BY MARK PAOLETTI | SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
AT A GLANCE: Key Economic Data & Events during February 2022
- Interest Rates: The 10-Year Treasury yield rose to 1.83% (Feb. 28) from 1.79% (Jan. 31).
- Housing: Home prices rose roughly 19% in 2021 after increasing 10% in 2020. January existing home sales rose while new home dales declined.
- Labor: During January, the economy created 467,000 new jobs, the unemployment rate rose to 4%, and wage growth increased 0.7% (4.7% year-over-year).
- Inflation: January CPI up 0.6% (+7.5% YoY), PPI up 1.0% (+9.7% YoY).
- The Economy: U.S. GDP grew at a 7% annualized rate during the fourth quarter of 2021.
- Consumers: January retail sales rose 3.8% while February consumer confidence fell.
- Stock Market Volatility: The Ukraine war rattled the stock markets, but a flight to quality helped all the indexes recover from steep losses.
- War in Europe: Russia invaded Ukraine, sending shock waves through the global financial markets and driving up the price of energy —oil prices are hovering around $100 a barrel.
Interest Rates & Fed Watch
The financial markets are focused on two things: the next Federal Open Market Committee meeting on March 15-16 and the war in Ukraine. Everyone expects the Fed will raise short-term interest rates in March. The big question is how much — 1/4% or 1/2% increase to the federal funds rate. My guess is that they haven't decided yet; geopolitical events are moving too fast. The Fed is watching how the war unfolds and affects the global financial markets before they make a final decision. Central banks typically don't like raising Interest rates during major geopolitical conflicts. The Fed also will get another look at employment and CPI data before the FOMC meeting. The war is driving oil prices higher, which will exacerbate the already high inflation rate. However, higher oil prices will eventually act as a drag on growth, slowing demand, which will have a cooling effect on inflation. The Fed was in a tricky situation before the war started; now it's a real conundrum.
- 10-Year Treasury Security Yield rose to 1.88% (Feb. 28) from 1.79% (Jan. 31).
- 30 Year Treasury Bond Yield rose to 2.25% (Feb. 28) from 2.12% (Feb. 01).
- 30-Year Fixed Mortgage rose to 3.89% (Feb. 24) from 3.55% (Feb. 03).
- 15-Year Fixed Mortgage rose to 3.1% (Feb. 24) from 2.88% (Feb. 03).
- 5/1 ARM Mortgage rose to 2.98% (Feb. 24) from 2.71% (Feb. 03).
Housing Market Data Released in February 2022
Inventory problems continue to plague the housing market, but help is on the way. Currently, 263,000 new homes are under construction. Plus, an additional 106,000 homes have permits and are waiting to break ground. That's 369,000 new homes. Slowly but surely, despite labor and supply shortages, builders are getting homes completed and delivered to buyers. The big issue facing potential buyers is affordability, especially with rising interest rates. Despite the setbacks, housing analysts expect the market to remain strong for the next two years as supply catches up to demand.
- Existing home sales (closed deals in January) rose 6.7% to an annual rate of 6,500,000 homes, down 2.3% in the last 12 months. The median price for all types of homes is $355,300, up 15.4% from a year ago. The median single-family home price is $357,100, $297,800 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, 860,000 homes are for sale, down 16.5% from 1,030,000 units a year ago.
- New home sales (signed contracts in January) fell 4.5% to a seasonally adjusted annual rate of 801,000 homes — down 19.3% YoY. The median new home price rose to $423,300 from $377,700 the prior month. The average price rose to $496,900 from $457,300 the prior month. There are 406,000 new homes for sale, a 6.1-month supply.
- Pending Home Sales Index (signed contracts in January) fell 5.7% to 109.5 from 117.7 the previous month, down 9.5% YoY.
- Building permits (issued in January) rose 0.7% to a seasonally adjusted annual rate of 1,899,000 units, up 0.8% YoY. Single-family permits rose 6.8% to an annual pace of 1,205,000 homes, down 5.0% YoY.
- Housing starts (excavation began in January) fell 4.1% to an annual adjusted rate of 1,638,000, up 0.8% YoY. Single-family starts fell 5.6% to 1,116,000 units, down 2.4% YoY.
- Housing completions (completed in January) fell 5.2% to an annual adjusted rate of 1,246,000 units, down 6.2% YoY. Single-family completions fell 7.3% to an annual adjusted rate of 927,000 homes, down 8.4% YoY.
- S&P/Case-Shiller 20 City Home Price Index rose 1.5% in December, up 18.6% YoY.
- FHFA Home Price Index rose 1.2% in December, now up 17.6% YoY.
Labor Market Economic Data Released in February 2022
The economy created 467,000 new jobs in January (150,000 expected). Back in March 2020, when the economy went into lockdown mode, roughly 22 million workers were suddenly laid off. Many of those workers were in the hospitality and travel sector. Two years later, 19,500,000 of those workers were back in the workforce. That leaves 2,500,000 that have not returned to the Labor Force. This data is perplexing since there are 10,900,000 job openings — anyone who wants a job can quickly get one. A large chunk of those workers were nearing retirement age and decided to retire. Others needed to care for children or elderly family members. Regardless of the reason, they are permanently out of the workforce. This is one reason the unemployment and labor participation rates are so low.
- The economy created 467,000 new jobs during January.
- The unemployment rate rose to 4% in January from 3.9% in December.
- The Labor Force Participation Rate rose to 62.2% in January from 61.9% in December.
- The average hourly wage rose 0.7% in January, now up 4.7% YoY.
- Job openings rose slightly to 10,900,000 in December from 10,600,000 in November.
Inflation Economic Data Released in February 2022
The Inflation data is getting worse with every month. Inflation is the highest it's been in over 40 years, which takes us back to the late-1970s when "Stagflation" persisted. In 1979, Fed Chairman Paul Volker had to raise interest rates to 18% to "Break the Back of Inflation." It worked. Inflation dropped precipitously, but it also sent the economy into a severe recession. Everyone knows the Fed has to raise interest rates — and it has to be soon — to cool off demand. Two inflationary forces worry me: the Wage-Price Spiral and Inflationary Psychology. Once Inflationary Psychology gets embedded in consumers' psyche, it exacerbates the Wage-Price Spiral, and inflation becomes very difficult to control without extreme measures. We may be faced with the same dilemma Volker faced in 1979.
- CPI rose 0.6%, up 7.5% YoY | Core CPI rose 0.6%, up 6.0% YoY
- PPI rose 1.0%, up 9.7% YoY | Core PPI rose 0.8%, up 8.3% YoY
- PCE rose 0.6%, up 6.1% YoY | Core PCE rose 0.5%, up 5.2% YoY
GDP Economic Data Released in February 2022
The second estimate for fourth-quarter GDP showed the U.S. economy grew at a 7% annualized rate — slightly higher than the first estimate of 6.9%. For all of 2021, GDP clocked in at 5.7%. Economists concluded that the economy has completely recovered from the 2020 Covid lockdown. The economy is very healthy with solid demand from consumers and businesses. Now the debate is whether the economy will stay overheated as the effects of excessive monetary and fiscal stimulus wears off. Early estimates for 2022 GDP growth are in the 4% range.
Consumer Economic Data Released in February 2022
Retails sales rebounded in January, rising 3.8% (13% YoY). Part of that increase is due to Inflation. Real retail sales (retail sales minus inflation) is up 6% — a strong signal for continued consumer demand. The consumers' balance sheet remains very healthy, with savings up and debt down. Ports are jammed, and inventories are rising. All this good economic news is offset by the bad news that dominates the headlines (Ukrainian War, inflation, energy prices, food prices), which has people worried about the future. Consequently, the Consumer Confidence and Sentiment indexes declined last month. Gloomy consumers pull back on their spending.
- Retail sales rose 3.8% during January, now up 13% in the last 12 months.
- Consumer Confidence Index fell 3.25% to 110.1 from 113.8 the prior month, up 16.1% YoY.
- Consumer Sentiment Index (UofM) fell to 62.8 from 67.2 the previous month.
Energy, International, & Things You May Have Missed
Oil prices soared to over $100 per barrel, then fell back as the Ukraine War sparked fears of a supply disruption.
- West Texas Intermediate Crude rose to $96 (Feb. 28) from $88/barrel (Jan. 31).
- North Sea Brent Crude rose to $99 (Feb. 28) from $91/barrel (Jan. 31).
- Natural gas fell to $4.40/MMBtu (Feb. 28) from $4.87/MMBtu (Jan. 31).
- COVID restrictions and mandates are being lifted in many places all over the globe.
- ISIS Leader Abu Ibrahim al-Hashimi al-Qurayshi committed suicide in Syria as U.S. Commandos closed in on his compound.
- President Biden nominated Ketanji Brown Jackson to the Supreme Court.
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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.
