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

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

• Interest Rates: The 10-Year Treasury yield rose to 3.97% (Jul 31) from 3.81% (Jun 30).
• Housing: Existing Home Sales fell 3.3% (-18,9% YoY), New Home Sales fell 2.5% (+23.5% YoY), Pending Home Sales rose 0.3% (-15.6% YoY), Home Prices are up 1.7% to 2.8% YoY.
• Labor: The US Economy created 209,000 New Jobs in June, the Unemployment Rate fell to 3.6%, and Wages increased by 4.4% YoY.
• Inflation: June CPI rose 0.2% (+3.1% YoY), and PCE rose 0.2% (+3.0% YoY).
• The Economy: US GDP grew by a 2.4% annualized rate in 2Q2023, up 2.6% YoY.
• Consumers: Retail Sales rose 0.2% (+1.5% YoY), Consumer Confidence and Sentiment rose.
• Stock Markets rose in July: Dow +3.3%, S&P +3.0%, Nasdaq +3.8%.
• Oil prices rose 17% to $82/Barrel (Jul 31) from $70/Barrel (Jun 30).

Interest Rates and Fed Watch 

As expected, the Fed Raised the Fed Funds Rate by another 0.25%. This marks the 11th increase in 16 months. The target range is now  5.25% – 5.50% – the highest in over 20 years. The Fed also said this is not the last increase. The FOMC Statement said: “In determining the extent of additional policy firming that may be appropriate to return Inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and Inflation, and economic and financial developments…The Committee is strongly committed to returning Inflation to its 2% objective.”

FedSpeak Translation: They will keep raising Interest Rates until Inflation comes down to 2.0%…or something breaks.

In the Press Conference after the FOMC Meeting, Chairman Powell mentioned the tight Labor Market as a key reason that Core Inflation is being particularly stubborn. He also said not to expect any rate cuts this year, but they may pause for a while. The Fed’s decisions are “Data Dependent” and Interest Rate Hikes affect the Economy with a lag. They will have 3 more opportunities to analyze the Data and adjust Interest Rates this year. The last 3 FOMC Meetings in 2023 are Sep 19-20,  Oct 31- Nov 1, Dec 12-13. At this point, Economists are expecting one more rate hike in 2023.

• 10-Year Treasury Note Yield rose to 4.02% (Jul 31) from 3.81% (Jun 30).
• 30-Year Treasury Bond Yield rose to 3.97% (Jul 31) from 3.85% (Jun 30).
• 30-Year Fixed Mortgage rose to 6.81% (Jul 27) from 6.71% (Jun 29).
• 15-Year Fixed Mortgage rose to 6.11% (Jul 27) from 6.06% (Jun 29).

Housing Market Data Released in July 2023

New Home Sales has been a bright spot in the Housing Market – up 23.5% YoY. That’s a solid trend based on reliable Data. New Home Sales should remain strong for the rest of the year. Interestingly, the Median Price of New Homes was down 16% at a time when sales were increasing. A large part of the decrease is probably due to lower lumber prices. Builders are loathed to lower prices. They would rather throw in free upgrades like basements, expensive flooring, or better cabinets than lower prices. Those free upgrades are essentially a price drop, but it doesn’t show up in the Median Price Data. Comparing apples to apples, I suspect the actual drop in Median New Home Prices was more than 16%.

• Existing Home Sales (closed deals in June) fell 3.3% to an annual rate of 4,160,000 homes, down 18.9% in the last 12 months. 26% were all Cash Sales. The median price for all types of homes is $410,200 – down 0.9% from a year ago. The median Single-Family Home price is $416,000, down 1.2% YoY. The Median Condo price is $361,600, up 1.9% YoY. Homes were on the market for an average of 18 days, and 76% sold in less than a month. Currently, 1,080,000 homes are for sale, down 13.6% YoY.
• New Home Sales (signed contracts in June) fell 2.5% to a seasonally adjusted annual rate of 697,000 homes, up 23.5% YoY. The median New Home price is $415,400 (-16.4% from peak). The average price is $494,300. There are 432,700 New Homes for sale, a 7.4 month supply.
• Pending Home Sales Index (signed contracts in June) rose 0.3% to 76.8 from 76.5 the previous month, down 15.6% YoY.
• Building Permits (issued in June) fell 3.7% to a seasonally adjusted annual rate of 1,440,000 units – down 15.3% YoY. Single-Family Permits rose 2.2% to an annual pace of 922,000 homes, down 2.7% YoY.
• Housing Starts (excavation began in June) fell 8.0% to an annual adjusted rate of 1,434,000, down 8.1% YoY. Single-Family Starts fell 7.0% to 935,000 units, down 7.4% YoY.
• Housing Completions (completed in June) fell 3.3% to an annual adjusted rate of 1,468,000 units – up 5.5% YoY. Single-Family Completions fell 2.8% to an annual adjusted rate of 986,000 homes – down 2.3% YoY.
• S&P/Case-Shiller 20 City Home Price Index rose 1.5% in May, down 1.7% YoY.
• FHFA Home Price Index rose 0.7% in May, up 2.8% YoY.

Labor Market Economic Data Released in July 2023

The Economy created 209,000 New Jobs during June. The Jobs Data was weaker than the expected 240,000 new Jobs. Plus, the April and May Data was revised down by 77,000 and 33,000, respectively. After revisions, Net New Jobs was 110,000. If you average the last 3 months, average Job Creation was 244,000 per month. Job Openings was also down. Wages are increasing at 4.4% annually. The Labor Market continues on a solid footing but is a little cooler than the previous few months – which is exactly what the Fed wants to see.

• The Economy created 209,000 New Jobs during June.
• The Unemployment Rate fell to 3.6% in June from 3.7% in May.
• The Labor Force Participation Rate was 62.6% in July – unchanged for 4 months.
• The Average Hourly Wage rose 0.4% in June, up 4.4% YoY.
• Job Openings fell to 9,800,000 in May from 10,100,000 in April.

Inflation Economic Data Released in July 2023

Inflation Data continued to trend lower. Annual Inflation had an impressive drop from 9.1% to 3.1% in 12 months, closer to the Fed’s target of 2.0%. However, the Fed does not believe it will hit that 2.0% target in 2023. This recent data has been very encouraging. There are worries that Inflation could begin to rise due to hot markets in Labor, Housing, and Stocks – and higher Oil Prices. Every time Oil Prices go up, you have to worry about the effect on Inflation. Core CPI and Core PCE are “stubborn” and hovering in the 4.1% – 4.8% range. Much of the “stubbornness” in Core Inflation is due to the Labor Market. Core Inflation is often a precursor to the total Inflation.

• CPI rose 0.2%, up 3.0% YoY              |    Core CPI rose 0.2%, up 4.8% YoY
• PPI rose 0.1%, up 0.1% YoY              |    Core PPI rose 0.1%, up 2.4% YoY
• PCE rose 0.2%, up 3.0% YoY            |    Core PCE rose 0.2%, up 4.1% YoY

GDP Economic Data Released in July 2023

The 1st estimate for 2nd Quarter 2023 GDP showed the US Economy grew at a 2.4% annualized rate, up 2.6% YoY. The market was expecting a 1.9% gain. The resilience of the US Economy continues to surprise Economists and the Fed. Keep in mind this growth has continued despite the rising Interest Rate environment. The US Economy is 70% Consumer Based. As long as people have secure jobs, they will continue to spend. As long as the Consumer continues to spend, the Economy will keep growing – and stay out of a Recession.

Consumer Economic Data Released in July 2023

The US Consumer continues to open their wallets because they feel good about the prospects of lower Inflation and good job security. As long as the Consumer continues to spend, the US Economy will stay out of a recession. Oil Prices jumped $12/Barrel (17%) during July. We’ll see how Consumer Spending holds up with higher gas prices during the next few months.

• Retail Sales rose 0.2% during June, up 1.5% in the last 12 months.
• Consumer Confidence Index rose 6.3% to 117.0 from 110.1 the prior month, up 22.8% YoY.
• Consumer Sentiment Index (U of M) rose 11.2% to 71.6 from 64.4 the previous month.

Energy, International, and Things You May Have Missed  

• West Texas Intermediate Crude rose to $82/Barrel (Jul 31) from $70/Barrell (Jun 30).
• North Sea Brent Crude rose to $85 /Barrel (Jul 31) from $75/Barrel (Jun 30).
• Natural Gas fell to $2.65/MMBtu (Jul 31) from $2.771/MMBtu (Jun 30).
• China’s 2nd quarter GDP clocked in at a paltry 0.8% and is causing concern that the slowness will spill over into other Economies.
• Grain Prices jumped after Russia refused to extend the Black Sea Grain Initiative.
• President Biden announced a New Student Loan Forgiveness Plan that would cost roughly $39,000,000,000 and wipe out the Student Loan Debt of 800,000 people.
• A major strike was averted when UPS and the Teamsters Union negotiated a tentative agreement.
• Banc of California will merge with PacWest Bancorp to form Pacific Western Bank.

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 may be 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.