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.
At A Glance: Key Economic Events & Data released During April 2023
- Interest Rates: The 10-Year Treasury yield rose to 3.64% (June 1) from 3.44% (April 28).
- Housing: Existing home sales fell 3.4% (-23.2% year over year); new home sales rose 4.1% (+11.8% YoY), and pending home sales were unchanged (-20.3% YoY). Home prices continue to rise.
- Labor: The U.S. economy created 339,000 new jobs in May and 294,000 in April. The unemployment rate rose to 3.7%, and wages increased 4.3% YoY.
- Inflation: April Consumer Price Index rose 0.4% (+4.9% YoY), and Producer Price Index rose 0.2% (+2.3% YoY).
- The Economy: U.S. Gross Domestic Product (GDP) grew by a 1.3% annualized rate in the first quarter of 2023, up 1.6% YoY.
- Consumers: Retail Sales rose 0.4%, Consumer Confidence and Sentiment fell.
- Stock markets results were mixed in May; Dow -3.4%, S&P +0.3%, Nasdaq +5.8%.
- Oil prices fell in May to $68/barrel (May 31) from $77/barrel (April 28).
Interest Rates And Fed Watch
The last Federal Open Market Committee meeting ended May 3, and as expected the committee raised the federal funds rate by 0.25%. This rate hike was the 10th in the past year. Will there be another rate increase after the next FOMC meetings on June 14 and/or July 26? The markets are uncertain as to whether the Fed will do another rate hike or take a pause in June or July. In May, an agreement on the U.S. debt ceiling limit was reached, and confidence was restored in the banking sector. Persistently high Inflation and strong job creation may force the Fed to continue to raise rates. The Fed will get one more look at CPI data before the June Meeting.
- 10-Year Treasury Note Yield rose to 3.64% (May 31) from 3.44% (April 28).
- 30-Year Treasury Bond Yield rose to 3.85% (May 31) from 3.67% (April 28).
- 30-Year Fixed Mortgage rose to 6.79% (Jun 1) from 6.43% (April 27).
- 15-Year Fixed Mortgage rose to 6.18% (Jun 1) from 5.71 (April 27).
Housing Market Data Released In May 2023
The market for existing homes continues to be plagued by a lack of inventory, so buyers are turning to new homes. New home sales rose 4.1% in April after a 10% jump in March. Year over year, new home sales are up 11%. At this point, there is a near-record number of new homes under construction and scheduled to be completed in 2023. Home prices continued to post gains, up 1.5% to 4.3% YoY.
- Existing home sales (closed deals in April) fell 3.4% to an annual rate of 4.28 million homes, down 23.2% in the last 12 months; 28% were all-cash sales. The median price for all types of homes is $388,800, down 1.7% from a year ago. The median single-family home price is $393,300, down 2.1% YoY. The median condo price is $348,000, up 0.7% YoY. Homes were on the market for an average of 22 days, and 73% sold in less than a month. Currently, 1.04 million homes are for sale.
- New home sales (signed contracts in April) rose 4.1% to a seasonally adjusted annual rate of 683,000 homes, up 11.8% YoY. The median new home price is $420,800. The average price is $501,000. There are 433,000 new homes for sale, a 7.6-month supply.
- Pending Home Sales Index (signed contracts in April) was unchanged at 78.9 from the previous month, down 20.3% YoY.
- Building permits (issued in April) fell 1.5% to a seasonally adjusted annual rate of 1.42 million, down 21.1% YoY. Single-family permits rose 3.1% to an annual pace of 855,000 homes, down 21.2% YoY.
- Housing starts (excavation began in April) rose 2.2% to an annual adjusted rate of 1.4 million, down 22.3% YoY. Single-family starts rose 1.6% to 846,000 units, down 28.1% YoY.
- Housing completions (completed in April) fell 10.4% to an annual adjusted rate of 1.38 million, up 1% YoY. Single-family completions fell 6.5% to an annual adjusted rate of 971,000 homes, down 5.2% YoY.
- S&P/Case-Shiller 20-City Home Price Index rose 0.5% in March, up 1.5% YoY.
- FHFA Home Price Index rose 0.6% in March, now up 4.3% YoY.
Labor Market Economic Data Released In May 2023
The Economy created 339,000 New Jobs during May (194,00 expected) and 294,000 in April (180,000 expected). That is 633,000 in the last 2 months. The Labor Data had a couple of surprises - very robust Job Creation, and a rise in the Unemployment Rate. The strength of the Labor Market has defied and confounded Economists' expectations for the past year. However, some cracks are beginning to show: Wage Growth is slowing, Unemployment is rising, and average weekly hours worked declined. Job creation and Wage Growth are too high to allow a significant drop in Inflation.
- The economy created 339,000 new jobs in May and 294,000 in April.
- The unemployment rate rose to 3.7% in May from 3.4% in April and 3.5% in March.
- The labor force participation rate was unchanged at 62.6% in May and April.
- The average hourly wage rose 0.3% in May and 0.5% in April, up 4.3% YoY.
- Job openings rose to 10.1 million in April from 9.75 million in March and 9.9 million in February.
Inflation Economic Data Released in May 2023
The recent CPI and PCE data reveal Inflation — including Core Inflation — is hovering just below 5%. This was disappointing since it increased from the March CPI, which was up only 0.1%. That doesn't mean inflation is headed higher. It's only one data point in a trend — and that trend is still pointing lower. However, household spending is not slowing down very much. If people have jobs and are making money, they will continue to spend. The key to taming inflation lies in the labor market, which is, at this point, remarkably strong.
- CPI rose 0.4%, up 4.9% YoY | Core CPI rose 0.4%, up 5.5% YoY
- PPI rose 0.2%, up 2.3% YoY | Core PPI rose 0.2%, up 3.4% YoY
- PCE rose 0.4%, up 4.4% YoY | Core PCE rose 0.4%, up 4.7% YoY
GDP Economic Data Released in May 2023
The second estimate for first-quarter 2023 GDP showed the U.S. economy grew at a 1.3% annualized rate, up 1.6% YoY. The economy may be slowing down, but it keeps chugging along. Will the economy continue to slow and fall into a recession? Economists have mixed opinions. We might have a recession in the second half of 2023; no one knows. We do know the U.S. economy has surprised a lot of market analysts and displayed remarkable resilience in the face of higher interest rates.
Consumer Economic Data Released in May 2023
Consumers continued to spend more in April, with retail sales rising 0.4%, which is just keeping up with the inflation rate. Retail sales is up 1.6% YoY, and inflation is up 4.9% YoY, which makes "real" retail sales down 3.3%. Consumers aren't buying more stuff — they are actually buying less stuff, but are just paying more because of inflation. This decline in real retail sales may be the beginning of lower consumer demand which is required to cool off inflation.
- Retail sales rose 0.4% during April, up 1.6% in the last 12 months.
- Consumer Confidence Index fell 1.4% to 102.3 from 103.7 the prior month.
- Consumer Sentiment Index (Univ. of Michigan) fell 6.8% to 59.2 from 63.5 the previous month.
Energy, International, And Things You May Have Missed
- West Texas intermediate crude fell to $68/barrel (May 31) from $77/barrel (April 28).
- North Sea Brent crude fell to $73/barrel (May 31) from $80/barrel (April 28).
- Natural gas fell to $2.26/MMBtu (May 31) from $2.41/MMBtu (April 28).
- Congress and President Biden hammered out a last-minute agreement on the U.S. Debt Ceiling.
- Germany is officially in a recession due to high inflation and low consumer spending.
- Turkish President Erdogan was re-elected to another five-year term. He was elected prime minister in 2003 and president in 2014.
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.
