BY MARK PAOLETTI | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
As we progress into the second half of 2020, people can't wait for 2020 to be over, and for life to return to normal. Baseball and hockey just started with abbreviated seasons, and we'll see what happens to football.
Despite the news on mass media, there is encouraging data on the economy and COVID-19. The Economy is on a steady recovery track - employment is increasing, consumers are spending, and people are getting out more. Even though there have been several spikes, the good news is that the mortality rate has dropped dramatically as doctors learn how to treat it.
In the meantime, the Fed continues to do "whatever it takes" and provide an accommodative monetary policy. Congress is hammering out another stimulus package. Mortgage production is going gangbusters with refi and purchase loans...and the housing market is red hot.
Key Economic Data And Events In July 2020
- The last FOMC Meeting concluded with the Fed continuing its current monetary policy
- 2nd Quarter GDP showed the economy contracted 32.9% on an annual basis
- The economy added 4.8 million jobs, and the Unemployment Rate fell to 11.1%
- Tensions with China escalated with the closing of both a US and Chinese consulate
- The US Dollar continued to weaken against other major currencies
- The 10 Year Treasury Security yield is bouncing around 0.6%
Interest Rates And Fed Watch
The latest FOMC Meeting wrapped up last week with no surprises. As excepted, the Fed kept monetary policy unchanged. They continued their mantra that they will do "whatever it takes" to foster an economic recovery. This includes keeping interest rates near zero through 2022 and maintaining all their various lending facilities and programs.
No one has ever lived through a pandemic like this, and there isn't a road map or rules the Fed can follow from previous experience. The Fed also took the opportunity to urge politicians to do their part by providing additional fiscal stimulus. The next FOMC meeting is Sept. 15 and 16.
Housing Market Data Released In July 2020
The Housing Data is ALL GREEN this month. Home sales are very robust driven by low interest rates, and renters anxious to buy their first home. Single family homes, in particular, are most in demand as consumers are looking for larger homes (with a backyard) to accommodate work-from-home needs. Many workers now have the flexibility to "telework" and are not required to reside close to their place of employment. A new trend is developing in the housing markets due to the ability to telework: home demand in less dense markets - far-out suburbs and small towns - is increasing.
A robust housing market is a necessary factor for a sustained economic recovery but continued high unemployment will dampen home sales. Unemployed workers can't buy homes.
- Existing Home Sales (closed deals in June) rose 20.7% to an annual rate of 4,720,000 homes, down 11.3% in the last 12 months. The median price for all types of homes is $295,300 - up 3.5% from a year ago. The median single-family home price is $298,600 and $262,700 for a condo. First-time buyers were 35%, investors 9%, cash buyers 16%. Homes were on the market for an average of 24 days, and 62% were on the market for less than a month. Currently, 1,570,000 homes are for sale, down 18.2% from 1,920,000 units a year ago.
- New Home Sales (signed contracts in June) rose 13.8% to a seasonally adjusted annual rate of 776,000 homes - up 6.9% YoY. The median new home price is $329,200, and the average is $384,700. There are 307,000 new homes for sale, which is a 4.7 month supply.
- Pending Home Sales Index (signed contracts in June) rose 16.6%, up 6.3% YoY.
- Building Permits (issued in June) rose 2.1% to a seasonally adjusted annual rate of 1,241,000 - down 2.5% YoY. Single-family permits rose 11.8% to an annual pace of 834,000 units, down 1.1% YoY.
- Housing Starts (excavation began in June) rose 17.3% to an annual adjusted rate of 1,186,000 units - down 4.9% YoY. Single-family starts rose 17.2% to 831,000 units - down 3.9% in the last 12 months.
- Housing Completions (issued in June) rose 4.3 to an annual adjusted rate of 1,250,000 - up 5.1% YoY. Single-family completions rose 9.6% to 910,000 units - up 4.0% in the last 12 months.
- S&P/Case-Shiller 20 City Composite Home Price Index rose 0.04% in May, up 3.7% YoY.
- FHFA Home Price Index fell 0.3% in May, now up 4.9% YoY.
Labor Market Economic Data Released In July 2020
The economy added 4,800,000 jobs in June and the unemployment rate fell to 11.1% from 13.3%. This is the second month in a row with encouraging jobs data, even though the labor market remains fragile. The labor market is steadily improving, but at a slower rate than the economy - most likely due to a lag in recalling furloughed workers, and errors in data reporting.
However, there are still millions of workers unemployed from the 2020 peak, and the Federal Pandemic Unemployment Assistance expired on July 25. Economists felt the generous PUA benefits created a deterrent to return to work as many workers made more money sitting at home than working.
The July Jobs Report will be released Friday, Aug. 7. Most economists expect to see more encouraging data, but not as good as July's data.
- The Economy added 4,800,000 Jobs in June
- The Unemployment Rate fell to 11.1% in June from 13.3% the previous month
- The Labor Force Participation Rate rose to 61.5% in June from 60.8% the previous month
- The Average Hourly Wage fell 1.2% in June, up 5.0% YoY
Inflation Economic Data Released In July 2020
Inflation data was mixed with CPI up, and the PPI down. Much of the CPI increase can be attributed to higher gasoline prices, which is a large component of the CPI. Social distancing and telework will restrict fuel demand and keep gas prices in check.
Along with higher gas prices, consumers also paid more for groceries and clothes. The risk of Deflation has eased, but there is still downward pressure on prices. The cost of services like bars, restaurants, hair salons, barbers, health clubs, hotels, travel, and vacation destinations, is still depressed as people continue to social distance.
- CPI rose 0.6%, up 0.6% in the last 12 months
- Core CPI (ex-food & energy) rose 0.2%, up 1.2% in the last 12 months
- PPI fell 0.2%, down 0.8% in the last 12 months
- Core PPI (ex-food & energy) fell 0.3%, down 0.1% in the last 12 months
GDP Economic Data Released In July 2020
The 1st Estimate of 2nd Quarter 2020 GDP showed the economy contracted 32.9%. Economists had estimates ranging from a 25% to 40% contraction, with the consensus at -35%. Everyone knew the numbers were going to be ugly, so 32.9% wasn't as bad as anticipated.
The focus is on how fast GDP can recover. We are in the middle of the third quarter, and the economy is quickly ramping up despite the setbacks caused by COVID-19 spikes. These setbacks were expected, and despite the doom-and-gloom reporting of the mass media, hard data for the recovery is actually encouraging.
Consumer Economic Data Released In July 2020
Retail sales jumped despite consumers feeling less confident. Retail sales rose 7.5% in June after an 18% spike in May. With this latest data point, retail sales are back to levels seen in February. What are they buying - clothes, furniture, appliances, electronics, sporting goods, cars, and car parts.
As can be expected, most consumers are still avoiding bars and restaurants. Consumer confidence took a hit as new outbreaks of COVID-19 dampened hopes of a V-shaped recovery. Strong consumer spending fueled by a confident consumer is a critical component of the recovery.
- Retail Sales rose 7.5% during June, now up 1.1% in the last 12 months
- Consumer Confidence Index fell to 92.6 from 98.1 the prior month
- Consumer Sentiment Index (U of M ) fell to 72.5 from 78.1 the previous month
Energy, International, And Things You May Have Missed
Oil prices are up slightly as they bounce around $42 a barrel. WTI Crude (West Texas Intermediate) is trading around $41/barrel, and brent crude is trading around $44/barrel.
- The US Dollar weakened against the Euro, now about $1.18 vs the Euro.
- The US special relationship with Hong Kong was revoked due to China's new security law.
- The USMCA (US Mexico Canada Agreement) became effective July 1.
- Eurozone GDP dropped 12.1% in the 2nd quarter. Germany's GDP was down 10.1%, France down 13.8%, Italy down 12.4%, Spain down 18.5%.
- China's GDP grew 3.2% YoY in the 2nd quarter - if you can trust their data.
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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 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. © Copyright 2020 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.