June Commentary Recapping the Key Economic Indicators, Data, and Events in May 2017 that Affect the Mortgage Industry

Memorial Day was Monday marking the beginning of Summer. Along with warmer temps and brighter days, the Economy also looks bright according to the latest Economic Indicators. According to the latest Economic Indicators and Data, Homes are selling like hotcakes, Unemployment is at a 10 year low, Inflation is under control, but GPD growth is sluggish and terrorism has reared its ugly head again. Let’s take a closer look at the latest key Economic Indicators and data that is important to Mortgage Professionals.

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

• The Economy added 211,000 jobs during April
• The Unemployment Rate hit a 10 year low at 4.4%
• 1sr quarter GDP Growth was revised upward to 1.2% from 0.7% – a nice increase but still low
• Homes are selling at the fastest pace in a decade
• Geopolitical tensions are up after the terror attack in Manchester England

Interest Rates and Fed Watch

June has a BIG Fed Week with the next FOMC Meeting on June 13 and 14. Most Economists expect the Fed will raise the Fed Funds rate another .25% when they make their announcement on June 14. The Fed has repeatedly said they will raise rates 3 times this year – and for the last several months the markets have expected a rate hike in June. In the May FOMC statement, the Fed said the slow GDP growth was “temporary” and they saw no reason to change their plans to make “gradual adjustments” to interest rates. In other words….they are going to continue to raise rates. Economists are placing the probability of a rate hike in June at 88%.

222 Fed Target

• Inflation 2.2% CPI for the last 12 months
• Wage Growth 2.5% for the last 12 months
• GDP Growth 1.2% for the 1st quarter (annualized with more revisions to come)

Labor Market Economic Indicators

The May Jobs Report showed the Economy adding 211,000 jobs. This data was a nice rebound after a disappointing April report which many Economists blamed on the weather. There is a trend forming. Most of the new jobs being created were in health care, education, government, and hospitality. Fewer jobs were created in IT, manufacturing, and construction. The next Jobs Report will be Friday and, as always, very closely watched.

•  The Economy added 211,000 new jobs during April (180,000 expected).
•  The Unemployment Rate fell to 4.4% – the lowest in 10 years.
•  The Labor Force Participation Rate fell to 62.9 from 63.0.
• The Average Wage fell 0.1%, pegging annual wage growth at 2.5% for the last 12 months.

Inflation Economic Indicators

Inflation chugged along as prices marched higher as expected. Energy and housing (rent) cost continued upward at their usual pace. Healthcare costs slowed their ascent – still up but not as much.

•  CPI rose 0.2%, now up 2.2% in the last 12 months.
• Core CPI (ex-food & energy) rose 0.1%, now up 1.9% in the last 12 months.
• PPI rose 0.5%, now up 2.5% in the last 12 months.
• Core PPI (ex-food & energy) rose 0.4%, up 1.9% in the last 12 months.

GDP Economic Indicators

The 2nd guesstimate (1st revision) for 1st Quarter 2017 GDP showed the economy grew at a 1.2% annualized rate (revised up from 0.7%). This revision is a small upward improvement, but still a very slow growth rate. Keep in mind that the Economy typically gets off to a slow start during the 1st Quarter. Most Fed Watchers don’t expect the low GDP number to prevent the Fed from raising interest rates this month. (GDP is a hard number to pin down. That’s why each quarter has 3 revisions. It’s a moving target, so all the revisions are more like guesstimates.)

Consumer Economic Indicators

Consumer Debt is at an all-time high. The Fed reported that Total Household Debt is now $12.7 Trillion dollars. What are they borrowing all this money to buy? Homes, education, and cars. Mortgages make up $8.64 T, Student Loans $1.34 T, Auto Loans $1.14 T. As the numbers show, Consumers were back buying cars last month along with building materials (good for us in the Mortgage Biz), healthcare, and personal care products. Furniture and clothing purchases were down.

• Retail Sales rose 0.4% in April. For the year Retail Sales are up 4.5% in the last 12 months.
• The Consumer Sentiment Index rose slightly to 97.1 from 96.9.
• Consumer Confidence fell to 117.9 from 120.3 due to lower Economic expectations.

International  & Misc

Geopolitical tensions are up again after the terror attack in Manchester England. It is interesting to note that this latest attack had minimal effects on the stock and bond markets.

• Oil prices are hovering around $50.00 a barrel – even after OPEC production cuts. There is a glut of oil available because many OPEC members ignore their quotas and shale producers in the US continue pumping more oil.

Housing Market Economic Indicators and Data

Existing, Pending, and New Home Sales declined, while – paradoxically – homes sold at their fastest pace in a decade. Everybody knows the reason – lack of inventory. This has been an issue for a few years, and it keeps getting worse. Homeowners are not listing their homes for sale – even as prices continue to rise. Building new homes will help, but developers can’t get them built fast enough. There are many theories why inventory is so low. One theory that is gaining popularity is because investors bought up the housing inventory at fire sale prices after the financial crisis. Those homes are now off the market and are being rented as opposed to being available for sale. Another reason is that Boomers are just staying in their homes longer. Either way, it looks like the inventory problem is not going away in the foreseeable future.

The Housing Market Economic Indicators released in May show conflicting data.

• Existing Home Sales (closed deals in April) fell 2.3% to an annual rate of 5,570,000 homes. The median price for all types of homes is now $244,800 – up 6.0% from a year ago. The median price for a Single Family home is $248,100 and $234,600 for a condo.     First Time Buyers were 34%, Investors 15%, Cash Buyers 21%. Homes are on the market an average of 29 days. Currently, 1,930,000     homes are for sale.
• New Home Sales (signed contracts in April) fell 11.0% to a seasonally adjusted annual rate of 569,000 units. The median price of a new home is $309,200 and the average sales price is $368,300. There are now 268,000 new homes for sale.
• Pending Home Sales Index (signed contracts in April) fell 1.3% to 109.8 from 112.3 in March. The index is now down 3.3% in the last 12 months.
• Housing Starts (excavation began in April) fell 2.6% to a seasonally adjusted annual rate of 1,172,000 units. Single-Family Housing Starts rose 0.4% to an annual pace of 835,000 units but Multifamily Starts dropped 9.2%.
• Building Permits (issued in April) fell 2.5%. Single-Family permits fell 4.5% while Multifamily permits rose 1.4%.
• 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 0.6% – home prices are now 6.0% higher than a year ago according to FHFA.
• S&P/Case-Shiller Home Price Index –  rose 5.9% year over year (20 City Composite Index).

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