Review of Key Economic Data released in February 2018 that is important to the Mortgage Industry.
For being a cold dreary month, February had a lot happening: Stock Market volatility, the Olympics, a new Fed Chairman, the changing value of the American dollar. Mortgage People don’t typically watch currency fluctuation because our business is focused on domestic issues. But the value of the dollar has a significant “indirect” impact on our business. A weak dollar can be both good and bad for the Mortgage Business. When the value of the dollar is low, imported goods 300 Wholesale and Correspondent Mortgage Lenders on One Website are more expensive, and that raises inflation. If Inflation is too high, interest rates go up – which is bad for mortgages. However, the benefit of a weak dollar is that our goods are less expensive to foreign buyers. That Increases demand for American goods, so we export more. More exports means more jobs, higher wages, and job security for American workers. When workers feel confident in their job and wage prospects, they buy big-ticket items like cars and homes – which is good for mortgages. Here is a quick summary of key Economic Indicators and data released during February 2018 that are important to Mortgage Professionals and the Mortgage Industry.
February Economic Indicators and Data in Review
- Volatility hits the US Stock market with a one day decline of 1,022 points in the DOW.
- Dollar value continued to decline: Euro (1.22), Japanese Yen (107), British Pound (1.39).
- Congress approved a new Federal budget that funds the Government until March 2019.
- The Labor Markets added 200,000 new jobs in January.
- Inflation is holding steady at 2.1% annually.
Interest Rates and Fed Watch during February 2018
Jerome Powell had his first testimony before Congress as the New Fed Chairman last week. He testified before the Senate Banking Committee, and initial reports are that he sounded rather hawkish – meaning that he isn’t afraid to raise interest rates. He also mentioned “Inflation” a lot, so it’s safe to say the Fed is focused on Inflation. The Fed’s Inflation target is still 2.0%, but that is not their ceiling. Most Economists think the Fed will let Inflation “overshoot” the 2.0% target to keep the Economy growing. At what Inflation level does the Fed (and the Mortgage Business) start to get worried? 2.5%, 2.8%, 3.0%? If the Fed gets worried about rising Inflation, they will raise rates faster. The next FOMC Meeting is March 31st. Will the Fed raise rates at that meeting? Odds are now at 99%.
222 Fed Target
- Inflation 2.1% CPI for the last 12 months
- Wage Growth 2.9% for the last 12 months
- GDP Growth 2.3% annualized rate for the last 12 months
Housing Market Data released in February 2018
Housing data from January are all in the red with Existing, New, and Pending Home Sales all decreasing. It’s a continuation of the same problem that has plagued home buyers for 3 years – lack of available homes for sale. Inventory has now fallen from 1,680,000 units twelve months ago to 1,520,000. The inventory problem is taking a toll on 1st Time buyers. They now account for only 29% of buyers compared to 33% in January 2017. Meanwhile, home prices continue to rise about 6.0% a year.
Economic Indicators for the Housing Market Released in February 2018
- Existing Home Sales (closed deals in January) fell 3.2% to an annual rate of 5,380,000 homes. The median price for all types of homes is now $240,500 – up 5.8% from a year ago. The median Single Family Home price is $241,700 and $231,600 for a condo. First Time Buyers were 29%, Investors 16%, Cash Buyers 22%. Homes were on the market an average of 42 days and 43% were on the market for less than a month. Currently, 1,520,000 homes are for sale – down 9.5% from a year ago.
- New Home Sales (signed contracts in January) fell 7.8% to a seasonally adjusted annual rate of 593,000 units. The median price of a new home is $323,000 and the average sales price is $382,700. Inventory of New Homes for sale is 301,000 – a 6.1 month supply.
- Pending Home Sales Index (signed contracts in January) fell 4.7% to 104.6 from 110.1.
- Housing Starts (excavation began in January) rose 9.7% to a seasonally adjusted annual rate of 1,362,000 units. Single Family Housing Starts rose 3.7% to an annual pace of 877,000 units. Multifamily Starts rose 19.7% to 431,000 units.
- Building Permits (issued in January) rose 7.4% to an annual rate of 1,396,000. Single Family permits fell 1.7% to 866,000 units, and Multifamily permits rose 25.4% to 479,000 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.
- S&P/Case-Shiller Home Price Index rose 0.7% in December. The 20 City Composite index is up 6.3% in the last 12 months.
- FHFA Home Price Index rose 0.3% in December, now up 6.7% year over year.
Labor Market Economic Indicators Released in February 2018
The Jobs Report showed the Economy added 200,000 new jobs during January (180,000 expected). The sectors of the Economy that continue to add jobs are construction, manufacturing, food service (includes drinking establishments), and health care. The next Jobs Report is this Friday, the last report before the next FOMC Meeting.
- The Economy added 200,000 new jobs in January.
- The Unemployment Rate held steady at 4.1% in January.
- The Labor Force Participation Rate held steady at 62.7% in January (4th month).
- The Average Wage rose 2.9% for the last 12 months.
Inflation Economic Indicators Released in February 2018
Inflation increased more than expected in January, lead higher by energy prices. Energy prices rose 3.0% along with gasoline rising 5.7%. Excluding the volatile energy component, just about everything else increased: medical care was up 0.4%, rent up 0.3%, services up 0.3%, clothing up 1.7%. The price of clothing has been soft for the past year, but last month’s increase was the largest single monthly gain in 30 years. The latest Inflation numbers give more ammo to the Fed to raise Interest Rates at the next FOMC Meeting.
- CPI rose 0.5%, now up 2.1% in the last 12 months.
- Core CPI (ex-food & energy) rose 0.3%, now up 1.8% in the last 12 months.
- PPI rose 0.4%, now up 2.6% in the last 12 months.
- Core PPI (ex-food & energy) rose 0.4%, up 2.4% in the last 12 months.
GDP Economic Data Released in February 2018
The 2nd guesstimate for 4th Quarter 2017 GDP showed the Economy grew at a 2.5% annualized rate (2.5% expected). This latest number pegs Annual 2017 GDP Growth at 2.5% – that’s 2016 annual level to 2017 annual level. An increase in exports, business investments, state & local government spending, federal government spending, and personal consumption added to growth. Remember that each quarter has 3 revisions for GDP, so all the revisions are more like moving targets or guesstimates.
Consumer Economic Indicators Released in February 2018
Consumer data for last month was mixed. Retail Sales had a bad month in January falling an unexpected 0.3%. On the flip side, Consumer Confidence surged to the highest point since 2000. What are Consumers optimistic about? Job prospects and wages. It will be interesting to see how the stock market volatility affects the data next month.
- Retail Sales fell 0.3% in January. For the year, Retail Sales are up 5.4%.
- Personal Spending rose 0.2% in January, and 4.4% in the last 12 months.
- Consumer Confidence rose to 130.8 in January from 125.4 – which is a 17 year high.
International & Misc
- Oil prices are stabilizing around $63.00 a barrel. That’s down from recent highs of $70.00 as US shale producers increase production.
- Across the pond, the English Economy grew at an annualized rate of just 1.4% – that makes it the slowest growing G7 country – behind Italy and Japan.
- Another School shooting has re-ignited the debate about guns and assault weapons.
This Economic Commentary is written to be a succinct summary of the key 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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Mark Paoletti, MPaoletti@MortgageElements.com