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Mortgage Economic Review: July 2019

Mark Paoletti
Jul 02, 2019

This month's Mortgage Economic Review summarizes recent Key Economic Data and Events that are important to Mortgage and Real Estate Professionals.
Interest Rates and geopolitical tensions dominated the news in June. The world's major Central Bankers were all in an "accommodative" mood this month. The Fed, ECB (European Economic Bank), BOJ (Bank of Japan), and BOE (Bank of England) hinted at lower Interest Rates in the coming months. They indicated in recent statements that they are prepared to change monetary policy to stimulate global Economic growth. If the Economic Data shows clears signs of a slowdown—they are ready to lower Interest Rates to stave off a recession. At center stage of the global slowdown is US-China trade tensions, so it's no surprise the Central Bank announcements came out just before the June G20 meeting. Back in the US, the Mortgage Business hit a milestone when Fannie and Freddie issued the first UMBS - Uniform Mortgage Backed Security. The aim of the UMBS is to add liquidity and lower the cost of mortgage securitization.
Key Economic Data and Events in June 2019
►President Trump met with Chinese and North Korean leaders in June.
►Trade negotiations continue with promising changes: no additional US tariffs on Chinese goods, China will resume buying U.S. farm products, U.S. tech companies can resume selling critical parts to Huawei.
►Geopolitical tensions and oil prices increased after Iran shot down an unmanned U.S. drone and were suspected of attaching two ships in the Gulf of Oman.
►Inflation remains modest with the latest CPI at 1.8% YoY.
►The Economy continues to chug along with GDP at a 3.1% annualized growth rate. 
Interest Rates and Fed Watch  
The Fed wrapped up its latest FOMC Meeting on June 19th and, as expected, they left Interest Rates unchanged with the target for Fed Funds at 2.25% - 2.50%. However, the Fed Statement that was issued after the FOMC Meeting opened the door for a possible rate cut in the months ahead. The Fed has indicated a willingness to be "accommodative" if Inflation and GDP drop below their targets. Chairman Powell said in a statement: “My colleagues and I have one overreaching goal: to sustain the economic expansion, with a strong job market and stable prices... We are firmly committed to our symmetric 2% inflation objective". Fed Governors are concerned about the effects of continued trade tensions, softness in the European Economy, and geopolitical risks. The odds of an Interest Rate cut after the July 31st FOMC Meeting are running at 90%. Odds of an Interest Rate cut by year-end are now about 99%.
222 Fed Target
►Inflation: 1.8% CPI for the last 12 months
►Wage Growth: 3.1 % for the last 12 months
►GDP Growth: 3.2% annualized rate for the last 12 months
Housing Market Data Released in June 2019
The Housing Market continues to limp along, but there was encouraging data in Existing Home Sales and Pending Home Sales. Affordability has been an issue for several years. President Trump announced a Government initiative to tackle the problem. Last month, affordability improved a little due to lower mortgage rates and softening home price appreciation. Inventory also improved as more people listed their homes for sale. Loan Officers are reporting solid Mortgage Applications for Purchase and Refinance transactions. Looking at the big picture over the last few years, things really haven't improved that much in the Housing Market. New construction and inventory are too low and prices are too high. This will persist until Baby Boomers start listing their homes for sale and builders increase the pace of new construction.
Existing Home Sales (closed deals in May) rose 2.5% to an annual rate of 5,340,000 homes, now down 1.1% in the last 12 months. The median price for all types of homes is now $277,700 - up 4.8% from a year ago. The median Single Family Home price is $280,200 and $257,100 for a condo. First Time Buyers were 32%, Investors 13%, Cash Buyers 19%. Homes were on the market an average of 26 days, and 53% were on the market for less than a month. Currently, 1,920,000 homes are for sale, up from 1,870,000 a year ago.
New Home Sales (signed contracts in May) fell 7.9%  to a seasonally adjusted annual rate of 626,000 homes - down 3.7 YoY. The median New Home price was $308,000 and the average New Home price was $377,200. The number of New Homes for sale is estimated at 333,000 units which represents a 6.4 month supply.
Pending Home Sales Index (signed contracts in May) rose 1.1% to 105.4 from 104.3 the prior month.       
Housing Starts (excavation began in May) fell 0.9% to a seasonally adjusted annual rate of 1,269,000 units - down 4.7% YoY. Single Family Housing Starts fell 6.4% to an annual pace of 820,000 units - down 12.9% YoY.
Building Permits (issued in May) rose 0.3% to an annual adjusted rate of 1,294,000 - down 0.5% YoY. Single Family permits rose 3.7% to 815,000 units - down 3.3% YoY.
Housing Completions (completed in May) fell 9.5% to an annual rate of 1,213,000 units - down 2.8% in the last 12 months. Single Family Completions were down 5.0% to 890,000 units - up 1.6% YoY.
S&P/Case-Shiller 20 City Composite Home Price Index rose 0.0% in April - up 2.7% YoY.
FHFA Home Price Index rose 0.4% in April, now up 5.2% YoY. 
Labor Market Economic Data Released in June 2019
This month's Jobs Report was disappointing. The Bureau of Labor Statistics reported the Economy added 75,000 new jobs during May (180,000 expected). In addition, Employment data from March and April were both revised down 75,000 jobs combined. With the new Employment data and the revisions, the Economy has added an average of 151,000 jobs per month in the last 3 months. Most of the new jobs were in Professional and Business Services (33,000 jobs), Healthcare (16,000 jobs), and Construction (4,000 jobs). The May Jobs Report may not have been as good as Economists had expected, but the Labor Market is still in great shape with unemployment at a 50 year low, increasing wages, and strong demand for workers.
►The Economy added 75,000 new jobs in May.
►The Unemployment Rate was unchanged at 3.6% from 3.6% the prior month.     
►The Labor Force Participation Rate was unchanged at 62.8% from 62.8% the prior month. 
►The Average Hourly Wage rose 0.2% in May and 3.1% YoY.
Inflation Economic Data Released in June 2019
Inflation has been low all year and it looks like it may be going even lower. May CPI and PPI data was weaker than Economists expected as prices continued to go up, but at a slower pace. Increased prices for food, rent, and healthcare were offset by lower energy cost. Inflation has been hovering around 2.0% for several years which happens to be the Fed's target. The low Inflation data is another sign that the Global Economy is slowing. This is more ammunition for the Fed to justify cutting Interest Rates this year. Don't forget the impact of energy prices on Inflation as Mid East tensions and geopolitical risks are always on the horizon.  
►CPI rose 0.1%, now up 1.8% in the last 12 months.
►Core CPI (ex-food & energy) rose 0.1%, now up only 2.0% in the last 12 months.
►PPI rose 0.1%, now up 1.8% in the last 12 months.
►Core PPI (ex-food & energy) rose 0.2%, up 2.3% in the last 12 months.
GDP Economic Data Released in June 2019
The Final Estimate of 1st Quarter 2019 GDP showed the Economy expanded at a 3.1% annual rate (3.1% expected). That's pretty good especially since the 1st quarter is typically the slowest one. Exports, Inventory, and Government spending was stronger than anticipated, but Consumer Spending, Housing, and Business Investment was weaker. Economists have been warning about an Economic slowdown, but so far the GDP numbers haven't reflected that - yet. The first estimate on 2nd Quarter GDP will be out at the end of July and we'll see if the suspected Economic slowdown will be reflected in that GDP data. At this point, estimates of 2nd quarter GDP are all over the place - from a low of 2.0% to a high of 3.2%.
Consumer Economic Data Released in June 2019
This month, we got mixed data in the Consumer sector. Consumer Confidence and Sentiment were down while Retails Sales was up. May Retail Sales increased 0.5%, plus April Retail Sales was revised up an additional 0.5%. Up to this point, Retail Sales in 2019 have been disappointing, but the May and April data was encouraging. It looks like the trade tensions with China are weighing on the Consumer's psyche. Consumer Confidence and Sentiment declined but that didn't keep shoppers out of the stores. Consumers were back in stores buying cars, electronics, and sporting goods. They were also back in bars and restaurants as food service sales rose 0.7%. Online Retailers saw a big jump of 1.4% with YoY sales up 11.4%.
►Retail Sales rose 0.5% in May, up 3.2% in the last 12 months.
►Consumer Confidence Index fell to 121.5 from 134.1 the prior month.          
►Consumer Sentiment Index (U of M) fell to 98.2 from 100.0 the prior month. 
Energy, International, and things you may have missed  
►Oil Prices rose about 10% in June due to tensions in the Mid East. (Prices as of July 1st: North Sea Brent Crude about $66 per barrel, West Texas Intermediate Crude about $59 per barrel).
►Huge protests in Hong Kong continued all month over a new law that restricts its autonomy with China.
►UK Prime Minister Theresa May stepped down June 7th and England is searching for a new PM.

This Economic Commentary is written to be a succinct summary of the key Economic Indicators and Economic Data that influence the Mortgage and Real Estate Industries. It is written for Mortgage Professionals that need to stay current on Economic Information but don't have hours to research and analyze Economic Data. Feel free to share this with a friend or colleague in the Mortgage or Real Estate business. Visit where you can explore over 300 Wholesale, Correspondent, and Warehouse Mortgage Lenders from one website.

Mark Paoletti, President and Founder of, may be reached by e-mail at [email protected].

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.

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