.5% for the last 12 months.

 

Inflation Economic Indicators

Inflation has been tame all year thanks in large part to lower gasoline and energy prices. However, housing (rents) and medical care continue upward. This is a big indicator to watch this year. If inflation continues to run below the Fed’s target of 2.0%, many Fed Watchers believe there won’t be a third interest rate increase this fall.

  • CPI was unchanged, now up 1.6% in the last 12 months.
  • Core CPI (ex-food & energy) rose 0.1%, now up 1.7% in the last 12 months.
  • PPI rose 0.1% for June, now up 2.0% in the last 12 months.
  • Core PPI (ex-food & energy) rose 0.1%, up 1.9% in the last 12 months.

 

GDP Economic Indicators

The 1st guesstimate for 2nd Quarter 2017 GDP showed the economy grew at a 2.6% annualized rate (2.7% expected). The Economy has grown 2.1% year over year.  Most Economists are predicting a 2.3% growth, and that’s pretty close to the Fed’s GDP target of 2.2% for 2017. If the Economy continues to strengthen, the Fed can stay on plan, raise rates again this fall, and start to unwind their huge $4.5 Trillion dollar balance sheet. (GDP is a hard number to pin down. Each quarter has 3 revisions. It’s a moving target, so all the revisions are more like guesstimates).

 

Consumer Economic Indicators

The Economic Indicators for Consumer activity and attitudes were mixed again this month continuing a trend all year. As the year has marched on, Consumer Confidence is up, but Retail Sales continues to be soft. The biggest component of Retails Sales – autos – which peaked early this year, has been trending lower. In the 12 months, auto sales have declined 3.7%. Spending on food, food service, clothing, and purchases at department stores decreased.

  • Retail Sales fell 0.2% in June. For the year Retail Sales are up 3.8% in the last 12 months.
  • Consumer Sentiment Index fell to 93.4 from 95.1. 
  • Consumer Confidence rose to 121.1 from 117.9.       

 

International & Misc 

  • Congress voted to impose new Economic sanctions on Russia, North Korea, and Iran.
  • Oil continues to hover around $50.00 per barrel.
  • The US dollar, considerably weaker against the Euro, is now at about 1.17 Dollars per Euro.
  • Venezuela is a mess and getting worse. The State Department ordered employees’ family members to leave the country due to deteriorating security conditions.

This Economic Commentary is written to be a succinct summary of the major Economic Indicators and Economic Data that influence the Mortgage and Real Estate Industries. It is written for Mortgage Professionals that need to stay current on Economic Information but don’t have hours to research and analyze Economic Data. Feel free to share this with a friend or colleague in the Mortgage or Real Estate business. If you would like this Economic Calendar and Commentary emailed to you at the beginning of each month, click here.

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Questions or comments contact: Mark Paoletti, MPaoletti@MortgageElements.com

 

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