Mortgage Economic Review September 2021
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 August 2021
- Interest Rates: The 10-Year US Treasury yield rose to 1.32% (Aug 31) from 1.20 (Aug 2).
- Housing: Home Prices rocketed 18% higher in the past year.
- Labor: The Economy added 943,000 new jobs, and the Unemployment Rate fell to 5.4%.
- Inflation: The CPI rose 0.5% in July (+5.4% YoY), PPI up 1.0% (+7.8% YoY).
- The Economy: US GDP grew at 6.6% in the 2nd Quarter of 2021.
- Consumers: Consumer Confidence & Sentiment declined sharply. Retails Sales fell 1.1%.
- Stock Markets: New highs in S&P and NASDAQ: Dow 35,625, Nasdaq 15,265, S&P 4,529.
- US withdrawals from Afghanistan: It’s a mess – like Saigon in 1975 – but worse.
Interest Rates and Fed Watch
With no FOMC Meeting during August, Fed Watchers turned their focus to the annual Jackson Hole Economic Symposium. Fed Chairman Powell was the main speaker. Chairman Powell said the Economy had made sufficient progress to consider “tapering” its Bond Buying programs, but that won’t start until there is more improvement in the Labor Market. What about Interest Rates? Any hikes to Interest Rates will be at least a year down the road. The Stock Markets liked what he said, and investors drove the S&P and NASDAQ to new record highs. The next FOMC meeting is on September 21st and 22nd. Fed Watchers expect the Fed to use the September FOMC Meeting to disclose more details regarding the “tapering” – which probably won’t start until November or December at the earliest.
- 10 Year Treasury Security Yield: rose to 1.32 (Aug 31) from 1.20 (Aug 2)
- 30 Year Fixed Mortgage rose to 2.87% (Aug 26) from 2.77% (Aug 5)
- 15 Year Fixed Mortgage rose to 2.17% (Aug 26) from 2.10% (Aug 5)
- 5/1 ARM Mortgage rose to 2.42% (Aug 26) from 2.40% (Aug 5)
Housing Market Data Released in August 2021
Home Prices rocketed up in the past year. The FHFA and S&P Home Price Indexes are posting 18% increases on a national basis. Leading the pack is Phoenix, where prices are up 29% in the last year, San Diego up 27%, Seattle up 25%. However, there are subtle signs that the Housing Market is slowing down. Even though New and Existing Home Sales posted modest gains, Pending Home Sales had two straight months in the red. Lumber prices are back down to pre-pandemic levels, which should have a cooling effect on prices – that’s assuming Builders will pass the cost reductions to buyers as opposed to pocketing higher profits. Labor and other material shortages are still impeding construction. Inventory improved slightly as higher prices encouraged Homeowners to place their homes up for sale. If inventory continues to rise in the coming months, prices should level off and attract discouraged buyers back into the market.
- Existing Home Sales (closed deals in July) rose 2.0% to an annual rate of 5,990,000 homes, up 1.5% in the last 12 months. The median price for all types of homes is $359,900 – up 17.8% from a year ago. The median Single-Family Home price is $367,000 and $307,100 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, 1,320,000 homes are for sale, down 12.0% from 1,500,000 units a year ago.
- New Home Sales (signed contracts in July) rose 1.0% to a seasonally adjusted annual rate of 708,000 homes – down 27.2% YoY. The median New Home price rose to $390,500 from $370,200 the prior month. The average price rose to $446,000 from $429,600 the prior month. There are 357,000 New Homes for sale, which is a 6.2 month supply.
- Pending Home Sales Index (signed contracts in July) fell 1.8% to 110.7 from 112.8 the previous month, down 8.5% YoY.
- Building Permits (issued in July) rose 2.6% to a seasonally adjusted annual rate of 1,635,000 units – up 6.0% YoY. Single-Family Permits fell 1.7% to an annual pace of 1,048,000 homes, up 5.5% YoY.
- Housing Starts (excavation began in July) fell 7.0% to an annual adjusted rate of 1,534,000, up 2.5% YoY. Single-Family Starts fell 4.5% to 1,163,000 units, up 11.7% YoY.
- Housing Completions (completed in July) rose 5.6% to an annual adjusted rate of 1,391,000 units – up 3.8% YoY. Single-Family Completions rose 3.6% to 954,000 homes – up 0.4% YoY.
- S&P/Case-Shiller 20 City Home Price Index rose 2.0% in June, up 19.1% YoY.
- FHFA Home Price Index rose 1.6% in June, now up 18.8% YoY.
Labor Market Economic Data Released in August 2021
The Economy created a whopping 943,000 new jobs in July, and the Unemployment Rate took a big dip to 5.4% from 5.9%. This Jobs Report smoked Economists’ expectations of 801,000. Plus, the data for May and June was revised up by 119,000 new jobs. Add the May/June revisions on top of the new jobs in July: 943,000 + 119,000 = 1,062,000 new jobs. That’s a big number. A deeper dive reveals the sectors with the most job growth. As expected, Hospitality led the pack adding 380,000 new jobs (+18.5% YoY) as service sector workers return to Restaurants, Bars, and Hotels. Construction jobs were up 11,000. Logging/Mining added 6,000 new jobs after an 11,000 increase in June – we need Lumberjacks and Sawmill workers to relieve the lumber shortage. Manufacturing jobs were up 27,000. Government added 240,000 new jobs (this included 220,700 new education jobs due to school starting). Retail lost 5,500 jobs, but still up 4.0% YoY.
- The Economy created 943,000 New Jobs during July.
- The Unemployment Rate fell to 5.4% in July from 5.9% in June.
- The Labor Force Participation Rate rose to 61.7% in July from 61.6% in June.
- The Average Hourly Wage rose 0.4% in July, now up 4.0% YoY.
- Job Openings rose to 10,100,000 in June from 9,209,000 the previous month.
Inflation Economic Data Released in August 2021
Consumer Prices pressed higher, with the CPI showing a 0.5% increase during July. Consumer demand for goods continues to be robust. Used Car Prices are in the stratosphere – up 41.7% in the last 12 months. Used Car Prices contributed 0.1% to the July CPI increase. You can thank the high Used Car Prices on the chip shortage – which is impeding New Car production. A shortage of workers is driving up wages, and higher wages are passed along as higher prices. Add supply chain delays, and you get multiple factors pushing prices higher. In the meantime, PPI – a precursor to CPI – clocked in at a whopping 1.0% in July. Despite the scary CPI and PPI numbers, the Fed is sticking to their assertion that this blip in Inflation is temporary. Let’s hope they are right.
- CPI rose 0.5%, up 5.4% YoY | Core CPI rose 0.3%, up 4.3% YoY
- PPI rose 1.0 %, up 7.8% YoY | Core PPI rose 1.0%, up 6.2% YoY
- PCE rose 0.4%, up 4.2% YoY | Core PCE rose 0.3%, up 3.6% YoY
GDP Economic Data Released in August 2021
The 2nd Estimate of 2nd Quarter 2021 GDP showed the US Economy grew at a 6.6% annualized rate, up slightly from the 1st estimate of 6.5%. Before Covid hit, Total US GDP output was $21.7 Trillion in the 4th quarter of 2019. Now it’s $22.7T. The US economy is larger now than before the pandemic. Business Spending continued to be robust as companies invest in plant and equipment. Government Spending declined slightly, primarily due to lower defense spending. Most Economists believe the Economy will continue to grow at the current pace through the end of the year. However, some are worried the Delta Variant will hinder Economic Growth in the 3rd and 4th quarters.
- GDP Growth 2Q2021 (2nd estimate): 6.6%
- US GDP Output: 2Q2021: $22.7T | 1Q2021: $22.0T | 4Q2020: $21.5T | 3Q2020: $21.1T
Consumer Economic Data Released in August 2021
Consumer data took some big hits. Consumers were feeling upbeat all year, with the Consumer Confidence Index posting a record high in June. Their mood turned gloomy thanks to the Covid Delta Variant and rising prices of food and energy. Retail Sales declined 1.1%. The decline of Retail Sales data can be directly attributed to lower Car Sales…because Used Cars are too expensive and New Cars are unavailable. Why? Chip shortage. Another factor is the buying binge Consumers were on in the first half of the year. Government Stimulus checks in the spring distorted Consumers’ Retail Sales pattern.
- Retail Sales fell 1.1% in July, now up 15.8% in the last 12 months.
- Consumer Confidence Index fell to 113.8 from 125.1 the previous month.
- Consumer Sentiment Index (U of M ) fell to 70.3 from 81.2 the previous month.
Energy, International, and Things You May Have Missed
Oil Prices declined as the Delta Variant has dampened demand. However, the US could see gasoline prices increase due to refinery shutdowns in Louisiana from Hurricane Ida.
- West Texas Intermediate Crude fell to $67/barrel (Sep 1) from $74/barrel (Aug 1).
- North Sea Brent Crude fell slightly to $71/barrel (Sep 1) from $74/barrel (Aug 1).
- Social unrest in Europe: Hundreds of thousands of demonstrators assembled in France over the last 4 weeks to protest the Covid Health Pass. Smaller protests occurred in Italy.
- The US and South Korea plan to conduct military drills in the South China Sea – which always irritates the North Koreans and Chinese.
- Afghanistan: The US completed its withdrawal from Afghanistan, leaving behind Billions in military hardware, which is now in the hands of the Taliban.
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.