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

Economic Commentary and Calendar July 2017

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It’s July and we are officially in the lazy days of summer. According to the latest Economic Indicators, inflation and wages have been increasing about 2.0% to 2.5% a year since 2013. However, home prices have been rising 6.0% per year in that same time frame. Home prices can’t continue unabated without a corresponding increase in wages. In the meantime, many wanna-be homeowners are being priced out of homeownership. Let’s review the Key Economic Indicators and Data released in June 2017 that is important to Mortgage Professionals.

June Economic Data in Review

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

  • The Fed raised the Fed Funds Rate .25% with a target of 1.0% – 1.25%
  • The Economy added only 138,000 jobs during May which was way below expectations
  • The Unemployment Rate hit a 16 year low of 4.3%
  • 1st quarter GDP Growth was revised upward to 1.4% from 1.2%
  • Tech stocks took a hit, Crude Oil prices fell, and Congress is fighting over Health Care


Interest Rates and Fed Watch

As expected – the Fed raised the Fed Funds Rate .25% after the June 14th FOMC Meeting. The Fed has continually stated they intend to raise rates 3 times this year and the latest increase makes 2 out of 3 so far. In their prepared statement, the Fed said they still feel confident about the Economy with Inflation stabilizing around 2.0%, Labor Markets strengthening, Investment expanding, but GDP growth was disappointing. The Fed also released a formal plan to reduce it’s $4.5 Trillion balance sheet. Of that $4.5T about $1.8T is MBS securities.

222 Fed Target

  • Inflation                       1.9% CPI for the last 12 months
  • Wage Growth              2.5% for the last 12 months
  • GDP Growth                1.4% for the 1st quarter (annualized with final revision)


Housing Market Data for June 2017

The Economic Indicators for Housing this month are mixed, but the overall trend is still the same. Home Prices are up, inventory is down, and affordability is getting worse. Economists had hoped that higher home prices would entice more Homeowners to put their houses up for sale and help relieve the inventory shortage – but that’s not happening. Recent surveys are showing that many renters who want to buy a home are getting discouraged and priced out of the market.

Economic Indicators for the Housing Market released in June 2017:

  • Existing Home Sales (closed deals in May) rose 1.1% to an annual rate of 5,620,000 homes. The median price for all types of homes is now $252,800 – up 5.8% from a year ago. The median Single Family Home price is $254,600 and $238,700 for a condo. First Time Buyers were 33%, Investors 16% (64% paid cash), Cash Buyers 22%. Homes are on the market an average of only 21 days. Currently, 1,960,000 homes are for sale.
  • New Home Sales (signed contracts in May) rose 2.9% to a seasonally adjusted annual rate of 610,000 units. The median price of a new home is $345,800 and the average sales price is $406,400. There are now 268,000 new homes for sale representing a 5 month supply.
  • Pending Home Sales Index (signed contracts in May) fell 0.8% to 108.5 from 109.8 in April. The index is now down 1.7% in the last 12 months.
  • Housing Starts (excavation began in May) fell 5.5% to a seasonally adjusted annual rate of 1,092,000 units. Single-Family Housing Starts fell 3.9% to an annual pace of 794,000 units. Multifamily Starts dropped 9.7%.
  • Building Permits (issued in May) fell 4.9% to 1,168,000. Single-Family permits fell 1.9% and Multifamily permits fell 10.4%.
  • 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.
  • FHFA Home Price Index rose 0.7% – home prices are now 6.8% higher than a year ago according to FHFA. This is the fastest price increase in 3 years.
  • S&P/Case-Shiller Home Price Index – 20 City Composite Index rose 5.7% year over year.


Labor Market Economic Indicators

The June Jobs Report showed the Economy adding 138,000 jobs in May. This number was much lower than expected. The March and April Employment numbers were also revised downward so when you add up all the revisions – the additional 138,000 jobs are really only 72,000 jobs – very disappointing. The Unemployment Rate hit a 16 year low. Although this sounds good, a closer analysis shows that the decline was due to a drop in the Labor Force Participation Rate – not because job seekers actually found employment. This trend started in 2000 and accelerated after the Financial Crisis. Along with Baby Boomers reaching retirement age, many younger able-bodied workers are just giving up looking for a job. The next Jobs Report is Friday, July 7.

  • The Economy added 138,000 new jobs during May (182,000 expected).
  • The Unemployment Rate fell to 4.3% – the lowest in 16 years.
  • The Labor Force Participation Rate fell to 62.7 from 62.9.
  • The Average Wage rose 0.2%, pegging wage growth at 2.5% for the last 12 months.


Inflation Economic Indicators

Inflation slowed down in May with the CPI slipping 0.1% due mostly to lower gasoline and energy prices. Food prices and housing (rents) continue to march higher. Healthcare costs slowed their ascent – still up but not as much. (Core PPI and Core CPI strip out volatile food and energy prices).

  • CPI fell 0.1%, now up 1.9% in the last 12 months.
  • Core CPI rose 0.1%, now up 1.7% in the last 12 months.
  • PPI was unchanged for May, now up 2.4% in the last 12 months.
  • Core PPI rose 0.3%, up 2.1% in the last 12 months.


GDP Economic Indicators

The 3rd guesstimate (2nd and final revision) for 1st Quarter 2017 GDP showed the economy grew at a 1.4% annualized rate (revised up from 1.2%). Even though this is June, this GDP number is from the winter quarter. The Economy typically gets off to a slow start during that time. The Economy has been growing around 2.0% per year for the last 8 years. Considering the gridlock in Washington, there is no reason to believe that growth will suddenly accelerate. Most Economists expect the US Economy to grow – you guessed it – at about 2.0% this year. That just happens to be the Fed’s target. (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 as people are less optimistic about the Economy and their own finances. Much of this can be due to the politics coming out of Washington. Retail Sales has been disappointing all year as Consumers continue to guard their wallets. The changing Consumer attitudes and shopping habits have created headaches for shopping malls as many retail chains and department stores announce the closing of hundreds of stores across the country. Sales of auto, electronic, sporting goods, and restaurants fell while purchases of clothes and furniture increased during May.

  • Retail Sales fell 0.3% in May. For the year Retail Sales are up 3.8% in the last 12 months.
  • The Consumer Sentiment Index fell to 95.1 from 97.1.
  • Consumer Confidence rose to 118.9 from 117.9.


International & Misc

  • 2% inflation is the goal around the world. Both the BOJ (Bank of Japan – Japan’s Central Bank) and the ECB (European Central Bank) have stated their target for Inflation is 2.0%. What a coincidence – that’s the same Inflation target of the Fed.
  • The world’s oldest bank, Banca Monte Dei Paschi di Siena, in Siena-Tuscany, Italy, will be bailed out with a recapitalization plan and their bad loans will be sold to private investors.


Written For Mortgage Professionals that need to stay current on Economic Information

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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