Economic Indicators and Events Affecting the Mortgage Industry 

May is getting off to a hectic start with news dominated by Trump’s new tax plan, geopolitical tensions, and an FOMC Meeting that starts today. The good news is that it’s getting warmer and Memorial Day is just around the corner. Soon we’ll be in the lazy days of summer but it looks like the Economy is already in lazy days. GDP results for the first quarter show the Economy has gotten off to a slow start  while the housing market is doing great. Home Sales had the best month since 2007 and Home Prices continue to increase by about 6.0% a year. That’s welcome news for Mortgage Lenders since refinance activity has slowed down and Loan Officers are switching to purchase transactions.

April Economic Data in Review

Recapping the major Economic Data releases that affect the Mortgage & Real Estate business:

• New and Existing Home Sales had a great month – the best since 2007.
• 1st Quarter GPD showed the Economy grew at a disappointing 0.7% annualized rate.
• Stocks had a record month with the NASDAQ eclipsing 6,000 for the first time ever.
• Trump’s New Tax Plan was just introduced with mixed reviews and continued debate.
• The French Presidential election resulted in a May 7th runoff between the leading candidates.

Interest Rates and Fed Watch

The May FOMC meeting starts today and no one is expecting the Fed to change interest rates. The Fed continues to say they are still on track to raise rates 2 more times this year despite the Economy getting off to a weaker start than predicted. Economists continue to think the next rate increase will occur at the June FOMC Meeting. That’s 6 weeks away and a lot can happen – especially with Geopolitical tensions running so high. The probability of a rate hike in June is now 40%.

222 Fed Target

• Inflation                      2.4% CPI for the last 12 months
• Wage Growth             2.7% for the last 12 months
• GDP Growth               0.7% for the 1st quarter (annualized with more revisions to come)

Labor Market Economic Indicators

The April Jobs Report was a disappointment with the Economy adding only 98,000 jobs in March. It looks like the post election optimism that fueled job creation has started to wane. Retail and IT jobs were down. Government jobs were up, along with health care, education, manufacturing, construction, and mining jobs. The next Jobs Report will be released Friday and will be closely watched.

• The Economy added 98,000 new jobs during March (180,000 expected).
• The Unemployment Rate decreased 0.2% to 4.5% from 4.7% last month.
• The Labor Force Participation Rate was unchanged at 63.0%.
• The Average Wage rose 0.2%, pegging annual wage growth at 2.7% for the last 12 months.

April Inflation Economic Indicators

Consumer prices started the year strong but decelerated last month thanks to lower energy prices.  While housing (rent) and health care costs continue to rise, the rate of price increase has slowed.

• CPI fell 0.3%, now up 2.4% in the last 12 months.
• Core CPI (ex-food & energy) fell 0.1%, now up 2.0% in the last 12 months.
• PPI fell 0.1%, now up 2.3% in the last 12 months.
• Core PPI (ex-food & energy) rose 0.1%, up 1.7% in the last 12 months.

GDP Economic Indicators

The first guesstimate for 1st Quarter 2017 GDP showed the economy grew at a 0.7% annualized rate (0.9% – 1.2% expected). This anemic growth rate is a sharp decline from the 2.1% 2016 GDP. The Economy usually gets off to a slow start in the 1st Quarter so you have to take this number with a grain of salt. It will be interesting to see what the Fed says about GDP in this week’s announcement. Also remember that GDP is a notoriously hard number to pin down. That’s why each quarter has 3 revisions – it’s really a moving target so all the revisions are more like guesstimates.

Consumer Economic Indicators

Household Debt will soon be back up to 2008 Pre-Crisis levels, but there is a BIG difference between then and now.  In 2008 high Household Debt was due to high Mortgage Debt. Today high Household Debt is due to Auto and Student Loans. Those debts are adversely affecting the housing market. It’s also one explanation why Retail Sales and Consumer Spending has retreated the last couple months.   It is interesting to note that Consumers have cut back on buying cars. Auto Sales for March was only 15,230,000 vehicles – well below the forecast of 17,470,000.

• Retail Sales fell 0.2% in March. For the year Retail Sales are up 5.2% from March 2016.
• The Consumer Sentiment Index rose to 97.0 from 96.9. 
• Consumer Confidence fell to 120.3 from 124.9. A little lower but still a very strong number.   

International & Misc

Deja vu – sounds like Trump vs Clinton – but in France. As expected, the French Presidential election resulted in a runoff between the 2 leading candidates with very different platforms – far-right candidate Marine Le Pen and left leaning centrist Emmanuel Macron. French voters will go back to the polls May 7th and pick one for their new President. Le Pen wants to clamp down on immigration and return to the French Franc as their currency. Macron wants to maintain open borders and keep the Euro. Tensions with North Korea are running high but it hasn’t affected the markets yet.

Housing Market Economic Indicators and Data for April 2017

Existing Home Sales and New Home Sales surprised everyone with strong gains. The number of Existing Homes that sold during March hit the highest level since February 2007. Inventory continues to be an issue but eased a little as the number of homes for sale increased to 1,830,000 units. Affordability remains an issue. Fortunately, Consumers are still feeling confident about the Economy which should lead to more taking the plunge into homeownership. As long as inventory and Consumer Confidence keeps up, home sales will remain strong throughout 2017.

The Housing Market Economic Indicators released in April show conflicting data between multifamily and single family housing.

• Existing Home Sales (closed deals in March) rose 4.4% to an annual rate of 5,710,000 homes. The median price for all types of homes is now $236,400 – up 6.8% from a year ago. The median price for a Single Family home is $237,800 and $224,700 for a condo. First Time Buyers were 32%, Investors 15%, Cash Buyers 23%. Homes are on the market an average of 34 days. Currently, 1,830,000 homes are for sale.
• New Home Sales (signed contracts in March) rose 5.8% to a seasonally adjusted annual rate of 612,000 units. The median price of a new home is $315,000 and the average sales price is $388,000. There are now 268,000 new homes for sale.
• Pending Home Sales Index (signed contracts in March) fell 0.8% to 111.4 from 112.3 in February. This is still a high number but it is being adversely affected by lack of inventory.
• Housing Starts (excavation began in March) fell 6.8% to a seasonally adjusted annual rate of 1,215,000 units. Single Family Housing Starts fell 6.2% to an annual pace of 821,000 units while Multifamily Starts dropped 7.9%.
• Building Permits (issued in March) rose 3.6%. Single Family permits fell 1.1% while Multifamily permits rose 13.8%.  
• 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.
• FHFA Home Price Index rose 0.8% – home prices are now 6.4% higher than a year ago according to FHFA.
• S&P CoreLogic Case-Shiller Home Price Index – The 20 City Composite Index rose 5.8% year over year.

Economic Information for Busy Mortgage Professional

This Economic Commentary is written to be a succinct summary of the major Economic indicators, data, and events that greatly influence the Mortgage Industry. It is geared for Mortgage Professionals that need to stay abreast of Economic Information but don’t have hours to research and analyze Economic Data.

Click Here for the May 2017 Economic Calendar. Click Here If you would like this Economic Calendar and Commentary emailed to you at the beginning of each month. Feel free to share this with a friend or colleague in the Mortgage or Real Estate business.

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Questions or comments contact Mark Paoletti, MPaoletti@MortgageElements.com