The April 2023 Mortgage Economic Review is a summary and recap of Key Economic Data and Events pertinent to Mortgage, Housing, and Finance Professionals.

AT A GLANCE – Key Economic Events and Data released during March 2023

• Interest Rates: The 10-Year Treasury yield fell to 3.48% (Mar 31) from 3.92% (Feb 28).
• Housing: Existing Home Sales jumped 14.5%, New Home Sales rose 1.1%, and Pending Home Sales rose 0.8% during February. Home Prices fell slightly but are up 5.0% YoY.
• Labor: The US Economy created 311,000 New Jobs in February. The Unemployment Rate rose to 3.6%, and Wages increased 4.6% YoY.
• Inflation: February CPI rose 0.4% (+6.0% YoY), and PPI fell 0.1% (+4.6% YoY).
• The Economy: US GDP grew by a 2.6% annualized rate in 4Q2022, up 0.9% YoY.
• Consumers: Retail Sales fell 0.4%, Consumer Confidence rose, Consumer Sentiment fell.
• Stock Markets ended March on a positive note after a steep sell-off and volatile month: Dow +1.9%, S&P +1.9%, Nasdaq +6.7%.
• Oil prices fell to $76/Barrel (Mar 31) from $77/Barrel (Feb 28).

Interest Rates and Fed Watch 

The Fed will keep raising Interest Rates until something breaks. Nothing has broken yet, but some cracks appeared when Silicon Valley Bank and Signature Band failed. Both Banks were not systemically significant and failed for different reasons. SVB poorly matched its Assets and Liabilities. Signature Bank was heavily into crypto – not a good place to be after the collapse of FTX. What really suffered was Confidence in the Banking System. To shore up confidence, the Fed created the Bank Term Funding Program (BTFP), a lending facility for Banks to borrow money quickly in case of a run on deposits.

Regardless of the turbulence in the Banking Sector, the Fed continued to raise Interest Rates and increased the Fed Funds Rate by another 0.25%. The Target Range is now 4.75% – 5.0%. Fed Watchers expect the Fed to do one more 0.25% increase at the next FOMC Meeting on May 3rd – then take a “pause”. The “pause” will let the cumulative effects of higher Interest Rates tighter Bank lending percolate through the Economy. Paradoxically, longer-term Interest Rates declined despite a higher Fed Funds Rate. Traders were encouraged by the possibility of the Fed’s anticipated “pause”.

• 10-Year Treasury Note Yield fell to 3.48% (Mar 31) from 3.92% (Feb 28).
• 30-Year Treasury Bond Yield fell to 3.67% (Mar 31) from 3.93% (Feb 28).
• 30-Year Fixed Mortgage fell to 6.32% (Mar 30) from 6.50% (Feb 23).
• 15-Year Fixed Mortgage fell to 5.56% (Mar 30) from 5.76% (Feb 23).

Housing Market Data Released in March 2023

There was a lot of positive Housing Data in March. All Home Sales data was up thanks to a dip in Interest Rates. Home Prices seem to have stabilized in March. Inventory continues to be the biggest issue for Home Buyers. Thankfully, Housing Permits, Starts, and Completions jumped last month, along with a surge in Existing Home Sales and Mortgage Applications.

• Existing Home Sales (closed deals in February) rose 14.5% to an annual rate of 4,580,000 homes, down 22.6% in the last 12 months. 28% were all Cash Sales. The median price for all types of homes is $363,000 – down 0.2% from a year ago. The median Single-Family Home price is $367,150, down 0.7% YoY. The Median Condo price is  $321,000, up 2.5% YoY. Homes were on the market for an average of 34 days, and 57% sold in less than a month. Currently, 980,000 homes are for sale.
• New Home Sales (signed contracts in February) rose 1.1% to a seasonally adjusted annual rate of 640,000 homes – down 19.0% YoY. The median New Home price is $438,200. The average price is $498,700. There are 436,000 New Homes for sale, an 8.2 month supply.
• Pending Home Sales Index (signed contracts in February) rose 0.8% to 83.2 from 82.5  the previous month, down 21.1% YoY.
• Building Permits (issued in February) rose 13.8% to a seasonally adjusted annual rate of 1,524,000 units – down 17.9% YoY. Single-Family Permits rose 7.6% to an annual pace of 777,000 homes, down 35.5% YoY.
• Housing Starts (excavation began in February) rose 9.8% to an annual adjusted rate of 1,450,000, down 18.4% YoY. Single-Family Starts rose 1.1% to 830,000 units, down 31.6% YoY.
• Housing Completions (completed in February) rose 12.2% to an annual adjusted rate of 1,557,000 units – up 12.8% YoY. Single-Family Completions rose 1.0% to an annual adjusted rate of 1,037,000 homes – down 3.6% YoY.
• S&P/Case-Shiller 20 City Home Price Index fell 0.4% in January, up 2.5% YoY.
• FHFA Home Price Index rose 0.2% in January, now up 5.3% YoY.

Labor Market Economic Data Released in March 2023

The Economy created 311,000 New Jobs during February which exceeded expectations of  225,000. The Labor Market is still very tight, with 10,800,000 jobs open. The good news is that more workers entered the Labor Market as the Participation Rate edged up. The additional workers help moderate Wage Growth and Unemployment. Wages grew a modest 0.2%, while Unemployment rose to 3.6%. Although Tech Sector Layoffs garnered the headlines, they were only about 30% of the total layoffs so far in 2023.

• The Economy created 311,000 New Jobs in February.
• The Unemployment Rate rose to 3.6% in February.
• The Labor Force Participation Rate rose to 62.5% in February.
• The Average Hourly Wage rose 0.2% in February, up 4.6% YoY.
• Job Openings fell to 10,800,000 in January from 11,012,000 in December.

Inflation Economic Data Released in March 2023

Higher Interest Rates are winning the War on Inflation. PPI – which usually leads the CPI – fell 0.1% in February. That’s good news for now, but it can change quickly with an energy price shock. Inflation is hovering around 4.5% – 5.5%, depending on which indicator you use. Fed Funds are now at 4.75% – 5.0%. Economists theorize that the Fed Funds Rate needs to equal the Inflation Rate before a serious reduction of Inflation can occur. One more 0.25% Rate Increase will get Fed Funds to the 5.0% – 5.25% range. That’s about equal to Inflation. It’s also a convenient point for the Fed to halt additional rate hikes and see how the Economy – and Inflation Data – responds.

• CPI rose 0.4%, up 6.0% YoY              |           Core CPI rose 0.5%, up 5.5% YoY
• PPI fell 0.1%, up 4.6% YoY                |           Core PPI rose 0.3%, up 4.4% YoY
• PCE rose 0.3%, up 5.0% YoY            |           Core PCE rose 0.3%, up 4.6% YoY

GDP Economic Data Released in February 2023

The 3rd estimate for 4th Quarter 2022 GDP showed the US Economy grew at a 2.6% annualized rate. Looking back at 2022 GDP: Q1 down 1.6%, Q2 down 0.6%, Q3 up 3.2%, Q4 up 2.6%. In total, the Economy grew 0.9% in 2022. That’s far below the 5.9% growth in 2021 when the Economy was recovering from Covid Lockdowns. The recent GDP Data is encouraging as it shows the Fed’s Interest Rate hikes are slowing the Economy – not crashing it – and hopefully on course for a “soft landing”.

Consumer Economic Data Released in March 2023

Retail Sales declined in February mainly due to lower Gas Prices and fewer Vehicle Sales. Consumer Sentiment also declined due to high prices, not the recent Bank Closures (the survey were taken before the Bank Failures happened). The Banking turbulence that occurred in March will show up in Consumer Confidence and Sentiment in the next couple of months. The most recent Consumer Confidence data posted a slight increase but is still running low. Even though Consumers are confident Inflation will eventually be tamed, High Prices are taking a toll on their psyches.

• Retail Sales fell 0.4% during February, up 5.4% in the last 12 months.
• Consumer Confidence Index rose 0.8% to 104.2 from 103.4 the prior month.
• Consumer Sentiment Index (U of M) fell 7.5% to 62.0 from 67.0 the previous month.

Energy, International, and Things You May Have Missed  

• West Texas Intermediate Crude fell to $76/Barrel (Mar 31) from $77/Barrel (Feb 28).
• North Sea Brent Crude fell to $80/Barrel (Mar 31) from $84/Barrel (Feb 28).
• Natural Gas fell to $2.22/MMBtu (Mar 31) from $2.66/MMBtu (Feb 28).
• Lumber Prices are $365 per 1000 Board Feet, below Pre-Pandemic levels of roughly $400. That’s about 75% lower than the peaks of $1,700 in May 2021 and $1,400 in March 2022.
• Aramco, the huge oil company owned by Saudi Arabia, announced a monster (Net Income) profit of $161,000,000,000 in 2022 – possibly the largest profit a company has ever made.
• Over 500,000 Israelis took to the streets to protest upcoming changes in the Judicial System.
• Hyper-Inflation: The Annual Inflation Rate in Argentina hit 100%.
• President Xi and President Putin conducted talks in Moscow.

The Mortgage Economic Review is a concise summary of Key Economic Data that influences the Mortgage and Housing Markets. It’s a quick read that keeps busy Professionals updated on important Economic Information. Feel free to share this with colleagues in the Mortgage, Housing, Finance, and Banking business. To have the Mortgage Economic Review emailed to you each month, click here.

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Mark Paoletti, MortgageElements.com

The Mortgage Economic Review 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 and maybe 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 for use by Mortgage, Housing, and Finance Professionals and is not an advertisement to extend credit or solicit mortgage originations. © Copyright 2023 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.