Key Economic Indicators, Data, and Events Released in August 2017 that Affect the Mortgage Industry

August is considered the “Dog Days of Summer,” but this August was very eventful. Hurricane Harvey devastated Houston, major changes to the Federal Tax Code were proposed, gasoline prices jumped, the DOW hit another record high, North Korea continued its shenanigans, and another terrorist attack hit Spain. These events all have implications for affecting interest rates and the housing markets. Here is a quick review of key Economic Indicators and Data released in August 2017 that are important to Mortgage Professionals.

August Economic Indicators and Data in Review

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

• Hurricane Harvey devastated Houston and southeast Texas.
• 2nd quarter GDP Growth clocked in at 3.0%.
• The Economy added 209,000 jobs during July, but only 156,000 in August.
• Extensive changes to the Federal Tax Code were proposed.
• The Dow passed 22,000 for the first time in history.

Interest Rates and Fed Watch

The July and August Employment Reports were good – not great but good. Good enough to maintain the possibility of another interest rate increase this year. But will the Fed raise rates after the devastation from Hurricane Harvey? The last FOMC Minutes indicated the Fed is concerned about asset prices and low Inflation numbers. So the timing of the next interest rate increase will most likely center around the Inflation data. If Inflation doesn’t accelerate, the Fed may hold off on the third rate increase – but that was before Hurricane Harvey. At this point, Fed Watchers are placing a 34% probability of a rate hike this year. The next FOMC Meeting is September 19 & 20.

222 Fed Target

• Inflation                       1.7% CPI for the last 12 months
• Wage Growth              2.5% for the last 12 months
• GDP Growth                2.2% annualized rate for the last 12 months (2nd Quarter = 3.0%)

Housing Market Data for August 2017

The Economic Indicators for Housing continue to be all in the red. Last month’s round of data is a direct consequence of the lack of inventory and another confirmation of what Mortgage and Real Estate people have seen happening all year. Unfortunately, it looks like the inventory problem is going to get worse – especially now after Hurricane Harvey has destroyed 100,000 homes.  Inventory of existing homes for sale has been declining for 26 straight months, dropping an additional 1.0% in July alone. This brings inventory to 9.0% below last year.

Economic Indicators for the Housing Market released in August 2017:

• Existing Home Sales (closed deals in July) fell 1.3% to an annual rate of 5,440,000 homes. The median price for all types of homes is now $258,300 – up 6.2% from a year ago. The median Single Family Home price is $266,600 and $239,800 for a condo. First Time Buyers were 33%, Investors 13%, Cash Buyers 19%. Homes were on the market an average of only 30 days. There are now 1,920,000 homes for sale (9.0% lower than a year ago).
• New Home Sales (signed contracts in July) fell 9.4% to a seasonally adjusted annual rate of 571,000 units. The median price of a new home is $313,700, and the average sales price is $371,200. There are now 276,000 new homes for sale.
• Pending Home Sales Index (signed contracts in July) fell 0.8% to 109.1 from 110.2 in June. The index is now down 1.3% in the last 12 months.
• Housing Starts (excavation began in July) fell 4.8% to a seasonally adjusted annual rate of 1,155,000 units. Single-Family Housing Starts fell 0.5% to an annual pace of 856,000 units. Multifamily Starts fell 17.1%.
• Building Permits (issued in July) fell 4.1% to an annual rate of 1,223,000. Single-Family permits were unchanged at 811,000 units, and Multifamily permits fell 11.2% to 412,000 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.
• FHFA Home Price Index rose 0.1% – home prices are now 6.5% higher than a year ago.
• S&P/Case-Shiller Home Price Index rose 0.11% in June  (YoY the 20 City Composite index is up 5.65%).

Labor Market Economic Indicators

Because September 1st was a Friday and Labor Day was Monday, we’ll review 2 Jobs Reports. The  Jobs Report released on August 4th showed the Economy added 209,000 new jobs in July. The Jobs Report released on September 1st showed the Economy added 156,000 new jobs in August. The July number was healthy, but August data disappointed Economists. The magic number Economists like to see is 180,000 to 200,000 new jobs created every month. Pro-growth Economists think the Economy should be adding more jobs and wages should be increasing faster. But for the dog days of summer – it’s not bad. The lackluster gains in jobs and wages diminish the chances of another rate increase this year. Manufacturing, Hospitality, Education and Healthcare added the most workers while government hiring decreased.  

• The Economy added 209,000 new jobs in July and 156,000 in August (180,000 expected).
• The Unemployment Rate fell to 4.3% in July but bounced back to 4.4% during August.  
• The Labor Force Participation Rate rose to 62.9 in July and was unchanged during August.  
• The Average Wage rose 0.3% during July and August pegging wage growth at 2.5% for the last 12 months.

Inflation Economic Indicators

Inflation continues to be tame thanks to low energy costs and lower auto prices – new and used cars. Housing (rents) and medical care just keep going up faster than anything else with no end in sight. Food and clothing were also up. Many Economists think the soft Inflation numbers are temporary and will return to the 2.0% level by year end. The Inflation data was released before Hurricane Harvey hit. Gas prices have already jumped. Expect commodity prices to increase from the additional demand created by rebuilding Houston.

• CPI rose 0.1%, now up 1.7% in the last 12 months.
• Core CPI (ex-food & energy) rose 0.1%, now up 1.7% in the last 12 months.
• PPI fell 0.1%, now up 1.9% in the last 12 months.
• Core PPI (ex-food & energy) fell 0.1%, up 1.8% in the last 12 months.

GDP Economic Indicators

The 2nd revision (guesstimate) for 2nd 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 2.2%. This is the fastest in 2 years, but that was calculated before Hurricane Harvey hit Texas. The devastation from the storm could reduce 3rd quarter GDP by 0.2% depending on the extent of the damage. GDP typically takes a dip after a major Hurricane but rebounds after a lag time. GDP nudges up from the increased Economic activity from rebuilding efforts – but that GDP boost won’t kick in until 2018. How much the storm will affect GDP is anyone’s guess right now. (GDP is a hard number to pin down. Each quarter has 3 revisions. It’s a moving target, so all the revisions are more like guesstimates).

Consumer Economic Indicators

Consumers were back in the stores buying goods this summer as Retail Sales took a big unexpected jump. It also looks like Department Store Sales has stabilized after dropping all year. What was everybody buying? Autos, furniture, building materials, and sporting goods. Auto Sales have been in a slump all year, but don’t doom and gloom about the auto industry. Keep in mind that 2015 and 2016 were banner years for car sales with over 17.5 million vehicles sold per year. So this year’s decrease is just getting back to normal.

• Retail Sales rose 0.5% in July. For the year Retail Sales are up 3.8% in the last 12 months.
• The Consumer Sentiment Index rose to 96.8 from 93.4 in July. 
• Consumer Confidence rose to 122.9 from 121.1.       

International & Misc 

• Japan and South Korea have stepped up their missile defense initiatives due to escalating tensions with North Korea.
• Terrorism raised its ugly head again with another car attack in Barcelona.
• Oil continues to hover around $50.00 per barrel. (Gas prices jumped in the US after Hurricane Harvey because of the disruption to refineries – not supply of crude oil).
• Venezuela is a mess and getting worse. The State Department ordered employees’ family members to leave the country due to “deteriorating security conditions.”

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