Economic Data, Indicators, and Events from March 2018 that Affect the Mortgage Business
Beware the Ides of March – an Interest Rate Hike and a Trade War all in the same month? What implications does a Trade War have for the Mortgage Business? Higher prices on imported steel and aluminum will raise costs on consumer goods that use those metals like appliances and cars. Most residential homes, condos, and townhomes are built with lumber and bricks, so tariffs on metals will have a minimal impact. But steel tariffs will have a significant effect on high rise residential buildings and commercial projects since those structures use steel. Besides tariffs and interest rates, here is a quick review of other Key Economic Indicators and Data from March 2018 that are important to the Mortgage Industry and Mortgage Professionals.
March Economic Indicators and Data
- The Fed raised the Interest Rate .25% on Fed Funds – new target range 1.50% to 1.75%.
- Tariffs of 25% and 15% were placed on selected imported steel and aluminum.
- Gary Cohn resigned as Trump’s Chief Economic Advisor over tariffs. He was replaced by Larry Kudlow, a former aide to President Reagan.
- Inflation is slowly accelerating.
- Volatility continued in the US Stock markets.
Interest Rates and Fed Watch during March 2018
As everyone expected, the Federal Reserve raised interest rates on Fed Funds by .25% on March 21st after the latest FOMC Meeting. This hike was the first under the new Fed Chair Jerome Powell. The big question is: will the Fed do 3 or 4 rate hikes in 2018? That answer depends on what happens with the big 3 – Inflation, GDP, and Wage Growth. Strong wage growth combined with recent inflation data suggests the Fed is considering 4 rate hikes in 2018. But we still have 9 months to go and a lot can happen, including the mid-term elections in November. The next FOMC Meeting is May 1st. Odds are low there will be another rate hike in May since the Fed seldom does back to back increases.
222 Fed Target
- Inflation 2.2% CPI for the last 12 months
- Wage Growth 2.6% for the last 12 months
- GDP Growth 2.6% annualized rate for the last 12 months
Housing Market Data released in March 2018
Another month of mixed housing data: Existing Home Sales rose while New Home Sales dropped. The mixed results are most likely due to the cold winter months combined with rising interest rates. Lack of inventory and rising interest rates are a toxic mix for affordability. The good news is that credit requirements have eased making qualifying for a mortgage easier. In the meantime, home prices continue to march steadily higher at about 6.0% a year.
Economic Indicators for the Housing Market Released in March 2018
- Existing Home Sales (closed deals in February) rose 3.0% to an annual rate of 5,540,000 homes. The median price for all types of homes is now $241,700 – up 5.9% from a year ago. The median Single Family Home price is $243,400 and $227,300 for a condo. First Time Buyers were 29%, Investors 15%, Cash Buyers 24%. Homes were on the market an average of 37 days, and 46% were on the market for less than a month. Currently, 1,590,000 homes are for sale – down 8.1% from a year ago.
- New Home Sales (signed contracts in February) fell 0.6% to a seasonally adjusted annual rate of 618,000 units. The median price of a new home is $326,800, and the average sales price is $376,900. Inventory of New Homes for sale is 301,000 – a 5.9 month supply.
- Pending Home Sales Index (signed contracts in February) rose 3.1% to 107.5 from 104.6.
- Housing Starts (excavation began in February) fell 7.0% to a seasonally adjusted annual rate of 1,236,000 units. Single Family Housing Starts rose 2.9% to an annual pace of 902,000 units. Multifamily Starts fell 26.1% to 334,000 units.
- Building Permits (issued in February) fell 5.7% to an annual rate of 1,298,000. Single Family permits fell 0.6% to 872,000 units, and Multifamily permits fell 14.8% to 426,000 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 0.5% in January. The 20 City Composite index is up 6.4% in the last 12 months.
- FHFA Home Price Index rose 0.8% in January, now up 7.3% year over year.
Labor Market Economic Indicators Released in March 2018
The Jobs Report showed the Economy added 313,000 new jobs during February (much higher than the 205,000 expected). So far this year the Labor Market has shown real strength. Wage Growth is running behind expectations, but a 2.6% annual rate is not bad. Hiring in the Construction Sector was especially strong, up 61,000 new jobs – the largest increase since 2007. This increase is an encouraging sign for the Mortgage and Real Estate business – we need workers to build homes to meet the demand of home buyers. Other sectors that increased: manufacturing jobs were up 31,000, government jobs up 26,000, retail jobs up 50,000. Let’s hope the good news continues with the next Jobs Report this Friday.
- The Economy added 313,000 new jobs in February.
- The Unemployment Rate held steady at 4.1% in February (for the 5th straight month).
- The Labor Force Participation Rate rose to 63.0% from 62.7% for the past 4 months.
- The Average Wage rose 0.1% in February, 2.6% for the last 12 months.
Inflation Economic Indicators Released in March 2018
Upward pressure on Consumer prices is building as the pace of Inflation stepped up a little more in February. Over the last 12 months, Inflation is up 2.2% – but if you look at the last 6 months – the CPI is increasing at a 3.6% annual rate. Accelerating Inflation may force the Fed to raise rates faster to keep the CPI closer to the 2.0% target. What was up and down in February? Energy prices up 0.1%, housing costs up 0.3%, rents up 0.2%, apparel prices up 1.5%, car prices down 0.2%, cost of medical care down 0.1%, food prices unchanged.
- CPI rose 0.2%, now up 2.2% in the last 12 months.
- Core CPI (ex-food & energy) rose 0.2%, now up 1.8% in the last 12 months.
- PPI rose 0.2%, now up 2.8% in the last 12 months.
- Core PPI (ex-food & energy) rose 0.2%, up 2.5% in the last 12 months.
GDP Economic Data Released in March 2018
The 3rd guesstimate for 4th Quarter 2017 GDP showed the Economy grew at a 2.9% annualized rate (2.7% expected). This is the final revision for and sets 2017 GDP Growth at 2.6%. Growth was better than expected thanks to increases in business investment, inventories, and personal consumption. This number also raises the bar on expectations for growth in 2018. Next month we’ll see if the tax cuts, which took effect in 2018, will start to accelerate economic expansion. 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 March 2018
Consumer Confidence is high, but that has not been reflected in Retail Sales – which has been weak for the past few months – especially auto sales. Vehicle and parts sales fell 0.9% in February. Auto Sales have been trending down for a while with only a brief bump up after the hurricanes. During the first quarter of the year, Retails Sales is usually soft due to the hangover caused by the holiday spending binge. No reason to be concerned with the numbers yet. On the other hand, Building Materials rose 0.9% – combine that with more construction jobs, and you get good news for the Real Estate and Mortgage Industry.
- Retail Sales fell 0.1% in February. For the year, Retail Sales are up 4.0%.
- Personal Spending rose 0.2% in February, and 4.6% in the last 12 months.
- Consumer Confidence fell to 127.7 from 130.8 – still close to a 17 year high.
Energy, International, and Misc
- Oil prices decreased due to higher US output and warmer weather – now about $65/barrel.
- The weak dollar is starting to take a toll on Import Prices – up 0.4% in February and up 3.5% in the last 12 months
- (Dollar/Euro rate ~ 1.25, Dollar/Yen ~ 105, Dollar/Pound ~ 1.42).
- President Trump accepted an invitation to meet North Korea’s Kim Jong Un – it will be interesting to watch that unfold.
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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