Mortgage Economic Review January 2024

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

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

• Interest Rates: The 10-year Treasury yield fell to 3.88% (Dec 29) from 4.37% (Nov 30).
• Housing: November Existing Home Sales rose 0.8% (-7.3% YoY), New Home Sales fell 12.2% (+1.4% YoY), and Pending Home Sales were unchanged (-5.2% YoY). Home Prices are up 4.9% – 6.3% YoY.
• Labor: The US Economy created 199,000 New Jobs in November. The Unemployment Rate fell to 3.7%. Wage Growth slowed slightly to a 4.0% YoY pace.
• Inflation: CPI rose 0.1% in November (+3.1% YoY), and PCE fell 0.1% (+2.6% YoY).
• The Economy: US GDP grew by a 4.9% annualized rate in 3Q2023, up 3.0% YoY.
• Consumers: Retail Sales rose 0.3% in November (+4.1% YoY), Consumer Confidence jumped 9.6% while Sentiment surged 13.7%.
• Stock Markets rose in December: Dow +4.8%, S&P +4.4%, Nasdaq +5.5%.
• Oil Prices fell to  $72/Barrel (Dec 29) from $76/Barrel (Nov 30).

Interest Rates and Fed Watch 

Fed Chairman Jerome Powell made a surprise announcement after the December FOMC Meeting. He said the Fed was probably finished raising Interest Rates, and hinted that the next move would be a Rate Cut sometime in 2024. When will the Fed start cutting Interest Rates? He didn’t commit to a timeframe, but we know their decisions are “data dependent”. The decision to cut Interest Rates will be based on Inflation, Labor, and GDP data released in the next few months. Fed Watchers speculate it could be between as soon March or June – provided Inflation stays subdued. The Markets loved the news. Stock and Bond prices surged higher while Interest Rates plummeted. The Fed also said they don’t expect Inflation to hit their 2.0% target until 2026, and they don’t expect a recession in 2024. However, they expect the Labor Market to remain tight for the foreseeable future. After a rough year in the Mortgage and Housing Business, it’s welcome news as 2023 comes to a close.  

• 10-Year Treasury Note Yield fell to 3.88% (Dec 29) from 4.37% (Nov 30).
• 30-Year Treasury Bond Yield fell to 4.03% (Dec 29) from 4.54% (Nov 30).
• 30-Year Fixed Mortgage fell to 6.61% (Dec 28) from 7.22% (Nov 30).
• 15-Year Fixed Mortgage fell to 5.93% (Dec 28) from 6.56% (Nov 30).

Housing Market Data Released during December 2023

The latest New Home data is mixed. New Home sales dropped a surprising 12.2% in November, but Single-Family Housing Starts rose 18.0% for the month and a whopping 42.2% in the last year to 1,143,000 units. That’s a lot of Single-Family Homes coming on the market next year. This data shows that Builders are ramping up construction. The supply of building materials and skilled labor has loosened up and Mortgage Rates moved lower. The increased supply of New Homes will temper the rise in Home Prices. Lower Mortgage Rates plus lower Home Prices (hopefully) means better affordability. This scenario is setting the New Home Market up for a great 2024.

• Existing Home Sales (closed deals in November) rose 0.8% to an annual rate of 3,820,000 homes, down 7.3% in the last 12 months. The median Single-Family Home price is $392,100, up 3.5% YoY. The Median Condo price is $350,100, up 8.6% YoY. Homes were on the market for an average of 25 days, and 62% sold in less than a month. Currently, 1,130,000 homes are for sale, up 0.9% YoY.
• New Home Sales (signed contracts in November) fell 12.2% to a seasonally adjusted annual rate of 590,000 homes, up 1.4% YoY. The median New Home price is $434,700 (down from a peak of $496,800 in Oct 2022). The average price is $488,900 (down from a peak of $568,700 in Dec 2022). There are 451,000 New Homes for sale, a 9.2 month supply.
• Pending Home Sales Index (signed contracts in November) was unchanged at 71.6 from the previous month, down 5.2% YoY.
• Building Permits (issued in November) fell 2.5% to a seasonally adjusted annual rate of 1,460,000 units – up 4.1% YoY. Single-Family Permits rose 0.7% to an annual pace of 976,000 homes, up 22.8% YoY.
• Housing Starts (excavation began in November) rose 14.8% to an annual adjusted rate of 1,560,000, up 9.3% YoY. Single-Family Starts rose 18.0% to 1,143,000 units, up 42.2% YoY.
• Housing Completions (completed in November) rose 5.0% to an annual adjusted rate of 1,447,000 units – down 6.2% YoY. Single-Family Completions fell 3.2% to an annual adjusted rate of 960,000 homes – down 12.9% YoY.
• S&P/Case-Shiller 20 City Home Price Index rose 0.6% in October, up 4.9% YoY.
• FHFA Home Price Index rose 0.3% in October, up 6.3% YoY.

Labor Market Economic Data Released during December 2023

The Economy created 199,000 New Jobs during November, and the Unemployment Rate dropped to 3.7%. The last Jobs Report of 2023 came in much better than expected. Keep in mind that this data includes Auto Industry Workers returning to their jobs after the strike in October and November. The report also includes people entering (or re-entering) the workforce to make ends meet. Inflation has taken a toll on purchasing power, and more people are coming back to work to help pay down their credit card balances.

• The Economy created 199,000 New Jobs during November.
• The Unemployment Rate fell to 3.7% in November from 3.9% in October.
• The Labor Force Participation Rate rose to 62.8% during November from 62.7% in October.
• The Average Hourly Wage rose 0.4% during November, up 4.0% YoY.
• Job Openings fell to 8,733,000 in October from 9,553,000 in September.

Inflation Economic Data Released during December 2023

This month’s Inflation Data was encouraging. The CPI was up 0.1%, while the PCE was down 0.1%. That data was good enough for the Fed to stop raising Interest Rates. A lot of the favorable Inflation news can be attributed to lower Energy costs, which fell 2.3% during November. You have probably noticed lower gas prices at the pumps. Gasoline Prices dropped 6.0% in November and 5.0% in October. The 3 big components of Inflation are Food, Energy, and Shelter. While Gasoline Prices dropped 6.0%, Shelter costs rose 6.5%. Why is Shelter cost still rising so much? Look at Home Prices – they are still rising. Home Prices increased 5.0% – 6.5% in the last year. However, as Interest Rates drop, so will Shelter Costs, which will further reduce Inflation.

• CPI rose 0.1%, up 3.1% YoY       |    Core CPI rose 0.3%, up 4.0% YoY
• PPI unchanged, up 0.9% YoY   |    Core PPI rose 0.1%, up 2.5% YoY
• PCE fell 0.1%,up 2.6% YoY        |    Core PCE rose 0.1%, up 3.2% YoY

GDP Economic Data Released during December 2023

The 3rd and Final Estimate for 3rd Quarter 2023 GDP showed the US Economy grew at a 4.9% annualized rate. That’s more than double 2nd Quarter growth of 2.1%. Year over Year (YoY) and Year to Date (YTD), the Economy has grown about 3.0%. Economists don’t expect that growth rate to continue in the 4th quarter. They expect the Economy will cool off but don’t foresee a Recession in 2024. We’ll get a first look at 4th quarter GDP data later in January.

Consumer Economic Data Released during December 2023

Lower Gasoline Prices, Lower Inflation, and a rising Stock Market put Consumers in a Happy Mood for the Holidays. Consumer Confidence and Sentiment jumped. Retail Sales rose 0.3% during November after falling in October. It appears that Consumers were waiting for Black Friday Specials. The final numbers for the Holiday Spending Season won’t be in until early 2024, but so far, it looks like Holiday Sales were OK – good, but not great. How Consumer Spending holds up in 2024 will be a function of Wage Growth, Savings Rate, Credit Card Balances, and Energy Prices. Of those components, Consumer Debt and high Credit Card Balances could be a potential issue in 2024.

• Retail Sales rose 0.3% during November, up 4.1% in the last 12 months.
• Consumer Confidence Index rose 9.6% to 110.7 from a revised 101.0 the prior month, up 1.6% YoY.
• Consumer Sentiment Index (U of M) rose 13.7% to 69.7 from 61.3 the previous month.

Energy, International, and Things You May Have Missed  

• West Texas Intermediate Crude fell to $72/Barrell (Dec 29) from $76/Barrel (Nov 30).
• North Sea Brent Crude fell to $72/Barrel (Dec 29) from $83/Barrel (Nov 30).
• Natural Gas fell to $2.51/MMBtu (Dec 29) from $2.80/MMBtu (Nov 30).
• Shipping Companies (including Oil Tankers) halted shipments through the Red Sea after Houthi Militants in Yemen attacked ships in response to the Hamas-Israeli War. The US sent the USS Eisenhower to patrol the Red Sea and Yemen coast.

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 2024 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.