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Mortgage Economic Review For December 2022

Mark Paoletti
Dec 05, 2022
Mortgage Elements

A summary & review of key economic data that affects the mortgage and real estate business.

By Mark Paoletti
Mortgage Elements Inc.

The Mortgage Economic Review is a monthly summary of key economic indicators, data, and events pertinent to mortgage and real estate professionals. This month we review data and events released in November.

AT A GLANCE: Key economic data and events during November 2022:

  • Interest Rates: The 10-year Treasury yield fell to 3.68% (Nov. 30) from 4.1% (Oct. 31).   
  • Housing: Existing home sales fell 5.9%, new home sales rose 7.5%, and pending home sales fell 4.6%. Home prices fell for the third month in a row. 
  • Labor: The U.S. economy created 284,000 new jobs in October and 263,000 in November, the unemployment rate rose to 3.7% in October and remained there in November, and wages increased 5.1% YoY. 
  • Inflation: The October Consumer Price Index (CPI) rose 0.4% (+7.7% YoY), and Producer Price Index (PPI) rose 0.2% (+8.5% YoY).
  • The Economy: U.S. GDP grew by a 2.9% annualized rate in the third quarter of 2022, up 1.9% YoY.
  • Consumers: Retail sales rose 1.3%, while consumer sentiment & confidence declined.  
  • Stock Markets rose in November: Dow +5.7%, S&P +5.4%, Nasdaq +4.4%.
  • Oil prices fell to $81/barrel (Nov. 30) from $87/barrel (Oct. 31). Natural gas prices rose to $6.93/MMBtu (Nov. 30) from $5.93/MMBtu (Oct. 31). 
  • The conforming loan limit for 2023 increased to $726,200 for a 1-unit property.

Interest Rates and Fed Watch  

As expected, the Federal Reserve raised the target federal funds rate by 0.75% after the Federal Open Market Committee meeting Nov. 2. The next FOMC meeting will be Dec. 13-14. 

Fed Watchers expect another interest rate increase after that meeting. The big question is whether it will be 0.5% or 0.75%. On Nov. 30, Fed Chairman Jerome Powell stated, "The time for moderating the pace of rate increases may come as soon as the December meeting." The Fed will continue to raise rates, but they may reduce the size of those increases. 

Before it makes that decision, the Fed will get another look at CPI data on Dec. 13. That CPI data will influence whether the Fed raises rates by 0.5% or 0.75%. If the CPI shows Inflation is quickly cooling, expect a 0.5% increase. If the CPI is still running hot, expect a 0.75% increase.

  • 10-Year Treasury Note Yield fell to 3.68% (Nov. 30 ) from 4.1% (Oct. 31).
  • 30-Year Treasury Bond Yield fell to 3.8% (Nov. 30 ) from 4.22% (Oct. 31).      
  • 30-Year Fixed Mortgage fell to 6.58% (Nov. 23) from 7.08% (Oct. 27).   
  • 15-Year Fixed Mortgage fell to 5.9% (Nov. 23) from 6.36% (Oct. 27).

Housing Market Data

Existing home sales — which accounts for 90% of all home sales — was down 28% in the last 12 months. This is a huge number, but no one is surprised. The combination of high prices, low inventory, and 7% mortgage rates is a triple whammy for the housing market. Affordability is the  major reason keeping buyers away. Many consumers have a sense that home prices have gotten ahead of value, so they are waiting for prices to come down. Even buyers who can afford higher payments (including cash buyers) are waiting for prices to adjust. Housing analysts also have differing views on the direction of home prices — 2023 home-price forecasts vary between up 50% to down 20%. Regardless of who is correct, many buyers are in "wait-and-see" mode.

  • Existing home sales (closed deals in October) fell 5.9% to an annual rate of 4.43 million homes, down 28.4% year over year (YoY). The median price for all types of homes is $379,100, up 6.6% from a year ago; 26% were all-cash sales. The median single-family home price is $384,900, up 6.2% YoY. The median condo price is $331,000, up 10.1% YoY. Homes were on the market for an average of 21 days; 64% were on the market for less than a month. Currently, 1.22 million homes are for sale. 
  • New home sales (signed contracts in October) rose 7.5% to a seasonally adjusted annual rate of 632,000 homes, down 5.8% YoY. The median new home price rose 8.2% (+15.4% YoY) to $493,000. The average price rose 5.3% (11.5% YoY) to $544,000. There are 470,000 new homes for sale, an 8.9-month supply.
  • The Pending Home Sales Index (signed contracts in October) fell 4.6% to 77.1 from 79.5 the previous month, down 36.7% YoY.    
  • Building permits (issued in October) fell 2.4% to a seasonally adjusted annual rate of 1.53 million units, down 10.1% YoY. Single-family permits fell 3.6% to an annual pace of 839,000 homes, down 22.1% YoY. 
  • Housing starts (excavation began in October) fell 4.2% to an annual adjusted rate of 1.43 million, down 8.8% YoY. Single-family starts fell 6.1% to 855,000 units, down 20.8% YoY.  
  • Housing completions (completed in October) fell 6.4% to an annual adjusted rate of 1.34 million units, up 6.6% YoY. Single-family completions fell 8.3% to an annual adjusted rate of 1.05 million homes, up 2.7% YoY. 
  • S&P/Case-Shiller 20 City Home Price Index fell 1.5% in September, up 10.4% YoY.  
  • FHFA Home Price Index rose 0.1% in September, now up 12.4% YoY.  

Labor Market Economic Data

The economy created 284,000 new jobs during October and 263,000 in November. The unemployment rate rose to 3.7% in October and was unchanged in November. Wage growth accelerated to 5.1% YoY as workers demanded higher wages to keep up with inflation. Job openings fell slightly, but are still above 10.3 million. The labor market remains robust despite recent mass layoffs in the tech sector. Those laid-off tech workers should have no trouble finding work, but they may get paid less than their old job. Keep in mind this is the holiday season. Labor data typically gets distorted during this period due to the need for seasonal workers.   

  • The economy created 284,000 new jobs during October and 263,000 in November.
  • The unemployment rate rose to 3.7% in October and was unchanged in November.      
  • The labor force participation rate fell to 62.2% in October and to 62.1% in November.        
  • The average hourly wage rose 0.4% in October and 0.6% in November; up 5.1% YoY.
  • Job openings fell to 10.34 million in October from 10.7 million in September. 

Inflation Economic Data 

The inflation data is trending down. On an annual basis, Inflation is running at about 7%. The one-month and three-month Inflation data show it at about 5%. It looks like the interest rate hikes are doing the job. It is difficult — if not impossible — to tame Inflation without weakening the labor market. Higher wages mean higher prices. Current labor data shows wages increased by about 5% annually. To control Inflation, you have to control wages. Many economists believe the unemployment rate has to rise above 4% before wage pressure can subside. If you are trying to predict the future path of inflation, do what the Fed does — watch the labor data, specifically the unemployment rate and wage data.

  • CPI rose 0.4%, up 7.7% YoY   |    Core CPI rose 0.3%, up 6.3% YoY
  • PPI rose 0.2%, up 8% YoY      |    Core PPI rose 0.2%, up 5.4% YoY
  • PCE rose 0.3%, up 6.2% YoY  |   Core PCE rose 0.5%, up 5.1% YoY

GDP Economic Data

The second estimate for third quarter GDP showed the U.S. Economy grew at a 2.9% annualized rate, up 1.9% YoY. The economy keeps chugging along. The strength of the U.S. economy continues to defy many economists' expectations. Although the majority of economists predict a recession in 2023, the data has yet to show that to be true. The U.S. economy has displayed remarkable resilience after the Covid lockdowns, supply-chain disruptions, energy price shocks, and the Ukrainian War. 

Consumer Economic Data

Black Friday-Cyber Monday (BFCM) kicked off the holiday shopping season with impressive numbers. Early estimates show Thanksgiving weekend sales exceeded $11 billion, despite inflation, high gas prices, high interest rates, high consumer debt, and low consumer confidence. This is great news for an economy that is 70% consumer driven. Much of the recent consumer spending purchases have been made with debt, which is starting to worry some economists. Other economists dismiss the debt issues. The consumers' balance sheet is still healthy. Home equity is at an all-time high and is offsetting the revolving debt. 

  • Retail sales rose 1.3% during October, up 8.3% in the last 12 months.
  • Consumer Confidence Index fell 2% (-10.5 YoY) to 100.2 from 102.5 the prior month.
  • Consumer Sentiment Index (University of Michigan) fell to 56.8 from 59.9 a month earlier.

Energy, International, and Things You May Have Missed   

  • West Texas Intermediate Crude fell to $81/barrel (Nov. 30) from $87/barrel (Oct. 31).
  • North Sea Brent Crude fell to $85/barrel (Nov. 30) from $93/barrel (Oct. 31).   
  • Natural Gas rose to $6.93/MMBtu (Nov. 30) from $5.93/MMBtu (Oct. 31). 
  • Population milestone: The United Nations projected the world population reached 8 trillion human inhabitants on Nov. 15, 2022.
  • Donald Trump announced he will make his third run for president in 2023.
  • Crypto Trading firm FTX Exchange filed for bankruptcy. Its founder and CEO lost $16 billion in a few days.
  • Several large tech firms announced major layoffs: Amazon (10,000), Facebook (11,000), Twitter (3,700; half of its staff). 
  • Large protests against China's Zero Covid lockdowns swept across several Chinese cities.

The Mortgage Economic Review is produced by Mortgage Elements Inc. and MortgageElements.com, and is a concise summary of key economic data that influences the mortgage and real estate industries. 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.

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