Brief Review of Key Economic Indicators that Affect the Mortgage Industry released in December 2017
2018 starts off with healthy stock, labor, and housing markets….and a new tax bill. Speaking of the markets, let’s look at some rough numbers from 2017. Home prices increased slightly over 6.0% last year, but everything else only increased around the 2.0% range. Inflation
was up 2.2%, wages up 2.5%, GDP up 2.2%. Home Prices are outpacing all the other indicators by 3 times. Housing has always been a key driver of the general Economy. A strong housing market means a strong Economy, but too much of a good thing can be bad. How long can Home Prices continue to outpace everything else? It’s already a big problem for First Time Buyers. Lots of theories and prognostications abound. For Mortgage Professionals, the purchase business should be robust all year. Here is a quick review the key Economic Indicators and Data released in December 2017 that are important to Mortgage Professionals.
December Indicators and Data in Review
Recapping Key Economic Data released in December that affects Mortgages & Real Estate:
- The Fed raised interest rates for the 3rd time in 2017 at the last FOMC Meeting December 13.
- New Tax Legislation was approved by Congress and signed by the President.
- Retail Sales continued to trend up as Consumers were on a spending spree.
- The Labor Markets continued to be strong adding 228,000 new jobs.
- Inflation jumped with the CPI rising 0.4% – but that appears to be temporary.
Interest Rates and Fed Watch December 2017
As expected, the Fed raised interest rates by 1/4% at the last FOMC Meeting on December 13th. The new target for Federal Funds is now 1-1/4% to 1-1/2%. The Fed announced in early 2017 that they would raise rates 3 times during the year. Some Fed watchers were skeptical as to whether they would actually follow through on their plans, but they did. The Fed also announced they intend to raise rates 3 times in 2018. Based on 2017, that will probably happen. This was Janet Yellen’s last FOMC Meeting as she will be replaced by Jerome Powell. His first FOMC Meeting as Chair will be January 30. The Fed Announcement that follows every FOMC Meeting stated:
- Hurricane disruptions and rebuilding efforts did not significantly change the overall Economy.
- Fed policy would remain “accommodative” supporting a healthy Labor Market.
- They expect Inflation to return to the 2.0% level and stay there.
222 Fed Target
- Inflation 2.2% CPI for the last 12 months
- Wage Growth 2.5% for the last 12 months
- GDP Growth 2.2% annualized rate for the last 12 months (3rd Quarter = 3.2%)
Housing Market Data December 2017
New and Existing Home Sales surged in November and has risen for 3 consecutive months. The increase was much greater than Economists had expected and was broad-based across all property types. An interesting statistic was that New Home Inventory was unchanged at 283,000 units for sale. At least for the time being, builders are building enough new homes to keep up with demand. Inventory of Existing Homes for sale keeps declining – partially attributed to the Holiday season and Hurricane disruption. Watch the numbers in February and March to see if more people start listing their homes for sale.
Economic Indicators for the Housing Market December 2017
- Existing Home Sales (closed deals in November) rose 5.6% to an annual rate of 5,810,000 homes. The median price for all types of homes is now $248,000 – up 5.6% from a year ago. The median Single Family Home price is $248,800 and $242,500 for a condo. First Time Buyers were 29%, Investors 14%, Cash Buyers 22%. Homes were on the market an average of 40 days. Currently, 1,670,000 homes are for sale – down 9.7% from a year ago.
- New Home Sales (signed contracts in November) rose 17.5% to a seasonally adjusted annual rate of 733,000 units. The median price of a new home is $318,700, and the average sales price is $318,700. Inventory of New Homes for sale is 283,000 – a 5 month supply.
- Pending Home Sales Index (signed contracts in November) rose 0.2% to 109.3 from 106.0. The index is now down 0.6% in the last 12 months.
- Housing Starts (excavation began in November) rose 3.3% to a seasonally adjusted annual rate of 1,298,000 units and are now up 12.9% in the last 12 months. Single Family Housing Starts rose 5.3% to an annual pace of 930,000 units. Multifamily Starts fell 1.6% to 367,000.
- Building Permits (issued in November) fell 1.4% to an annual rate of 1,298,000. Single Family permits rose 1.4% to 839,000 units, and Multifamily permits fell 6.4%.
- 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.
- S&P/Case-Shiller Home Price Index rose 0.7% in November. The 20 City Composite index is up 6.38% in the last 12 months.
- FHFA Home Price Index rose 1.4% during the 3rd quarter, now up 6.5% year over year.
Labor Market Economic Indicators December 2017
The Jobs Report released on December 8th showed the Economy added 228,000 new jobs during November (195,000 expected). This report was good because the number of jobs and wages increased. Most of the jobs created came from the retail sector, which adds seasonal workers for the Holidays. The education, health, leisure, and hospitality sectors significantly added jobs. Hiring by state and local governments was also up but down at the Federal level. Hiring workers to help repair and rebuild after the hurricanes are expected to continue through 2018. The Economy continues to maintain the lowest Unemployment rate since 2006.
- The Economy added 228,000 new jobs in November.
- The Unemployment Rate held steady at 4.1%.
- The Labor Force Participation Rate held steady at 62.7%.
- The Average Wage rose 0.2% during November pegging wage growth at 2.5% YoY.
Inflation Economic Indicators December 2017
Inflation took a surprising jump in November as the CPI and PPI both rose 0.4% while the Core CPI nudged up only 0.1%. As illustrated by the gap in the CPI and PPI – most of the increase can be blamed on higher energy prices. Gas prices alone jumped 7.3%. One month does not make a trend so don’t let last month’s numbers fool you. Outside of energy prices, Inflation is still low. The cost of clothing dropped a dramatic 1.3% – the largest monthly price drop in 20 years. Furniture prices fell, Medical Care and shelter costs increased slightly, food was unchanged, and auto prices were up.
- CPI rose 0.4%, now up 2.2% in the last 12 months.
- Core CPI (ex-food & energy) rose 0.1%, now up 1.7% in the last 12 months.
- PPI rose 0.4%, now up 3.1% in the last 12 months.
- Core PPI (ex-food & energy) rose 0.3%, up 2.4% in the last 12 months.
GDP Economic Indicators December 2017
The 3rd and final guesstimate for 3rd Quarter 2017 GDP showed the Economy grew at a 3.2% annualized rate (3.3% expected). The good news is that we have 2 consecutive quarters that the Economy grew 3.0% – the first time since 2014. Digging a little further, the data shows that business investment in equipment was up along with inventories. Businesses don’t invest in additional equipment unless they are optimistic about the future. Combine that with the new business tax cuts and 2018 GDP looks like it is ready for solid numbers this year. Remember that each quarter has 3 revisions for GDP. It’s a moving target, so all the revisions are more like guesstimates.
Consumer Economic Indicators December 2017
Consumers were on a shopping spree the last couple of months as Retail Sales surged 0.8% in November. October Retails Sales were also revised up to 0.5% from 0.2%. Retails Sales up 5.8% in the last 12 months. Early estimates for the Holiday buying season are that it’s the best in 6 years. Shoppers had an extra weekend just before Christmas to do additional shopping. A good labor market with consistent wage growth means people feel secure in their jobs and confident to spend more.
- Retail Sales rose 0.8% in November. For the year Retail Sales are up 5.8% year over year.
- The Consumer Sentiment Index fell to 96.8 from 98.5 in November.
- Consumer Confidence fell to 122.1 from 128.6 in November – which was a 17 year high.
International & Misc
- Due to OPEC supply cuts, crude oil hit $60.00 per barrel, the highest price since 2015.
- Russia announced they plan on keeping permanent forces in Syria.
- A terrorist group in Turkey has used a drone attached with a bomb. (You knew it was only a matter of time before this started)
This 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 Loan Officers and 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 Indicator Review emailed to you at the beginning of each month, click here.
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Mark Paoletti, MPaoletti@MortgageElements.com