Mortgage Economic Review March 2021

The Mortgage Economic Review summarizes recent Key Economic Indicators, Data, and Events important to Mortgage and Real Estate Professionals.

This winter was fairly mild until February when the country was blasted with snow and bitterly cold temperatures. Northerners expect nasty winter weather, but southern States (and Texas) didn’t expect it and were caught off guard. Speaking of expectations and being prepared, let’s talk Inflation. Expect it to come back and be prepared for it. Along with higher Inflation comes higher Interest Rates. While never good for the Mortgage Business – Inflation means the Economy is growing and there is demand for its products and services. Interest Rates jumped on the expectation of higher Inflation fueled by the prospect of another Stimulus Package. Opinions are divided on Inflation, the Economic Recovery, and the need for additional stimulus. Too little Fiscal Stimulus and the Recovery stalls. Too much, and we risk an over-heated Economy. Which way it will go, no one really knows, but Wall Streeters believe Inflation is coming back – it’s just a matter of time.

Key Economic Data and Events in February 2021

• A severe winter storm gripped the nation and overwhelmed Texas’ energy production leaving 15 million people without power and heat
• Stock Markets hit new highs before falling back: Dow 32,001, S&P 3.948, NASDAQ 14,153
• Interest Rates edged higher – 10 year US Treasury yield rose over 1.55%
• The 2nd Senate Impeachment Trial of Donald Trump resulted in a 2nd Acquittal
• Covid Vaccine distribution continued but at a slower pace than planned
• Inflation edged slightly higher with the CPI at 1.4% YoY and PPI at 1.7% YoY
• US GDP for the 1st quarter is running at a 4.1% annual growth rate

Interest Rates and Fed Watch 

Chairman Powell delivered his semi-annual report to Congress on February 24th. He believes that the Fed’s accommodative Monetary policy is not behind the run-up in asset prices (stocks and homes). In his report, Powell stated: “If you look at what’s really driving asset prices …in the last couple of months, it isn’t monetary policy. It’s expectations about the vaccines, it’s also fiscal policy…. Those are the news items that have been driving asset values.”

Chairman Powell also noted the “K” shaped recovery where some people are recovering better than others. In general, higher-income earners are managing better than lower-income brackets. This makes sense since the hardest hit industries were Service Hospitality and Travel. These businesses typically employ lower-paid workers. In the meantime, Interest Rates jumped in February on the expectation of higher Inflation. Fortunately, the Fed has consistently stated their willingness to tolerate higher Inflation until the Economy returns to full Employment. The next FOMC Meeting will be on March 16th and 17th. At this point, Fed Watchers don’t expect much change in Fed Monetary Policy.

Housing Market Data Released in February 2021

Not a lot of new developments in the Housing Market – except higher Mortgage Rates. Inventory has been the big constraint on Home Sales over the past year. Now that Mortgage Rates are rising, Affordability will worsen. Higher Mortgage Rates will have a cooling effect on Home Sales. How much the market cools remains to be seen. Keep in mind that even though Interest Rates have risen in the past month – they are still at record lows.

• Existing Home Sales (closed deals in January) rose 0.6% to an annual rate of 6,690,000 homes, up 23.2% in the last 12 months. The median price for all types of homes is $303,900 – up a whopping 14.1% from a year ago. The median Single-Family Home price is $308,300 and $269,600 for a Condo. First Time Buyers were 33%, Investors and 2nd Home Buyers 15%, Cash Buyers 19%. Homes were on the market an average of 21 days, and 71% were on the market less than a month. Currently, 1,040,000 homes are for sale, down 25.7% from 1,400,000 units a year ago.
• New Home Sales (signed contracts in January) rose 4.3% to a seasonally adjusted annual rate of 923,000 homes – up 19.3% YoY. The median New Home price is $346,400, and the average is $408,800. There are 307,000 New Homes for sale, which is a 4.0 month supply.
• Pending Home Sales Index (signed contracts in January) fell 2.8% to 122.8, up 13.0% YoY.
• Building Permits (issued in January) rose 10.4% to a seasonally adjusted annual rate of 1,881,000 units – up 22.5% YoY. Single-Family Permits rose 3.8% to an annual pace of 1,269,000 homes, up 29.9% YoY.
• Housing Starts (excavation began in January) fell 6.0% to an annual adjusted rate of 1,580,000 units – down 2.3% YoY. Single-Family Starts fell 12.2% to 1,162,000 homes – up 17.5% in the last 12 months.
• Housing Completions (completed in January) fell 2.3% to an annual adjusted rate of 1,336,000 units – up 2.4% YoY. Single-Family Completions rose 10.0% to 1,036,000 homes -up 14.3% in the last 12 months.
• S&P/Case-Shiller 20 City Composite Home Price Index rose 1.25% in December, up 10.1% YoY.
• FHFA Home Price Index rose 1.1% in December, now up 11.4% YoY.

Labor Market Economic Data Released in February 2021

The Economy created 49,000 new jobs in January. Economists expected 150,000 new jobs, so this is a disappointing number, but still a move in the right direction. Just about every sector lost jobs, including Construction and Manufacturing, which have been strong in the past few months. Conversely, Professional / Business Services added 97,000 jobs, and Government added 43,000 jobs. January’s weak Labor Data illustrates the difficulty of reopening the Economy while Covid keeps rearing its ugly head, and there are still 10 million workers unemployed due to Covid. Two points to make on the bright side: Wage Growth was an impressive 5.4% in the last 12 months, and Covid cases are subsiding and continue to do so as the weather warms and vaccine distribution improves.

• The Economy created 49,000 new jobs during January
• The Unemployment Rate fell to 6.3% from 6.7% in January
• The Labor Force Participation Rate fell to 61.4% from 61.5%
• The Average Hourly Wage rose 0.2%, now up 5.4% YoY

Inflation Economic Data Released in February 2021

February Data shows that Inflation is increasing. During an Economic Recovery, higher Inflation is expected and even desired. So why all the worry about Inflation? GDP Data shows the Economy is on a substantial growth track, and the last $900B Stimulus Package is just beginning to work its way through. Many Economists are worried another $1.9T Stimulus Package will overheat the Economy and result in uncontrolled (or difficult to control) Inflation. Other Economists think more Fiscal Stimulus is needed, and without it, the recovery could stall. They would rather err on the side of caution and risk higher Inflation than risk the Recovery stalling. It’s a delicate balancing act and the subject of much debate. One thing everyone agrees on – Inflation is back.

• CPI rose 0.3%, now up 1.4% in the last 12 months
• Core CPI (ex-food & energy) unchanged, up 1.4% in the last 12 months
• PPI rose 1.3%, up 1.7% in the last 12 months
• Core PPI (ex-food & energy) rose 1.2%, up 2.0% in the last 12 months

GDP Economic Data Released in February 2021

The 2nd estimate of 4th Quarter 2020 US GDP showed the Economy grew at a 4.1% annualized rate.  This estimate is about the same as last month’s estimate of 4.0% and in line with expectations. How much do Economists expect the Economy to grow in 2021? Early estimates are between 4.0% – 9.0%, with the consensus being in the 5.0% – 6.0% range. Keep in mind that 5.0% GDP growth is a booming Economy. One thing for sure is the Economy is gaining momentum. Let’s hope it continues.

Consumer Economic Data Released in February 2021

February gave us some encouraging Consumer Data. Retail Sales jumped 5.3%, which was a pleasant surprise and well above expectations. This data is especially welcome after the string of disappointing Retail Sales numbers from the Holiday Season. Consumer Confidence was up, but Sentiment was down. Don’t forget that the Consumer has stockpiled a mountain of cash in savings accounts. That money is just waiting to be spent. Warmer weather should encourage Consumers to loosen their purse strings.

• Retail Sales rose 5.3%, now up 7.4% in the last 12 months
• Consumer Confidence Index rose to 91.3 from 89.3 the previous month
• Consumer Sentiment Index (U of M ) fell to 76.8 from 79.0  the previous month

Energy, International, and Things You May Have Missed    

Oil Prices surged above $60 per barrel in February. Blame the high prices on depleted reserves, OPEC cutbacks, Texas energy complex shutting down, and expectations increasing demand this Spring as the Economy recovers.  As of March 1st, West Texas Intermediate Crude is trading around $62/barrel, and North Sea Brent Crude is trading about $65/barrel.

• Carmakers have cut back production numbers due to a shortage of Semiconductors.
• Porsche announced a target of 50% electric vehicles by 2025 and 80% by 2030.
• Britain imposed strict quarantine requirements on international travelers. Breaking those rules would result in fines up to $14,000 or 10 years in prison.
• China threatened to restrict sales of rare-earth metals to the US, disrupting defense contractors.
• Copper has hit a record of $9,000 per ton due to overwhelming demand.

The Mortgage Economic Review is a concise summary of Key Economic Data that influences the Mortgage and Real Estate Industries. It is a quick read that helps Mortgage Professionals stay updated on important Economic Information that affects their industry. Feel free to share this with friends and colleagues in the Mortgage and Real Estate industries. If you would like this Mortgage Economic Review emailed to you at the beginning of every month, click here. The Mortgage Economic Calendar for each month is available 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; some are 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 2021 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.