The Mortgage Economic Review June 2021 summarizes recent Key Economic Indicators, Data, and Events important to Mortgage and Real Estate Professionals.

Memorial Day was Monday and summer has started. The Economic news in May was overwhelmingly positive. The Economy and Corporate profits are soaring. Stock Markets are setting new highs. The Housing Market is Red Hot. Patrons are returning to Restaurants and Bars. Consumers are spending their Stimulus Checks. Airplanes are filled to capacity. The only cloud on the horizon is Inflation, which everyone is closely watching. For now, review the data below and enjoy the summer.

Key Economic Data and Events in May 2021

• A cyber attack crippled the largest US fuel pipeline for 5 days
• 24 states announced they will opt out of Federal Unemployment Benefits early
• Stock Markets set new record highs again: Dow 35,090, S&P 4,238
• The Economy added 266,000 new jobs, with the Unemployment Rate at 6.1% in April
• The 10 year US Treasury yield traded between 1.46% and 1.70% in May
• Inflation edged higher – the CPI jumped 0.8% in April, up 4.2% YoY
• The 1Q2021 US GDP clocked in at a 6.4% annual growth rate

Interest Rates and Fed Watch 

Since there was no FOMC Meeting in May, the Minutes from the April FOMC Meeting were the focus of Financial Markets. The April Minutes had no surprises and reiterated the same message as in the past – it would be “some time” before the Economy had recovered to the point of changing Monetary Policy, and the Fed would provide ample notice of its intentions to change Monetary Policy. A few Fed Governors were on the speaking circuit in May. They reiterated the Fed’s belief that current increases in Inflation is “transitory”, and that the Fed expects a lot of “noise” in the Inflation Data through September. So for now, no change in Monetary Policy, and the Fed will continue to buy $120B each month of Treasury and Mortgage Securities. The next FOMC meeting is on June 15th and 16th.

Housing Market Data Released in May 2021

The Housing Market has been Red Hot for several months – too hot to handle for many Homebuyers and Home Builders. If you look at the data below, it shows the Housing Market looks overheated with signs of burning out. After months of skyrocketing Home Prices, demand is starting to wane. Many prospective buyers have given up shopping for a home, and continue to rent for another year or two. Builders are postponing construction until lumber prices decline. The soaring cost of lumber added $30,000 – $50,000 to the cost of a new Home. What happens to New Home values when lumber prices come down? Does that home lose $30,000 in value? Will the Homeowner be underwater on his mortgage? Anytime a market gets overheated, things get volatile, and it can end badly.

• Existing Home Sales (closed deals in April) fell 2.7% to an annual rate of 5,850,000 homes, up 33.9% in the last 12 months. The median price for all types of homes is  $349,600 – up an incredible 19.1% from a year ago (record high). The median Single-Family Home price is  $347,400 and $300,400 for a Condo. 1st Time Buyers were 31%, Investors and 2nd Home Buyers 17%, Cash Buyers 25%. Homes were on the market for an average of 17 days, and 86% were on the market for less than a month. Currently, 1,160,000 homes are for sale, down 20.5% from 1,460,000 units a year ago.
• New Home Sales (signed contracts in April) fell 5.9% to a seasonally adjusted annual rate of 863,000 homes – up 48.3% YoY. The median New Home price is $372,400, and the average is $435,400. There are 316,000 New Homes for sale, which is a 4.4 month supply.
• Pending Home Sales Index (signed contracts in April) fell 4.4% to 106.2 from 111.3 the previous month, up 51.7% YoY.
• Building Permits (issued in April) rose 0.3% to a seasonally adjusted annual rate of 1,760,000 units – up 60.9% YoY. Single-Family Permits fell 3.8% to an annual pace of 1,149,000 homes, up 70.7% YoY.
• Housing Starts (excavation began in April) fell 9.5% to an annual adjusted rate of 1,569,000, but still up 67.3% YoY. Single-Family Starts fell 13.4% to 1,087,000 homes, but are up 58.7% in the last 12 months.
• Housing Completions (completed in April) fell 4.4% to an annual adjusted rate of 1,449,000 units – up 21.7% YoY. Single-Family Completions rose 0.1% to 1,045,000 homes – up 20.8% in the last 12 months.
• S&P/Case-Shiller 20 City Home Price Index rose 1.6% in March, up 13.3% YoY.
• FHFA Home Price Index rose 1.4% in March, now up 13.9% YoY.

Labor Market Economic Data Released in May 2021

The Economy created 266,000 New Jobs in April. This Employment Data was much lower than Economists’ expectations of 1,000,000 new jobs (some Economists expected 2,000,000 new jobs). Why were expectations so far off? Several theories: Skills mismatch, Covid fears, changing worker behavior, childcare obligations, and generous Unemployment Benefits. Many Economists think they underestimated the effects of the “enhanced” Unemployment Benefits on the Labor Market. There are millions of job openings and millions of qualified workers sitting at home. However, since generous Unemployment Benefits can pay more than working, there is no incentive to return to work. Federal Unemployment Assistance ends September 4th, but at least 24 states are opting out early. In those states, Federal Unemployment Benefits may come to an end in June or July. It will be interesting to watch the Labor Data as Unemployment Benefits end.

• The Economy created 266,000 New Jobs during April
• The Unemployment Rate rose 0.1% to 6.1% in April from 6.0% in March
• The Labor Force Participation Rate rose to 61.7% in April from 61.5% in March
• The Average Hourly Wage rose 0.7% in April, now up 0.3% YoY

Inflation Economic Data Released in May 2021

The CPI jumped 0.8%, and the PPI surged 0.9% in April – double what Economists expected. Make no mistake about it – these are scary numbers. Besides surprising Economists, this data also rattled the Financial Markets. If the Inflation numbers are “temporary or transitory”, then it’s tolerable for a while as the Economy recovers. However, if high CPI Data appears month after month after month, we will face the possibility of 70’s style Stagflation. Some Economists even fear the specter of Hyperinflation. However, the Fed continues to believe high Inflation is transitory and “Reflation” is an expected consequence of the recovery. One thing is for sure – all eyes will be focused on Inflation Data for the next few months.

• CPI rose 0.8%, now up 4.2% in the last 12 months
• Core CPI (ex-food & energy) rose 0.9%, up 3.0% in the last 12 months
• Owners Equivalent Rent rose 0.2%, up 2.0% YoY
• PPI rose 0.6%, up 6.2% in the last 12 months
• Core PPI (ex-food & energy) rose 0.7%, up 4.1% in the last 12 months

GDP Economic Data Released in May 2021

The 2nd estimate of 1st Quarter 2021 US GDP showed the Economy grew at a 6.4% annualized rate (6.5% expected). Real GDP is up 0.4% in the last 12 months. Corporate Profits were up 4.6% in April and 25.2% YoY. Residential Investment (homes) jumped 12.7%. Businesses were on a spending spree for Capital Goods: Business Fixed Investment was up 10.8%, Equipment up 13.4%, and Intellectual Property up 16.9%. Federal Government Spending was up 13.9%.

Consumer Economic Data Released in May 2021

Consumers took a break from their buying binge in April as Retail Sales were flat. Make no mistake about it – Retail Sales are still way up – up 51.2% in the last 12 months and up 18% from Pre-Covid levels. Those are huge numbers considering the US Economy is 70% Consumer-driven. The Government Stimulus did the trick, and there is still a pile of cash in Consumers’ Bank Accounts. What are Consumers buying? April’s Data was flat, but the Year over Year numbers are spectacular: In the last 12 months, Cars Sales are up 104.5%, Clothing up 726.8% (not a typo), Department Store Sales up 72.5%, Sporting Goods up 155.0%, Furniture up 196.4%, Electronics and Appliances up 139.0%, Building Materials up 33.8%, Health and Personal Care up 24.7%, Restaurants and Bars up 116.8%. On the flip side, fears of high Inflation dented Consumer Confidence and Consumer Sentiment.

• Retail Sales was unchanged in April, now up 51.2% in the last 12 months
• Consumer Confidence Index fell to 117.2 from 121.7 the previous month
• Consumer Sentiment Index (U of M ) fell to 82.9 from 88.3 the previous month

Energy, International, and Things You May Have Missed

Oil prices rose in May due to increased energy demand. As of June 1st, West Texas Intermediate Crude is trading around $68/barrel, and North Sea Brent Crude is trading about $70/barrel.

• A 100-foot Chinese rocket splashed into the Indian Ocean after an uncontrolled reentry.
• India and Japan continue to struggle with a Covid surge.
• Several countries banned their airlines from flying over Belarus airspace after it forced a plane  to land to arrest a dissident journalist on board.
• Amazon announced plans to buy MGM Studios for $8.45B.
• For the first time in its history, California’s population declined.
• Copper hit another new record, $10,500 per ton due to rising demand and a strike threat by mine workers.

The Mortgage Economic Review is a concise summary of Key Economic Data that influences the Mortgage and Real Estate Industries. It is a quick read that helps Mortgage Professionals stay updated on important Economic Information that affects their industry. Feel free to share this with friends and colleagues in the Mortgage and Real Estate industries. If you would like this Mortgage Economic Review emailed to you at the beginning of every month, click here. The Mortgage Economic Calendar for each month is available 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.