Key economic Indicators Released in October 2017 that Affect the Mortgage Industry

It’s nearing the end of 2017 and Mortgage Professionals are thinking about next year. The Mortgage Bankers Association is forecasting 2018 Total Mortgage Originations to be $1.60 Trillion, with purchase volume increasing 7.3% to $1.2T and refi volume decreasing 28% to $430 B. That’s a little lower then 2017 which is expected to generate Total Originations of $1.69 T. The latest Economic Indicators also support the shift to purchase business.  Here is a quick review of key Economic Indicators and Data released in October 2017 that are important to Mortgage Professionals.

October Economic Indicators and Data in Review

Recapping Key Economic Data released in October that affects the Mortgage & Real Estate business:

• The October 31st FOMC Meeting just wrapped up with the Fed holding steady on rates.
• Tax Reform is winding through Congress as it goes to the Ways and Means Committee.
• The investigation into Russian election tampering issued its first indictments.
• The Economy lost 33,000 during September.
• Home prices continue their unabated rise exacerbating affordability.

Interest Rates and Fed Watch October 2017

The Last FOMC Meeting just wrapped up with no change in interest rates. The Fed stated they think the Economy is “rising at a solid rate” and underplayed the low inflation and last employment numbers. That leaves them on course to raise rates at the next FOMC Meeting in December – as they have stated all year. President Trump has whittled the list of potential candidates for Fed Chairman down to 5: Jerome Powell, Kevin Walsh, John Taylor, Gary Cohn, and Janet Yellen. Jerome Powell is the apparent front-runner who is also a current Fed governor. Rumors are swirling that Powell will be appointed this week. The latest odds from Fed Watchers are a 85% probability of a 3rd rate hike in December.

222 Fed Target

• Inflation                       2.2% CPI for the last 12 months
• Wage Growth              2.9% for the last 12 months
• GDP Growth                2.3% annualized rate for the last 12 months (3rd Quarter = 3.0%)

Housing Market Data October 2017

The Economic Indicators showed New Home Sales surged last month with the southern region leading the pack. The surge in the South was most likely fueled by the latest hurricane season and seasonal adjustment factors, but all regions saw an increase. The gains in Existing Home Sales and New Home Sales were in spite of the low inventory and increasing prices that have frozen many potential home buyers out of the market. Expect to see a lot of new homes built and sold the next 2 years as the south rebuilds after the hurricane destruction.

Economic Indicators for the Housing Market October 2017

• Existing Home Sales (closed deals in September) rose 0.7% to an annual rate of 5,390,000 homes. The median price for all types of homes is now $245,100 – up 4.2% from a year ago. The median Single Family Home price is $246,800 and $231,300 for a condo. First Time Buyers were 29%, Investors 15%, Cash Buyers 20%. Homes were on the market an average of 34 days. There are now 1,900,000 homes for sale (6.4% lower than a year ago).
• New Home Sales (signed contracts in September) rose 18.9% to a seasonally adjusted annual rate of 667,000 units. The median price of a new home rose to $320,000, and the average sales price rose to $385,000. Inventory of New Homes for sale is 279,000 – a 5 month supply.  
• Pending Home Sales Index (signed contracts in September) was unchanged at 106.0 after being revised in August from 109.1. The index is now down 3.5% in the last 12 months.
• Housing Starts (excavation began in September) fell 4.7% to a seasonally adjusted annual rate of 1,127,000 units. Single Family Housing Starts fell 4.6% to an annual pace of 829,000 units. Multifamily Starts fell 6.2%.
• Building Permits (issued in September) fell 4.5% to an annual rate of 1,272,000. Single Family permits fell 2.4% to 819,000 units, and Multifamily permits fell 17.4% to 360,000 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 August. Year over year the 20 City Composite index is now up 5.9% since August 2017.
• FHFA Home Price Index rose 0.7% from July to August. Prices are up 6.6% year over year.

Labor Market Economic Indicators October 2017

The Jobs Report released on October 6th showed the Economy lost 33,000 jobs during September. This is the first time the Jobs Report was negative in almost 7 years. Most Economists expected the disruption from Hurricanes Harvey and Irma to hurt the employment data – but not this bad. This is a typical pattern after a major hurricane – employment and GDP takes a short-term hit but bounce back as rebuilding starts after a short lag. The leisure and hospitality sector lost the most jobs while government employment increased along with healthcare, manufacturing, and construction. The Unemployment Rate at 4.2% is the lowest since 2001.

• The Economy lost 33,000 jobs in September  (up 80,000 was expected).
• The Unemployment Rate dropped to 4.2% from 4.4% during September.  
• The Labor Force Participation Rate increased to 63.1% from 62.9% during September.   
• The Average Wage rose 0.5% during September pegging wage growth at 2.9% YoY.  

 Inflation Economic Indicators October 2017

Inflation keeps edging higher. Much of the increase in last months Inflation is due to higher gas and commodity prices. Expect commodity prices to continue to increase due to demand generated from the rebuilding efforts after the hurricane. The increased inflation gives the Fed more ammo for another rate increase this year.  The cost of shelter (rent) and medical care have been increasing substantially all year, but last month they took a breather. Rents increased only 0.2% and medical care fell 0.1%.

• CPI rose 0.5%, now up 2.2% in the last 12 months.
• Core CPI (ex-food & energy) rose 0.1%, now up 1.7% in the last 12 months.
• PPI rose 0.4%, now up 2.5% in the last 12 months.
• Core PPI (ex-food & energy) rose 0.4%, up 2.2% in the last 12 months.

GDP Economic Indicators October 2017

The 1st guesstimate for 3rd Quarter 2017 GDP showed the Economy grew at a 3.0% annualized rate (2.7% expected). That pegs Economic growth for the last 12 months at 2.3%. The report did not state how much the Economic growth was hindered by the hurricanes. However,  production was particularly disrupted for oil, gas, and petrochemical production in Texas along with agricultural production in Florida. Expect rebuilding efforts to boost GDP numbers starting in 4Q2017 and 1Q2018. Remember that each quarter has 3 revisions for GDP. It’s a moving target, so all the revisions are more like guesstimates.

Consumer Economic Indicators October 2017

It looks like the Consumer was back in the stores during September. A lot of Retails Sales is storm related as consumers replace damaged and destroyed items – like the 500,000 cars that were flooded from the hurricanes. Auto sales were up 3.6% during September. What else were Consumers buying? Building materials took a big jump along with gasoline. Furniture and electronics were down but that could also be storm related. Consumers may be waiting until Black Friday when big ticket items like electronics go on sale.    

• Retail Sales rose 1.6% in September. For the year Retail Sales are up 4.4% year over year.
• The Consumer Sentiment Index rose to 100.7 from 95.1 in September.   
• Consumer Confidence rose to 125.9 from 119.8 – the highest level since 2000.       

International & Misc 

• Terrorism raised its ugly head again in New York City this week with the truck attack.
• Military build-up in Korean waters. The US is sending 3 carrier strike groups and a number of submarines to Korean waters for joint exercises – plus 12 of the new F-35 stealth fighters will be sent to Kadena Air Base in Okinawa Japan.  
• Catalonians declared independence from Spain which is creating a lot of Economic uncertainty in the Eurozone.
• Saudi Arabia and other OPEC nations are considering additional cuts in oil production.

This Economic Commentary is written to be a succinct summary of the major 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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Mark Paoletti, MPaoletti@MortgageElements.com