Skip to main content

Mortgage Economic Review: April 2020

Mark Paoletti
Apr 06, 2020

This Newsletter is a summary of Economic Data and Events that affect the Mortgage Business, but March 2020 was different. There was only one event that mattered: Covid-19. Everything else paled. March 2020 and the start of the Covid-19 Pandemic is a month that will be etched into the history books. Historic events are pivotal. Things are not the same afterward ... but it will end, we will recover, with a new normal. 
 
Most of the data below was released in March 2020 and reveals Economic activity during February 2020. This data is too early to reflect Covid-19's damage, but is very relevant. It portrays a very healthy U.S. Economy with a robust Labor Market, low Inflation, low Interest Rates, and a strong Consumer—before being infected with the Cononavirus. Healthy economies, like healthy people, recover faster when they get the right treatments. To treat this disease, the Fed and Washington, immediately provided massive monetary and fiscal support. The Fed held emergency meetings to swiftly provide copious liquidity to support the financial markets. The U.S. government moved with uncharacteristic speed to pass a stimulus package providing financial support for people and businesses. That quick response and intense action boost the odds for a fast recovery.

Key economic data and events in March 2020

►The Covid-19 Pandemic gripped the world and sent shockwaves thru the global markets and economies
►CARES Act: Congress Passed a $2.2T relief package to aid the war on Covid-19
►The stock market plummeted with the DOW dropping to a low of 18,214 before bouncing higher
►Several U.S. Treasury Securities are at negative yields
►The Fed made two emergency interest rate cuts totaling 1.5 percent to Fed Funds (target: 0.0 percent to 0.25 percent)
►The Fed announced several measures to add liquidity to the Global Financial Markets
 

Interest rates and Fed watch  

The Fed rolled out their big guns (more like Bazookas) in March to fight the War on Covid-19. They made it very clear—to the country and world—they will do ANYTHING to support the global financial markets. The Fed is providing an unprecedented level of liquidity through several channels. The Fed made two emergency interest rate cuts to Fed Funds in March: One on March 3 cutting rates by 0.5 percent, and another on March 15 cutting rates by an additional one percent. In a statement, the Fed said they will keep interest rates low until they are: "Confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” The next FOMC Meeting is scheduled for April 28th and 29th.
 
The Fed knows it can't prevent an economic downturn, but aggressive monetary policy can soften the blow and hasten a recovery. Along with interest rate cuts, the Fed announced a litany of additional emergency actions aimed at pumping massive amounts of liquidity into banks and the financial markets. Some of the other actions are:
 
►Expanding the Fed’s Balance Sheet by buying $500B of Treasury Securities and $200B of MBS—plus reinvesting payments from Treasury Debt and MBS into purchasing more Treasury and MBS Securities
►Encouraged bank and depository institutions to use the Discount Window to meet credit demands
►Lowered the Discount Rate by 1.5 percent to 0.25 percent, and extended Discount Window borrowing up to 90 days, prepayable and renewable on a daily basis
►Encouraged banks to use the Fed's Intraday Credit on a collateralized and uncollateralized basis
 

Housing market data released in March 2020

With all the bad news, here is some good, but old, news: Single-Family Housing starts are up 35.4 percent in the last year. People are still buying homes, and once this disaster passes, people will buy more homes. Economists estimate there is a housing shortage to the tune of 3,000,000 units. Covid-19 may disrupt housing in the short run, but it isn't going to make that shortage disappear. In the long run, people still need a roof over their head and a place to raise families. If builders can consistently deliver 1,000,000 new homes per year, we can chip away at the housing shortage over the next decade.
 
Existing Home Sales (closed deals in February) rose 6.5 percent to an annual rate of 5,770,000 homes, up 7.2 percent in the last 12 months. The median price for all types of homes is now $270,100—up eight percent from a year ago. The median Single Family Home price is $272,400 and $249,900 for a condo. First-time buyers were 32 percent, Investors 17 percent, Cash Buyers 20 percent. Homes were on the market an average of 36 days, and 47 percent were on the market for less than a month. Currently, 1,470,000 homes are for sale, down 9.8 percent from 1,630,000 units a year ago.
 
►New Home Sales (signed contracts in February) fell 4.4 percent to a seasonally adjusted annual rate of 765,000 homes—up 14.3 percent YoY. The median New Home price was $345,900, and the average New Home price was $403,800. There are 319,000 New Homes for sale, which is a five-month supply.
 
►Pending Home Sales Index (signed contracts in February) rose 2.4 percent to 115.5, up 9.4 percent YoY.     
 
►Housing Starts (excavation began in February) fell 1.5 percent to a seasonally adjusted annual rate of 1,599,000 units—up 39.2 percent YoY. Single-Family Starts rose 6.7 percent to an annual pace of 1,072,000 units—up 35.4 percent YoY.
 
►Building Permits (issued in February) fell 5.5 percent to an annual adjusted rate of 1,464,000—up 13.8 percent YoY. Single Family permits rose 1.7 percent to 1,003,000 units—up 23.3 percent YoY.
 
►S&P/Case-Shiller 20 City Composite Home Price Index rose 0.3 percent in January, now up 3.08 percent YoY.
 
►FHFA Home Price Index rose 0.3 percent in January, now up 5.2 percent YoY.
 

Labor Market Economic Data Released in March 2020

The latest Jobs Report showed the Economy added 273,000 New Jobs in February. During the last three months, the Economy created an average of 243,000 new jobs per month. In the last 12 months, the Economy created an average of 171,000 jobs per month. The Labor Market was doing great, then Covid19 hit, and in one week, 3,283,000 workers lost their jobs and filed Unemployment claims. That number is unprecedented in history. To get a perspective, the previous record was 1982, when 695,000 workers filed Unemployment claims in one week. It's too early to tell how badly Covid19 damaged the Labor Market because data is just starting to roll in. Hospitality, Travel, Leisure, Bars, and Restaurants will be especially hard hit. Once the trickle-down effect kicks in - everyone will feel some Labor Market pain. The next Jobs Report is Friday, April 3rd, but that data is too early to be a meaningful indicator of the extent of the damage.
 
►The Economy added 273,000 New Jobs in February
►The Unemployment Rate fell to 3.5% from 3.6% in the prior month
►The Labor Force Participation Rate was unchanged at 63.4% from 63.4% the prior month
►The Average Hourly Wage rose 0.3% in February, up 3.1% YoY
 

Inflation Economic Data Released in March 2020

Inflation Data came in lower than expected as the PPI fell 0.6%, and the CPI was up only 0.1%. Economists had expected Inflation to be soft this month, but not this soft. Now, with the Covid19 Pandemic, Economists are adjusting expectations for future Inflation - all on the downside. It's too early to get an accurate read on Inflation going forward, but rough estimates range from down 0.1% to down 0.8%. Despite the drop in Inflation expectations, the cost of Shelter (up 3.3% YoY) and Medical Care (up 5.3% YoY) continue to outpace all other categories.
 
►CPI rose 0.1%, up 2.3% in the last 12 months
►Core CPI (ex-food & energy) rose 0.2%, up 2.4% in the last 12 months
►PPI fell 0.6%, up 1.3% in the last 12 months
►Core PPI (ex-food & energy) fell 0.3%, up 1.4% in the last 12 months
 

GDP Economic Data Released in March 2020

The Final Estimate of 4th Quarter 2019 GDP showed the Economy expanded at a 2.1% annualized rate (2.1% expected). GDP Data is backward-looking, it takes time to compile, analyze, and adjust the number. 1st Quarter GDP will only be slightly affected by Covid19. The real damage to GDP will hit in the 2nd and 3rd Quarters. The big question is how fast we can recover and get people back to work. How can we do a V-shaped recovery instead of U-shaped, or L-shaped? We know 2nd Quarter GDP data is going to be ugly with preliminary estimates all over the board. 2Q2020 GDP estimates range from down 2.0% to down 5.0%. Grim numbers, but they are only speculation at this point.
 

Consumer Economic Data Released in March 2020

All the Consumer Data this month is in the red, but not too bad - yet. Unfortunately, this is probably just the beginning of a string of negative Consumer Data that will be coming over the next few months. It will be interesting to see Retail Sales Data next month after Consumers went on a stock-up buying spree. Consumer Confidence and Sentiment fell and will get worse in the 2nd quarter. When and where Consumer Data will bottom out is anyone's guess. Right now, we have to just watch and wait.
 
►Retail Sales fell 0.5% during February, up 4.3% in the last 12 months
►Consumer Confidence Index fell 9.5% to 120.0 from a revised 132.6 the prior month          
►Consumer Sentiment Index (U of M ) fell to 89.1 from 101.0 the prior month
 

Energy, International, and Things You May Have Missed 

Oil prices tumbled due to Covid19 fears, which reduced travel and fuel demand. Plus, Russia and Saudi Arabia are in a spat over quotas, so they ramped up production and flooded the market with oil - just as demand nosedived. The last time oil was this low was 2003 during an outbreak of SARS (Severe Acute Respiratory Syndrome) in Asia. Developing Nations that rely on oil revenue may lose 85% of their income this year.
 
►North Sea Brent Crude fell to $23 from $51 per barrel
►West Texas Intermediate Crude fell to $20 from $46 per barrel
►Japan postponed the Summer Olympics for a year
►The European Union rolled out the PEPP (Pandemic Emergency Purchase Plan) of 750B Euros ($820B) to support the EU Economies

The monthly Mortgage Economic Review is a concise summary of Key Economic Data that influence 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 industry. 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.

Mark Paoletti, president and founder of MortgageElements.com, may be reached by e-mail at MPaoletti@MortgageElements.com.