Review of Key Economic Data from January 2018 for Mortgage Professionals.

January usually gets off to a slow start as people recover from the Holidays, but there was a lot going on last month that affects the Mortgage Business. The Government shutdown lasted only a couple days because Congress was able to hammer out a temporary deal to fund the government through February 8th. In a few days, we could be facing another shutdown if Congress doesn’t reach a more permanent solution. The Mortgage Business could have a headache if the IRS doesn’t process 4506T requests during a shutdown.  President Trump delivered his first State of the Union address and, as expected, it focused on the Economy, tax cuts, health care, immigration, trade, and national security. Here is a quick review of key Economic Indicators and data released during January 2018 that are important to the Mortgage Industry and Mortgage Professionals.

January Economic Indicators and Data in Review

• A Government shutdown lasted a couple days until Congress approved a temporary funding package.
• Another Government shutdown may happen February 8th if Congress doesn’t agree on a deal.
• The Fed left interest rates unchanged after the January 31st FOMC Meeting.
• The Labor Markets added 148,000 new jobs in December and 200,000 in January.
• Inflation is holding steady at 2.1% annually.

Interest Rates and Fed Watch during January 2018

At the last FOMC meeting that ended January 31st and, as expected, the Fed left interest rates unchanged. This meeting was Janet Yellen’s last as the Fed Chair. Jerome Powell will be sworn in as Fed Chairman on February 3rd and his first FOMC Meeting will be March 31st. The Fed Minutes from December stated it plans to raise interest rates 3 times in 2018 and Fed Watchers are betting the first increase will happen at the March 31st FOMC Meeting. At this point, Fed Watchers are placing odds of a rate increase at 91% at the March meeting.

222 Fed Target

• Inflation                       2.1% CPI for the last 12 months
• Wage Growth              2.9% for the last 12 months
• GDP Growth                2.5% annualized rate for the last 12 months (4th Quarter = 2.6%)

Housing Market Data January 2018

The final numbers are in for Home Sales in 2017 and it was a banner year despite the lack of inventory that plagued house hunters – especially 1st Time Buyers. For all of 2017: Existing Home Sales were up 1.1% to 5,510,000 units – the highest since 2006. New Home Sales increased 14.1% to 608,000 units sold – the highest in over a decade. Builders and Developers are slowly ramping up production as they continue to struggle with labor shortages, material costs, lack of available land, and regulations.

Economic Indicators for the Housing Market Released in January 2018

• Existing Home Sales (closed deals in December) fell 3.6% to an annual rate of 5,570,000 homes. For all of 2017, Existing Home Sales increased 1.1%. The median price for all types of homes is now $246,800 – up 5.8% from a year ago. The median Single Family Home price is $248,100 and $236,500 for a condo. First Time Buyers were 32%, Investors 16%, Cash Buyers 20%. Homes were on the market an average of 40 days. Currently, 1,480,000 homes are for sale – down 10.3% from a year ago.
• New Home Sales (signed contracts in December) fell 9.3% to a seasonally adjusted annual rate of 625,000 units. The median price of a new home is $335,400 and the average sales price is $389,900. Inventory of New Homes for sale is 295,000 – a 5.7 month supply.
• Pending Home Sales Index (signed contracts in December) rose 0.5% to 110.1 from 109.3.
• Housing Starts (excavation began in December) fell 8.2% to a seasonally adjusted annual rate of 1,192,000 units and are now down 6.0% in the last 12 months. Single Family Housing Starts fell 11.8% to an annual pace of 836,000 units. Multifamily Starts fell to 352,000 units.
• Building Permits (issued in December) fell 0.1% to an annual rate of 1,302,000. Single Family permits rose 1.8% to 881,000 units, and Multifamily permits fell 3.9%.
• 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 0.8% in November. The 20 City Composite index is up 6.41% in the last 12 months.
• FHFA Home Price Index rose 0.4% during November, now up 6.5% year over year.

Labor Market Economic Indicators Released in January 2018

The Jobs Report showed the Economy added 148,000 new jobs during December (160,000 expected) and 200,000 new jobs during January (180,000 expected). Doing the math for the entire year means the Economy added over 2,000,000 new jobs during 2017. Plus, the overall average wage increased 2.9% during 2017. Not bad – those gains were more than Economists were expecting when the year started. In the last 12 months, the construction sector added 226,000 jobs, manufacturing added 186,000 jobs, and food service (which includes drinking establishments) added 255,000 jobs. In 2017 the health care sector added 288,000 new jobs. The Labor Force Participation Rate is holding steady at 62.7% even as droves of Baby Boomers are retiring. All in all, the Labor Market had a good year in 2017, and at this point, it looks like it will continue. That’s good news for the Mortgage Business. When workers feel secure in their jobs, they buy homes.

• The Economy added 148,000 new jobs in December and 200,000 in January.
• The Unemployment Rate held steady at 4.1% in December and January.
• The Labor Force Participation Rate held steady at 62.7% in December and January.
• The Average Wage rose 2.9% during 2017.

Inflation Economic Indicators Released in January 2018

Inflation numbers for the last month of 2017 were mixed. CPI was up 0.15% and PPI fell 0.1% (due to lower food and gas prices). With the final Inflation numbers in for last year, we can take a look at what was up and down during 2017. Overall Inflation was up 2.1%, food rose 1.6%, energy (all types) rose 6.9%, gasoline up 10.7%, fuel oil up15.2%, shelter up 3.2%, medical care up 1.6%, medical supplies up 2.3%, apparel down 1.6%, new cars down 0.5%, used cars down 1.0%.

• CPI rose 0.15%, now up 2.1% in the last 12 months.
• Core CPI (ex-food & energy) rose 0.3%, now up 1.8% in the last 12 months.
• PPI fell 0.1%, now up 2.6% in the last 12 months.
• Core PPI (ex-food & energy) fell 0.1%, up 2.3% in the last 12 months.

GDP Economic Data Released in January 2018

The 1st guesstimate for 4th Quarter 2017 GDP showed the Economy grew at a 2.6% annualized rate (3.0% expected). This latest number pegs 2017 GDP growth at 2.5% – the fastest growth rate for the US Economy in over 2 years. An increase in personal consumption and business investments, along with the tax cuts, helped boost growth. Meanwhile across the pond, the GDP of the European Union rose 2.7% in 2017. A lot of their increase was due to a rise of French business investments – just like in the US. French business confidence has been bolstered by the elimination of some of their antiquated employment laws. When business is confident about future growth prospects – they spend money and invest in capital equipment. That works for the US and Europe. Remember that each quarter has 3 revisions for GDP, so all the revisions are more like moving targets or guesstimates.

Consumer Economic Indicators Released in January 2018

Consumers are Confident and it showed up in the Holiday buying season. 2017 was a good year for Retail Sales as Consumers hits stores and online sellers during the Holidays. Retail Sales improved 0.9% in November and 0.4% in December.

• Retail Sales rose 0.4% in December. For the year Retail Sales are up 5.4% year over year.
• The Consumer Sentiment Index fell to 95.7 from 95.9 in December.
• Consumer Confidence rose to 125.4 from 122.1 in December – which is a 17 year high.

International & Misc

• More Manufacturing jobs: Toyota and Mazda announced they will build auto plants in Alabama. Samsung and LG will build appliance plants in South Carolina and Tennessee.
• Oil prices are at their highest levels since 2015 at $70 a barrel due to production cuts in OPEC countries. As oil prices rise, shale producers will step in and ramp up their production.
• This is ironic – the Kremlin has accused the US of trying to influence the upcoming Russian Presidential Elections in March through the use of Economic Sanctions.

This Economic Commentary is written to be a succinct summary of the key Economic Indicators and Economic Data that influence the Mortgage and Real Estate Industries. It is written for Loan Officers and 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, www.MortgageElements.com