Key Mortgage Economic Data, Information, and Indicators for September 2018

It’s September and the summer of 2018 has come to a close. The summer went by fast. Speaking of fast, it was 10 years ago this month that Fannie / Freddie was placed into Conservatorship under the Federal Housing Finance Agency – FHFA. That happened on September 6, 2008 – they still remain in Conservatorship to this day. Ten years ago most of us were using flip phones and Blackberries. In that time frame a lot of history was made. Just think of the headlines and events from the last 10 years and how much has changed: record low interest rates; stock market crashed then boomed; home prices crashed then skyrocketed; unemployment surged then fell to record lows; student debt surpassed mortgage debt; health care was overhauled; smartphones and social media surged; etc… I could go on but, for now, let’s focus on the last month and do a quick review of Key Economic Indicators and Data from August 2018 that are important to the Mortgage Industry and Mortgage Professionals.

September Economic Data and Events

• The Last FOMC Meeting wrapped up August 1st with no change to the Fed Funds Rate.
• Housing Markets struggled with Home Sales declining the last 4 months.
• Second quarter GDP growth was clocked at an annualized rate of 4.2%.
• Inflation continued to inch up with the CPI at 2.9%.
• Trade Tensions continued between the US and its trading partners.

Interest Rates and Fed Watch

The most recent FOMC Meeting wrapped up August 1st with no change to Interest Rates. However, based on the latest FOMC Minutes and FOMC Statement, it’s a near certainty that the Fed will raise Interest Rates at their next FOMC Meeting on September 25th and 26th. The Minutes from the August 1st FOMC Meeting showed the Fed is happy with the Economy and will continue on their current course. All the Key Economic Indicators are within the Fed’s target range and the Economy is strong enough to handle higher Interest Rates. As rosy as things appear for the Economy, there are some storm clouds gathering on the horizon – escalating trade tensions, a flattening yield curve, Economic issues in the EU, and weakness in the Housing Markets. Don’t forget the upcoming midyear elections in November. At this point, odds are 95% for a rate hike in September, and 65% for another one in December.

 222 Fed Target

• Inflation                       2.9% CPI for the last 12 months
• Wage Growth              2.7% for the last 12 months
• GDP Growth               2.9% annualized rate for the last 12 months

Housing Market Data released in August 2018

Another month of red in the Housing Data. New and Existing Homes Sales continue to decline due to affordability and inventory issues. Existing Home Sales, which accounts for 90% of all home sales, decreased for the 4th consecutive month. New Homes, which account for the other 10%, is also down again. The Bidding Wars that were happening between prospective home buyers have subsided as many buyers gave up. Rising Interest Rates only exacerbate the problem. Sooner or later, the weakness in the Housing Markets will spillover into the general Economy and pose a significant impediment to Economic growth.

Economic Indicators for the Housing Market Released in August 2018

• Existing Home Sales (closed deals in July) fell 0.7% to an annual rate of 5,343,000 homes, now down 1.5% in the last 12 months. The median price for all types of homes is now $269,600 – up 4.5% from a year ago. The median Single Family Home price is $272,300 and $248,100 for a condo. First Time Buyers were 32%, Investors 13%, Cash Buyers 20%. Homes were on the market an average of 27  days, and 55% were on the market for less than a month. Currently, 1,920,000 homes are for sale.
• New Home Sales (signed contracts in July) fell 1.7% to a seasonally adjusted annual rate of 627,000 units. Year over year New Home Sales are up 12.8%. The median price of a new home is $328,700, and the average sales price is $394,300. Inventory of New Homes for sale is 309,000 – a 5.9 month supply.
• Pending Home Sales Index (signed contracts in July) fell 0.7% to 106.2 from 107.0 in June.
• Housing Starts (excavation began in July) rose 0.9% to a seasonally adjusted annual rate of 1,168,000 units – down 1.4% YoY. Single Family Housing Starts rose 0.9% to an annual pace of 854,000 units – down 1.4% YoY. Multifamily Starts rose 1.0% to 306,000 units.
• Building Permits (issued in July) rose 1.5% to an annual rate of 1,311,000 – up 4.2% YoY. Single Family permits rose 1.9% to 869,000 units, and Multifamily permits rose 0.7% to 442,000 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 20 City Composite Home Price Index rose 0.1% in June. The index is now up 6.3% in the last 12 months.
• FHFA Home Price Index rose 0.2% in June, now up 6.5% year over year.

Labor Market Economic Data Released in August 2018

The Jobs Report showed the Economy added 157,000 new jobs in July – and the Unemployment Rate ticked back down to 3.9%. Employers are having a hard time finding qualified workers. Many are starting to loosen experience and education requirements for new applicants. Less skilled workers are benefiting from the labor shortage. The Unemployment Rate for workers without a high school education is at a record low. Additionally, part-time and contract workers are being converted to permanent employees. 10 years since the Great Recession, the recovery is finally helping lower skilled and low-income workers.

• The Economy added 157,000 new jobs in July.
• The Unemployment Rate fell to 3.9% in July – the lowest since April 2000.
• The Labor Force Participation Rate fell to 62.9% in July.
• The Average Hourly Wage rose 0.3% in July – up 2.7% in the last 12 months.

Inflation Economic Data / Information Released in August 2018

Consumer Inflation continues to inch higher with energy prices leading the increase. Used car prices took a surprising jump in July. The reason is unknown but one theory is: Consumers snapped up used cars because new car prices are unaffordable. They may also be afraid tariffs will raise car prices across the board. Inflation is trending on the high side of the Fed’s target which gives them a reason to continue their interest rate increases throughout the year.

• CPI rose 0.2%, now up 2.9% in the last 12 months – the most since February 2012.
• Core CPI (ex-food & energy) rose 0.2%, now up 2.4% in the last 12 months.
• PPI unchanged 0.0%, now up 3.3% in the last 12 months.
• Core PPI (ex-food & energy) rose 0.1%, up 2.7% in the last 12 months.

GDP Economic Data Released in August 2018

The 2nd guesstimate for 2nd Quarter 2018 GDP showed the Economy grew at a 4.2% annualized rate – that is the best growth rate in 4 years. At this point, Economic activity is 2.9% higher than 12 months ago. Economists expect GDP growth to stay healthy for the latter half of 2018 mainly due to a boost from tax cuts. Business and Consumer spending is robust but trade tensions and a weakening housing market can create a drag on growth. 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 August 2018

A lot of green in the Consumer data. Consumer Confidence hit an 18 year high and Retail Sales jumped 0.5% as Consumers continued their buying binge. Just about all categories of Retail Sales were up including gasoline, autos, clothing, and restaurants. This latest report suggests Consumers will continue their buying habits in the 3rd quarter of 2018 and help boost GDP. At some point, higher shelter costs, interest rates, and oil prices will take a toll on Consumer Spending, but there is no sign of that happening yet. For now higher wages, low Unemployment, low interest rates, and more disposable income will keep Consumers buying.

• Retail Sales rose 0.5% in July. For the year, Retail Sales are up 6.4%.
• Consumer Confidence Index rose to 133.4 (an 18 year high) from 127.9 in July.
• Consumer Sentiment Index (U of M) fell to 96.2 from 97.9 in July.

Energy, International, and Misc   

• Brent Crude Oil was roughly $77/barrel at the end of August.
• Another Ebola Outbreak in the Congo.
• The Greek bailout ended after 8 years and $375 Billion Dollars.
• Turkish Lira dropped precipitously pulling down global markets.
• The Chinese Yuan stabilizes in August after declining significantly in the previous months.
• China and Russia plan to hold their largest joint military exercises in 40 years.

This Economic Commentary is written to be a succinct summary of the recent key 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, www.MortgageElements.com

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This newsletter is for informational and educational purposes only and should not be construed as investment, legal, financial, or mortgage advice. The information is gathered from sources believed to be credible, some is opinion based and editorial in nature. Mortgage Elements Inc does not guarantee or warrant its accuracy or completeness, and there is no guarantee it is without errors. This newsletter is created for use by Mortgage and Real Estate Professionals and is not an advertisement to extend credit or solicit mortgage originations. © Copyright 2018 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.