Mortgage Economic Review January 2020

The January 2020 Mortgage Economic Review summarizes recent Key Economic Indicators, Data, and Events that are important to Mortgage and Real Estate Professionals.

 

Welcome to 2020. Not only is it a New Year, but it’s also a New Decade – the 20s. One hundred years ago started the Roaring 20s – a decade of massive Economic expansion. Are we at the start of another Roaring 20s? Stay tuned – we’ll find out in 10 short years.

 

2019 was an incredible year for the Mortgage Business, the Economy, and the Stock Market. The unofficial early estimate for Total Mortgage Originations is around $2.1 Trillion. Political gridlock and infighting continue in Washington after the House of Representatives impeached President Trump. The Stock Markets hit record highs. The Trade War with China is de-escalating as the two sides are beginning to agree on basic issues. Wages are increasing, and there are 7,500,000 unfilled jobs in the US. Inflation is tame, Interest Rates are low, and the Economy continues to chug along fueled by robust Consumer Spending. The Recession that was hyped in the media never materialized, and there is no sign it will this year. To top it off – it’s an election year. 2020 is going to be a wild ride. Buckle up and enjoy the thrills because it could get bumpy along the way.

 

2019 Net Net: It was a very good year. The US was, is, and will continue as the Global Economic Dynamo with a prosperous Consumer, solid Labor Market, low Inflation, and low Interest Rates.

 

Key Economic Data and Events in December 2019

• Record highs for the Stock Market – the DOW passed 28,000 for the first time
• The House of Representatives voted to Impeach President Trump but has not sent the Articles of Impeachment to the Senate
• Mortgage Originations for 2019: early estimates are about $2.1 Trillion
• The US Economy grew at a 2.1% GDP annualized rate in the 3rd quarter of 2019
• Inflation is tame with the CPI rising 0.35% in November, now 2.3% YoY
• The Economy added 266,000 New Jobs during November
• USMCA Trade Deal agreed to by the US, Canada, and Mexico

 

Interest Rates and Fed Watch

The Fed wrapped up the year with the last FOMC Meeting of 2019 on December 11th. As everyone expected, they left Interest Rates unchanged, which looks like that is what they intend to do for quite a while – maybe for all of 2020. The Fed Statement that was released after the meeting said: Economic activity is rising at a moderate rate, Inflation pressure remains low, and Economic risks appear balanced.  The Fed cited a strong Labor Market and robust Consumer Spending. They feel that the current monetary policy is appropriate to maintain Economic growth and their Inflation target of 2.0%. Overall, it looks like the Fed will keep the target for Fed Funds Rate at 1.50% – 1.75% for the near future. The next FOMC Meeting is January 28th & 29th. Most Economists don’t expect any changes to Interest Rates, so the odds of a rate cut are running at 0.0%.

 

Housing Market Data Released in December 2019

There was mostly green in the December Housing data. New Home Sales, Pending Home Sales, Housing Starts, Housing Permits – were all up thanks to low Interest Rates and an upswing in Household Formation. Home Prices continue to rise but at a slower pace. Existing Home Sales was down slightly, mostly due to a lack of available homes for sale. Economists expect the demand for homes to continue into 2020. Home Builders have ramped up their efforts to build more homes but are hampered by a shortage of skilled labor and available land.

• Existing Home Sales (closed deals in November) fell 1.7% to an annual rate of 5,350,000 homes, now up 2.7% in the last 12 months. The median price for all types of homes is now $271,300 – up 5.3% from a year ago. The median Single Family Home price is $274,000 and $248,200 for a condo. First Time Buyers were 32%, Investors 16%, Cash Buyers 20%. Homes were on the market an average of 38 days, and 45% were on the market for less than a month. Currently, 1,640,000 homes are for sale, down 5.7% from 1,740,000 units a year ago.
• New Home Sales (signed contracts in November) rose 1.3% to a seasonally adjusted annual rate of 719,0000 homes – up 16.9% YoY. The median New Home price was $330,800, and the average New Home price was $388,200. The number of New Homes for sale rose to 323,000 from 322,000 units the previous month, which represents a 5.4 month supply.
• Pending Home Sales Index (signed contracts in November) rose 1.2% to 108.5 from 106.7 the prior month (up 7.4% YoY).
• Housing Starts (excavation began in November) rose 3.2% to a seasonally adjusted annual rate of 1,365,000 units – up 13.6% YoY. Single-Family Starts rose 2.4% to an annual pace of 938,000 units – up 16.7% YoY.
• Building Permits (issued in November) rose 1.4% to an annual adjusted rate of 1,482,000 – up 11.1% YoY. Single Family permits rose 0.8% to 918,000 units – up 8.9% YoY.
• Housing Completions (completed in November) fell 6.6% to an annual rate of 1,188,000 units – up 7.3% in the last 12 months. Single Family Completions fell 3.6% to 883,000 units – up 13.5% YoY.

• S&P/Case-Shiller 20 City Composite Home Price Index rose 0.4% in October – up 2.1% YoY.
• FHFA Home Price Index rose 0.2 % in October, now up 5.0% YoY. 

 

Labor Market Economic Data Released in December 2019

The November Jobs Report surprised everyone with the Economy adding 266,000 new jobs.  The Labor Market is solid with continued job creation, record low Unemployment, and strong wage growth – despite the ongoing Trade War. Notable job gains were in education, healthcare, professional services, technical services, and even manufacturing. However, some of the manufacturing data was influenced when GM employees returned to work from their strike.

• The Economy added 266,000 New Jobs in November
• The Unemployment Rate fell to 3.5% in November from 3.6% the prior month
• The Labor Force Participation Rate fell to 63.2% in November from 63.3% the prior month
• The Average Hourly Wage rose 0.2% in November, up 3.1% YoY

 

Inflation Economic Data Released in December 2019

Inflation was running slightly higher than expected at the Consumer level in November with the CPI at 2.1% YoY. That is still a tame number. If you remove the volatile food and energy components, Core CPI is 2.3% YoY. Inflation at the Wholesale level is very low, with the November PPI at 1.1% and Core PPI at a negative 0.2%. Most of the increase in CPI can be attributed to the cost of services with the usual culprits of Shelter and Medical costs leading the way. Medical care prices are now up 4.2% YoY – almost double the CPI. The latest Inflation data confirms the Fed’s views that Inflation pressure will be running low for the near future.

• CPI rose 0.3%, up 2.1% in the last 12 months
• Core CPI (ex-food & energy) rose 0.2%, up 2.3% in the last 12 months
• PPI unchanged, up 1.1% in the last 12 months
• Core PPI (ex-food & energy) fell 0.2%, up 1.3% in the last 12 months

 

GDP Economic Data Released in December 2019

The 3rd Estimate of 3rd Quarter 2019 GDP showed the Economy expanded at a 2.1% annualized rate (2.1% expected). This last estimate was in line with expectations and unchanged from the last estimate. The Consumer continues to support the Economy as Consumer Spending grew 3.2% from the last quarter. A decrease in Inventories offset the increase in Consumer Spending. Businesses continue to hold back spending as investment in commercial buildings, equipment, and intellectual property fell 2.3%. The next GDP estimate will be for the 4th quarter. There is a lot of uncertainty about the ability of the Economy to continue its momentum.  At this point, the different models that forecast GDP are showing a wide range of predictions – from a low of 0.8% to a high of 3.0%. So far, the Economy has proved the doom-and-gloomers to be wrong.

 

Consumer Economic Data Released in December 2019

Retailers had a very Merry Christmas due to a robust Holiday Buying Season. The Consumer continues to keep their wallets open. Black Friday Online Sales hit a new record of $7.4 Billion in one day. Consumer Confidence remained high despite the political infighting and Impeachment. All in all, the Consumer continues to maintain a very positive outlook for the Economy and Labor Market. This positive outlook is especially important to the Housing Market. People don’t buy homes unless they are confident in their jobs and future income prospects.

• Retail Sales rose 0.2% during November, up 3.3% in the last 12 months
• Consumer Confidence Index fell slightly to 126.5 from 126.8 the prior month
• Consumer Sentiment Index (U of M ) rose to 99.3 from 96.8  the prior month

 

Energy, International, and Things You May Have Missed  

• Oil prices jumped due to escalating tensions with Iran (Prices as of January 3: North Sea Brent Crude about $69 per barrel, West Texas Intermediate Crude about $64 per barrel).
• Tensions with Iran are escalating after the attack on the US embassy in Bagdad.
• UK Elections: Prime Minister Boris Johnson and his Conservative Party won a landslide victory.
• Continuing Hong Kong protests are affecting their Economy. Hong Kong expects to run a budget deficit this year as Retail Sales fell a staggering 24.3% YoY.

 

This Mortgage Economic Review is written to be a  concise summary of the Key Economic Data that influence the Mortgage and Real Estate Industries. It is written to be a quick read so that Mortgage Professionals can stay up to date on Economic Information that affects their business. Feel free to share this with a friend or colleague in the Mortgage or Real Estate industry. If you would like this Mortgage Economic Review emailed to you at the beginning of each month, click here. The January 2020 Mortgage Economic Calendar is available here. 

 

Visit MortgageElements.com, where you can explore over 300 Wholesale, Correspondent, and Warehouse Mortgage Lenders from one website.  You’ll discover new lending opportunities – it costs nothing to use and is one of the industry’s largest databases of TPO Mortgage Lenders.

 

Mark Paoletti, MortgageElements.com

 

 

 

 

 

 

This newsletter 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 is 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.

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