The Mortgage Economic Review is a monthly summary of Key Economic Indicators, Data, and Events pertinent to Mortgage and Real Estate Professionals.
AT A GLANCE – Key Economic Data and Events during July 2021
- Interest Rates: The 10-Year US Treasury yield fell to 1.24% (July 30) from 1.48% (July 1).
- Housing: Home Prices set another record high, with the FHFA HPI increasing 18.0% YoY.
- Labor: The Economy added 850,000 new jobs during June.
- Inflation: Inflation stormed higher as the CPI jumped 0.9%, now up 5.4% YoY.
- The Economy: US GDP grew at 6.5% in the 1st Quarter of 2021.
- Consumers: Retails Sales surged 0.6% in June, now up 18% in the last 12 months.
- Stock Markets set new record highs: Dow 35,144, Nasdaq 14,840, S&P 4,422.
Interest Rates and Fed Watch
The last FOMC Meeting wrapped up on July 28 with no change to Monetary Policy or the Fed’s view on Inflation. The July FOMC Statement reflects the Fed’s belief that current high Inflation is only temporary, and it is too soon to scale back their accommodative Monetary Policy. In the meantime, the Fed will continue to buy $120B per month of US Treasury and MBS Securities, and keep Fed Funds at 0.0% – 0.25%, until “substantial further progress has been made toward the Committee’s maximum employment and price stability goals”. Fedspeak Translation: The Economy has not recovered enough to change Monetary Policy, and they are willing to tolerate high Inflation – for now. The next FOMC Meeting will be on September 21st and 22nd.
- 10 Year Treasury Security Yield: fell to 1.24 (July 30) from 1.48 (July 1)
- 30 Year Fixed Mortgage fell to 2.80% (July 30) from 2.98% (July 1)
- 15 Year Fixed Mortgage fell to 2.10% (July 30) from 2.26% (July 1)
- 5/1 ARM Mortgage fell to 2.45% (July 30) from 2.54% (July 1)
Housing Market Data Released in July 2021
Home Prices continue to set new records. The FHFA Home Price Index is up 18.0% in the last 12 months – a new record. New Home Sales took an unexpected hit of 6.6%, while Existing Home Sales was able to squeeze out a modest gain of 1.4%. Remember when everyone was talking about Lumber Prices? Lumber Futures are down almost 70% from their highs 2 months ago. At the peak, lumber costs would have added roughly an extra $35,000 to the average price of a New Home. Now that sawmills are reopening and more lumber is available, we could see New Home Prices retreat over the next few months.
- Existing Home Sales (closed deals in June) rose 1.4% to an annual rate of 5,860,000 homes, up 22.9% in the last 12 months. The median price for all types of homes is $363,300 – up an incredible 23.4% from a year ago. The median Single-Family Home price is $370,600 and $311,600 for a Condo. Homes were on the market for an average of 17 days, and 89% were on the market for less than a month. Currently, 1,250,000 homes are for sale, down 18.8% from 1,540,000 units a year ago.
- New Home Sales (signed contracts in June) fell 6.6% to a seasonally adjusted annual rate of 676,000 homes – down 19.4% YoY. The median New Home price fell 5.0% to $361,800. The average price fell 1.2% to $428,700. There are 353,000 New Homes for sale, which is a 6.3 month supply.
- Pending Home Sales Index (signed contracts in June) fell 1.9% to 112.8 from 114.7 the previous month, 1.9% YoY.
- Building Permits (issued in June) fell 5.1% to a seasonally adjusted annual rate of 1,598,000 units – up 23.3% YoY. Single-Family Permits fell 6.3% to an annual pace of 1,063,000 homes, up 25.1% YoY.
- Housing Starts (excavation began in June) rose 6.3% to an annual adjusted rate of 1,643,000, up 29.1% YoY. Single-Family Starts rose 6.3% to 1,160,000 units, up 28.5% YoY.
- Housing Completions (completed in June) fell 1.4% to an annual adjusted rate of 1,342,000 units – up 6.5% YoY. Single-Family Completions fell 6.1% to 902,000 homes – down 2.7% in the last 12 months.
- S&P/Case-Shiller 20 City Home Price Index rose 2.1% in May, up 17.0% YoY.
- FHFA Home Price Index rose 1.7% in May, now up 18.0% YoY.
- Housing Affordability Index fell 2.6% in May to 151.7 from 155.8 the prior month.
Labor Market Economic Data Released in July 2021
The Economy created 850,000 new jobs in June, well above Economists’ expectations of 706,000. Job creation is plugging along at a brisk pace as businesses reopen. The last JOLTS Report shows there are 9,209,000 job openings. Plus, Enhanced Unemployment Benefits will end September 4 – that’s only a month away. The good news for people losing their Unemployment Benefits is that there are plenty of jobs available. It will be interesting to watch Wage Growth in the 2nd half of 2021 as businesses compete to attract new workers. Wage Growth has important implications for Inflation as those higher wages are passed along as higher Consumer prices and Inflation. Wage Growth also has significant consequences for Housing. Higher wages mean more people can afford larger homes and qualify for bigger mortgages.
- The Economy created 850,000 New Jobs during June.
- The Unemployment Rate rose 5.9% in June.
- The Labor Force Participation Rate was unchanged at 61.6% in June.
- The Average Hourly Wage rose 0.3% in June, now up 3.6% YoY.
- Job Openings fell slightly to 9,209,000 in May from 9,286,000 the previous month.
Inflation Economic Data Released in July 2021
The recent high Inflation Data has almost everyone – Consumers, Businesses, and many Economists – worried, except the Fed. This current CPI data is some of the biggest we have seen in 30 to 40 years, so it’s natural to be worried. However, the Fed is holding steadfast to their belief that high Inflation is temporary. This means these price increases will subside once the Economy has fully reopened. Some Economists are starting to agree, but we won’t know until the CPI data starts cooling off. Some of the major factors driving Inflation are Gasoline which is up 45.1% YoY, Used Cars up 45.2% YoY, Car Rental up 87.7% YoY, Airfare up 24.6% YoY, Hotels up 16.9%, Furniture up 8.6%.
- CPI rose 0.9%, up 5.4% YoY | Core CPI rose 0.9%, up 4.5% YoY
- PPI rose 1.0 %, up 7.3% YoY | Core PPI rose 1.0%, up 5.6% YoY
- PCE rose 0.5%, up 4.0% YoY | Core PCE rose 0.4%, up 3.5% YoY
GDP Economic Data Released in July 2021
The 1st Estimate of 2nd Quarter 2021 US GDP showed the Economy grew at a 6.5% annualized rate, which disappointed Economists who were expecting an 8.5% growth rate. At this point, the Economy is now 0.8% above its pre-pandemic peak. Real GDP is up 12.2% in the last 12 months. Consumer and Business Spending both had another strong month, but Government spending was down 1.5%. Consumer Spending increased 11.8%. Exports had a good month and increased 6.0%, but were eclipsed by Imports which rose 7.8%. Inventories fell 1.1%, acting as a drag on GDP data.
Consumer Economic Data Released in July 2021
Consumer Sentiment declined mostly due to Inflation fears and the Delta Variant. While most Consumers are optimistic that Inflation will be temporary, it’s unnerving to see those high CPI numbers. Retail Sales had a strong month, but keep in mind it is distorted by the enhanced Unemployment Benefits and huge Government payments, which will end soon. In the meantime, it is good to see people getting back to shopping at Department Stores and eating at Restaurants. Department Store sales were up 5.9% in June and 24.4% in the last 12 months. Sales at Restaurants and Bars rose 2.3% and a whopping 40% YoY. Clothing Sales were up 2.6%, Gasoline up 2.5% (37.1% YoY), Groceries up 0.6%, Appliances up 3.3%. On the downside, Vehicle Sales fell 2.0%, but still up a healthy 19.5% YoY, Furniture down 3.6%, Building Materials down 1.6%.
- Retail Sales rose 0.6% in June, now up 18.0% in the last 12 months.
- Consumer Confidence Index rose to 129.1 from 127.3 the previous month.
- Consumer Sentiment Index (U of M ) fell to 81.2 from 85.5 the previous month.
Energy, International, and Things You May Have Missed
Oil Prices moved sideways in July as OPEC countries agreed to raise production.
- West Texas Intermediate Crude fell to $74/barrel (July 30) from $75/barrel (July 1).
- North Sea Brent Crude moved sideways: $76/barrel (July 30) from $76/barrel (July 1).
- FHFA removed the Adverse Market Fee on refinances that was imposed last year.
- The Hotel Occupancy Rate is now only 8.7% below the July 2019 rate.
- China’s GDP clocked in at 7.9%, which was below expectations.
- Parts of South Africa are beginning to look like war zones as social unrest intensifies.
The Mortgage Economic Review is a concise summary of Key Economic Data that influences the Mortgage and Real Estate Industries. It’s a quick read that keeps busy Professionals updated on important Economic Information. Feel free to share this with friends and colleagues in the Mortgage and Real Estate business. To have the Mortgage Economic Review emailed to you each month, click here.
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Mark Paoletti, MortgageElements.com
The Mortgage Economic Review is for informational and educational purposes only and should not be construed as investment, legal, financial, or mortgage advice. The information is gathered from sources believed to be credible; some are opinion-based and editorial in nature. Mortgage Elements Inc does not guarantee or warrant its accuracy or completeness, and there is no guarantee it is without errors. This newsletter is created for use by Mortgage and Real Estate Professionals and is not an advertisement to extend credit or solicit mortgage originations. © Copyright 2021 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.