BY MARK PAOLETTI | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
AT A GLANCE - Key Economic Data and Events during January 2022
- Interest Rates: The 10-Year Treasury yield rose to 1.79% (Jan 31) from 1.52% (Dec 31).
- Housing: Home Prices continued rising about 1.0% per month. Housing Starts and New Home Sales rose while Existing and Pending Home Sales declined.
- Labor: The Economy created only 199,000 new jobs, the Unemployment Rate fell to 3.9%, and Wage Growth increased 4.7% YoY.
- Inflation: CPI up 0.5% (+7.0% YoY), PPI up 0.2% (+9.7% YoY).
- The Economy: US GDP grew at a 6.9% annualized rate during the 4th Quarter of 2021.
- Consumers: Retail Sales fell 1.9%, Consumer Confidence down 1.2%.
- Stock Markets: After setting record highs in the last 30 days, all major stock indexes saw significant corrections. The S&P 500 fell from 4,793 (Jan 1) to 4,515 (Jan 31).
Interest Rates and Fed Watch
The latest FOMC Meeting wrapped up on January 26th with no increase in Interest Rates - yet - but it's coming - probably after the next FOMC Meeting on March 16th. The Financial Markets expect the Fed to raise rates in March and do 3 to 5 rate hikes throughout 2022. The Fed is in a precarious position - raise rates too fast, and it will send the Economy into a Recession; raise rates too slowly, and Inflation rages higher. The Fed still believes the current high Inflation is the result of supply chain disruption - but they have to do something to quell price increases. In the meantime, the Fed Funds target remains at 0.0% - .25%, and the Fed will continue to purchase at least $20B of Treasury Securities and $10B of MBS. Security purchases will likely end in March. There is a level of ambiguity in the latest Fed announcements, which creates uncertainty and volatility in the Financial Markets. Expect volatility in the Stock and Bond Markets for the next few months.
- 10-Year Treasury Security Yield: rose to 1.79% (Jan 31) from 1.52% (Dec 30).
- 30-Year Fixed Mortgage rose to 3.55% (Jan 27) from 3.11% (Dec 30).
- 15-Year Fixed Mortgage rose to 2.80% (Jan 27) from 2.33% (Dec 30).
- 5/1 ARM Mortgage rose to 2.70% (Jan 27) from 2.41% (Dec 30).
Housing Market Data Released in January 2022
Good news - bad news in the Housing Market. Bad news first: Inventory hit a record low in December with only 910,000 Existing Homes and 403,000 New Homes for sale. Good news: Help with Housing Inventory is on the way. New Home Sales, Building Permits, and Housing Starts are all up. From 2020 to 2021, Building Permits rose 17.2% to 1,724,700 units, and Housing Starts increased 15.6% to 1,595,100 units. Right now, the Demand for Homes is higher than the supply. Supply and Demand will ALWAYS regain a balance - what Economists call equilibrium. The Housing Market will eventually reach equilibrium, but it will take years.
- Existing Home Sales (closed deals in December) fell 4.6% to an annual rate of 6,180,000 homes, down 7.1% in the last 12 months. The median price for all types of homes is $358,000 - up 15.8% from a year ago. The median Single-Family Home price is $364,300 and $305,100 for a Condo. Homes were on the market for an average of 19 days, and 79% were on the market for less than a month. Currently, 910,000 homes are for sale, down 14.2% from 1,060,000 units a year ago.
- New Home Sales (signed contracts in December) rose 11.9% to a seasonally adjusted annual rate of 811,000 homes - down 14.0% YoY. The median New Home price fell to $377,700 from $416,100 the prior month. The average price fell to $457,300 from $479,300 the prior month. There are 403,000 New Homes for sale, which is a 6.0 month supply.
- Pending Home Sales Index (signed contracts in December) fell 3.8% to 117.7 from 122.4 the previous month, down 6.9% YoY.
- Building Permits (issued in December) rose 9.1% to a seasonally adjusted annual rate of 1,873,000 units - up 6.5 YoY. Single-Family Permits rose 2.0% to an annual pace of 1,128,000 homes, down 8.5% YoY.
- Housing Starts (excavation began in December) rose 1.4% to an annual adjusted rate of 1,702,000, up 2.5% YoY. Single-Family Starts fell 2.3% to 1,172,000 units, down 10.9% YoY.
- Housing Completions (completed in December) fell 8.7% to an annual adjusted rate of 1,295,000 units - down 6.6% YoY. Single-Family Completions rose 3.9% to an annual adjusted rate of 990,000 homes - up 3.3% YoY.
- S&P/Case-Shiller 20 City Home Price Index rose 1.0% in November, up 18.8% YoY.
- FHFA Home Price Index rose 1.1% in November, now up 18.3% YoY.
Labor Market Economic Data Released in January 2022
The Economy created 199,000 new jobs in December, far short of expectations of 450,000. However, October and November New Jobs were revised up a combined 141,000. Add the revisions to December's data and you get: 199,000 + 141,000 = 340,000 new jobs. The Economy continues to create new jobs at a slower pace than people had hoped. Some Economists blame the disappointing job creation on the rapid rise of Omicron cases in December. If that is the case, we should see an acceleration of job creation as Omicron subsides in the coming months. Companies continue to compete for workers by increasing wages. Wages grew 4.7% in 2021, but the 7.0% Inflation rate eroded those higher wages purchasing power. Workers are earning more money, but Inflation forces them to spend more. (Wage Growth 4.7% - Inflation 7.0% = Real Wages Growth - 2.3%)
- The Economy created 199,000 New Jobs during December.
- The Unemployment Rate fell to 3.9% in December from 4.2% in November.
- The Labor Force Participation Rate rose to 61.9% in December from 61.8% in November.
- The Average Hourly Wage rose 0.6% in December, now up 4.7% YoY.
- Job Openings fell to 10,600,000 in November from 11,033,000 in October.
Inflation Economic Data Released in January 2022
Inflation continued to dominate the headlines in January. Many Economists blame the Fed for letting Inflation get out of control with an expansive Monetary Policy that overheated demand. Other Economists, (including the Fed) contend that Inflation is due to disruptions in the supply chain. A deeper dive into the Inflation Data shows the big offenders are still the cost of Shelter, Used Cars, Food, and Energy. The Fed can't fix the supply chain, but it can control the Demand Side with tighter Monetary Policy and higher Interest Rates. Lower Demand will help cool down Inflation - at least until the supply chain gets fixed.
- CPI rose 0.5%, up 7.0% YoY | Core CPI rose 0.6%, up 5.5% YoY
- PPI rose 0.2%, up 9.7% YoY | Core PPI rose 0.5%, up 8.3% YoY
- PCE rose 0.4%, up 5.8% YoY | Core PCE rose 0.5%, up 4.9% YoY
GDP Economic Data Released in January 2022
The 1st estimate for 4th Quarter GDP showed the US economy grew at a 6.9% annualized rate. This growth rate is much higher than Economists' expectation of 5.5% and a lot higher than the 3rd quarter GDP of 2.3%. For all of 2021, Real GDP accelerated to 5.7% - the fastest growth rate since 1984. The largest contributor to growth in the 4th Quarter was Inventory Growth despite the supply chain issues. Consumer spending rose 7.7% YoY, led by a 22% jump in Recreation Outlays (Restaurants, Bars, & Hotels). Residential Investment Outlays (fancy term for people buying Homes) fell 2.2% YoY.
Consumer Economic Data Released in January 2022
Consumer Data took a hit in December with negative numbers in Retail Sales, Consumer Confidence, and Consumer Sentiment. Consumers got a double whammy in December - Omicron and Inflation. The dual fear of Inflation and Omicron weighed heavy on Consumers' minds. That fear is reflected in the gloomy Consumer Data.
- Retail Sales fell 1.9% during December, now up 16.9% in the last 12 months.
- Consumer Confidence Index fell 1.2% to 113.8 from 115.8 the prior month, up 30.7% YoY.
- Consumer Sentiment Index (U of M) fell to 67.2 from 70.4 the previous month.
Energy, International, and Things You May Have Missed
Oil Prices rose as geopolitical tensions (Russia & Ukraine) sparked fears of a supply disruption.
- West Texas Intermediate Crude rose to $88/barrel (Jan 31) from $76/barrel (Dec 30).
- North Sea Brent Crude rose to $91/barrel (Jan 31) from $78/barrel (Dec 30).
- Natural Gas rose to $4.87/MMBtu (Jan 31) from $3.7/MMBtu (Dec 30).
- Tensions increased between Russia and Western nations over threats of a Ukraine invasion.
- Russian troops were sent to Kazakhstan to help restore order after mass protests.
- Justice Stephen Breyer announced plans to retire after 28 years on the Supreme Court.
- England and other nations lifted Covid restrictions as Omicron infections subsided.
The Mortgage Economic Review is a concise summary of Key Economic Data that influences the Mortgage and Real Estate Industries. It's a quick read that keeps busy Professionals updated on important Economic Information. Feel free to share this with friends and colleagues in the Mortgage and Real Estate business. To have the Mortgage Economic Review emailed to you each month, click 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 2022 Mark Paoletti, Mortgage Elements Inc, All Rights Reserved.
