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The Mortgage Economic Review summarizes recent Key Economic Indicators, Data, and Events important to Mortgage and Real Estate Professionals.
Summary and Review of Key Economic Data that affects the Mortgage and Real Estate Business
Everyone was happy to see 2020 come to a close, but the first month of 2021 gave us a wild ride. Political and financial volatility started off the new year. Stock Markets hit new highs then violently retreated on the last day of trading. Rioters took over the Capitol Building as the Democrats took control of Congress and the White House. Doses of COVID-19 Vaccine began to be administered to medical professionals and high-risk individuals, but vaccine distribution was hindered by logistical issues. Good news: throughout all the turmoil, the economy continued on its path to recovery (helped by generous monetary and fiscal stimulus); new COVID-19 infections and deaths are starting to trend down. Plus, after Ground Hog Day, the worst-case scenario is only 6 more weeks of winter.
Key Economic Data and Events in January 2021
- Joe Biden was sworn in as the 46th President of the United States
- Democrats took control of all 3 branches of Government by winning the Georgia Senate runoff
- Stock Markets hit new record highs then retreated: Dow 31,188, S&P 3,855, NASDAQ 13,636
- COVID-19 vaccine distribution was hindered by logistical issues
- 4th Quarter US GDP was up 4.0%, pegging 2020 GDP down 3.5%
- US Inflation for 2020: CPI 1.4% with Core CPI at 1.6%
Interest Rates and Fed Watch
The latest FOMC Meeting concluded on January 27th with no surprises. The Fed continued to reiterate its stance that they will do "whatever it takes" to facilitate the recovery and get back to full employment. That includes: keeping Interest Rates at or near zero with a Fed Funds Target of 0.00%-0.25%, continue to purchase $80B Treasury Securities and $40B of MBS per month, and tolerating higher Inflation. The Fed also noted that the recovery had slowed due to the virus resurgence, and the recovery pace will be significantly influenced by the speed of vaccine distribution in the future. Former Fed Chair Janet Yellen was sworn in as the first female Secretary of the Treasury, while all 12 Regional Fed Presidents were confirmed for their next 5-year terms.
Housing Market Data Released in January 2021
What a Great Year for the Housing Market. Now that the final 2020 Housing Data is in, we can get a good look at the full year's data. The data confirms what everyone in the business already knows - 2020 was a banner year for Housing. Fueled by record-low Mortgage Rates, and a rush to the safety and security of the suburbs, Home Sales and Prices hit new highs while inventory hovered at record lows (data is listed below). Economists expect the red-hot Housing Market to continue throughout 2021 only to be contained by a lack of Homes for sale. Fortunately, builders are feverishly trying to meet demand but are battling higher lumber prices, labor shortages, and lack of affordable land.
- Existing Home Sales (closed deals in December ) rose 0.7% to an annual rate of 6,760,000 homes, up 22.2% in the last 12 months. The median price for all types of homes is $309,800 - up a stunning 12.9% from a year ago. The median Single Family Home price is $314,300 and $272,200 for a Condo. First Time Buyers were 31%, Investors 14%, Cash Buyers 19%. Homes were on the market for an average of 21 days (a record low), and 70% were on the market for less than a month. Currently, 1,070,000 homes are for sale (record low), down 23.0% from 1,390,000 units a year ago.
- New Home Sales (signed contracts in December) rose 1.6% to a seasonally adjusted annual rate of 842,000 homes - up 15.2% YoY. The median New Home price is $335,900, and the average is $394,900. There are 302,000 New Homes for sale, which is a 4.3 month supply.
- Pending Home Sales Index (signed contracts in December) fell 0.3% to 125.5 from 125.7, up 21.4% YoY.
- Building Permits (issued in December) rose 4.5% to a seasonally adjusted annual rate of 1,709,000 units - up 17.3% YoY. Single-Family Permits rose 7.8% to an annual pace of 1,226,000 homes, up 30.4% YoY.
- Housing Starts (excavation began in December) rose 5.8% to an annual adjusted rate of 1,669,000 units - up 5.2% YoY. Single-Family Starts rose 12.0% to 1,338,000 homes - up 27.8% in the last 12 months.
- Housing Completions (completed in December) rose 15.9% to an annual adjusted rate of 1,417,000 units - up 8.0% YoY. Single Family Completions rose 10.2% to 984,000 homes - up 9.0% in the last 12 months.
- S&P/Case-Shiller 20 City Composite Home Prices rose 1.4% in November up 9.1% YoY.
- FHFA Home Price Index rose 1.0% in November, now up 11.0% YoY.
Labor Market Economic Data Released in January 2021
The Economy lost 140,000 Jobs in December. This was the first month since April 2020 that the Jobs Report registered a loss. This disappointing data point is due to the virus resurge, but the Recovery is still going strong. The leisure and hospitality sector suffered the most, losing about 500,000 jobs. On the bright side, the loss was limited to 140,000 because other sectors like Construction, Retail, Transportation, and Manufacturing, created a lot of new jobs. Along with creating new jobs, these sectors are also experiencing higher productivity per worker. Manufacturing productivity has done particularly well. New jobs in Construction is always good news for the Mortgage and Real Estate Business as builders continue to construct new homes to meet demand.
- The Economy lost 140,000 jobs during December
- The Unemployment Rate was unchanged in December at 6.7%
- The Labor Force Participation Rate was unchanged at 61.5%
- The Average Hourly Wage rose 0.8%, now up 5.1% YoY
Inflation Economic Data Released in January 2021
Inflation clocked in a little higher than last month, with the CPI rising 0.4%, which was in line with expectations. Year over year (YoY), Inflation is running 1.4%. Most of the increase in December can be attributed to energy prices - specifically gasoline prices, which rose 8.4%. Besides Gas Prices, other items that increased were Clothes up 1.4%, Shelter costs up 0.1%, Food up 0.3%, Insurance up 1.4%. Air Fare prices decreased 2.3%, Used Cars down 1.2%, Medical Care down 0.2%.
- CPI rose 0.4%, now up 1.4% in the last 12 months
- Core CPI (ex-food & energy) rose 0.1%, up 1.6% in the last 12 months
- PPI rose 0.3 %, up 0.8% in the last 12 months
- Core PPI (ex-food & energy) rose 0.1%, up 1.2% in the last 12 months
GDP Economic Data Released in January 2021
The 1st estimate of 4th Quarter 2020 US GDP showed the economy grew at a 4.0% annualized rate. This is the "advanced" estimate, and we'll see it refined as more data trickles in. However, this latest data point shows the US Economy contracted 3.5% for all of 2020. Contrast this against the last quarter when the economy grew 33.4% when it bounced back from the COVID-19 Lockdowns. Bright spots in the Economy included Residential Fixed Investment (Homes) up 33.5% and Business Fixed Investment up 13.8%. Personal Consumption was disappointing and only up 2.5%. The weak data was attributed to the end of the Cares Act funding. Government Spending was down 1.2%, partially blamed on lower tax receipts.
Consumer Economic Data Released in January 2021
Consumers guarded their wallets in December as Retail Sales declined 0.7%. A decline was expected, but not this big. This is due to several factors and the COVID-19 Resurge. Diving deeper, you will remember a lot going on in December besides virus headlines. Political wrangling over the 2nd Stimulus Package, the Cares Act stimulus ending, and uncertainty in the Georgia Senate runoff weighed on Consumers' spending. However, Consumer Confidence is up as they are optimistic about the vaccine rollout. Plus, they have an extra $2.0 Trillion in their bank accounts to spend this spring.
- Retail Sales fell 0.7%, now up 2.9% in the last 12 months
- Consumer Confidence Index rose to 89.3 from 88.6 the previous month
- Consumer Sentiment Index (U of M ) fell to 79.0 from 80.7 the previous month
Energy, International, and Things You May Have Missed
Oil Prices rose above $56 per barrel before falling back. Lower oil inventories, OPEC cutbacks, and canceling the Keystone Pipeline were a few of the factors that boosted Oil Prices in January.
- West Texas Intermediate crude is trading around $52/barrel, North Sea Brent Crude is trading about $55/barrel, as of February 1st.
- GM announced plans to stop selling gas and diesel-powered vehicles by 2035.
- Toyota is once again the world's largest automaker passing up Volkswagen.
- Alcohol sales spiked since the COVID-19 Lockdown started in March 2020. Spirits sales were up 24%, wine up 17%, beer up 13%, but champagne sales fell 20%.
- GameStop, AMC, and BlackBerry stock prices exploded as Hedge Funds got caught in a classic "Short Squeeze".
- Bill and Melinda Gates are now the largest private farmland owners in the US.
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.