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 February 2023
- Interest Rates: The 10-Year Treasury yield rose to 3.92% (Feb. 28) from 3.52% (Jan. 31).
- Housing: Existing home sales fell 0.7%, new home sales rose 7%, and pending home sales rose 8.1% during January. Home prices continue to fall, but are up 6.6% year over year (YoY).
- Labor: The U.S. economy created 517,000 new jobs in January. The unemployment rate declined to 3.4%, and wages increased 4.4% YoY.
- Inflation: January Consumer Price Index (CPI) rose 0.5% (+6.4% YoY), and the Producer Price Index (PPI) rose 0.7% (+6% YoY).
- The Economy: U.S. gross domestic product (GDP) grew by a 2.7% annualized rate in the fourth quarter of 2022, up 2.1% YoY.
- Consumers: Retail sales rose 3%, consumer sentiment up, consumer confidence down.
- Stock markets were down in February: Dow -4.2%, S&P -2.6%, Nasdaq -1.1%.
- Oil prices fell to $77/barrel (Feb. 28) from $79/barrel (Jan. 31).
- Natural gas prices fell to $2.66/MMBtu (Feb. 28) from $2.75/MMBtu (Jan. 31).
Interest Rates & Fed Watch
The last Federal Open Market Committee meeting ended Feb. 1, with the Fed raising the federal funds rate by 0.25% to a target range of 4.5%-4.75%. Now all eyes are focused on the next FOMC meeting on March 22. Most economists expect the Fed to bump interest rates up another 0.25%. However, the economic data released in February revealed that inflation and the labor market are hotter than expected. Consequently, some analysts predict the Fed will do a 0.5% increase. Economists generally all expect the Fed to continue raising interest rates until the federal funds rate equals the inflation rate. That would peg the “terminal federal funds
rate” in the range of 5.25%-5.75%. The Fed has repeatedly said it will continue raising interest rates until Inflation is under control. So far, the Fed has stuck to that policy.
- 10-Year Treasury note yield rose to 3.92% (Feb. 28) from 3.52% (Jan. 31).
- 30-Year Treasury bond yield rose to 3.93% (Feb. 28) from 3.65% (Jan. 31).
- 30-Year fixed mortgage rose to 6.50% (Feb. 23) from 6.13% (Jan. 26).
- 15-Year fixed mortgage rose to 5.76% (Feb. 23) from 5.17% (Jan. 26).
Housing Market Data Released In February 2023
Mortgage rates are hovering in the 6.5% range. That’s higher than the recent record lows of 2.5% in 2021, but it’s not a high rate from a historical perspective — and homebuyers know it. Most homebuyers have no trouble buying a home with a 6.5% mortgage. They can always refinance if rates come down. The problem is they can’t find a home to buy. Inventory has been a perpetual problem in the housing market for five years, and the low mortgage rates of 2021 have made it worse. Homeowners with a 2.5% mortgage rate are “locked in.” They are not moving unless they have to, which is exacerbating the inventory problem. Luckily, new homes under construction are near record-high levels. Those new homes will be delivered in 2023.
- Existing home sales (closed deals in January) fell 0.7% to an annual rate of 4 milion homes, down 36.9% in the last 12 months; 29% were all-cash sales. The median price for all types of homes is $359,000, up 1.3% from a year ago. The median single-family home price is $363,100, up 0.7% YoY.
- The median condo price is $320,000, up 5.2% YoY. Homes were on the market for an average of 33 days, and 54% were on the market for less than a month. Currently, 980,000 homes are for sale.
- New home sales (signed contracts in January) rose 7.2% to a seasonally adjusted annual rate of 670,000 homes, down 19.4% YoY. The median new home price is $427,500. The average price is $474,400. There are 439,000 new homes for sale, a 7.9-month supply. During 2022, 644,000 new homes were sold, down 16.4% from 771,000 in 2021.
- Pending Home Sales Index (signed contracts in January) rose 8.1% to 82.5 from 76.9 the previous month, down 24.1% YoY.
- Building permits (issued in January) rose 0.1% to a seasonally adjusted annual rate of 1.34 million units, down 27.3% YoY. Single-family permits fell 1.8% to an annual pace of 718,000 homes, down 40% YoY.
- Housing starts (excavation began in January) fell 4.5% to an annual adjusted rate of 1.3 million, down 21.4% YoY. Single-family starts fell 4.3% to 841,000 units, down 27.3% YoY.
- Housing completions (completed in January) rose 1% to an annual adjusted rate of 1.41 million units, up 12.8% YoY. Single-family completions rose 4.4% to an annual adjusted rate of 1.04 million homes, up 11.9% YoY.
- S&P/Case-Shiller 20 City Home Price Index fell 0.5% in December, up 4.6% YoY.
- FHFA Home Price Index fell 0.1% in December, now up 6.6 % YoY.
Labor Market Economic Data Released In February 2023
Note: Labor market data for February will not be released until March 10; job openings data for January will be released March 8.
The economy created 517,000 new jobs during January. This large increase initially generated a lot of excitement. That number looks impressive, but take it with a large grain of salt. A large portion of that huge gain was due to changes in the seasonal adjustment factor. If you look at the unadjusted raw data, the number of new jobs created was much lower. That’s not to say that the labor market is weakening — it is still very robust. Remember: One data point does not make a trend. The next jobs report is March 10; stay tuned.
- The economy created 517,000 new jobs in January.
- The unemployment rate fell to 3.4% in January.
- The labor force participation rate rose to 62.4 in January.
- The average hourly wage rose 0.3% in January, up 4.4% YoY.
- Job openings rose to 11 million in December from 10.5 million in November.
Inflation Economic Data Released in February 2023
The War on Inflation is proving to be harder than expected. The January CPI clocked inflation at 6.4% annually — much higher than economists expected. This was disappointing because all the previous data showed inflation was slowly drifting lower. The Fed will eventually win the war, but it will take longer than expected and be a bumpy ride. In the meantime, the usual culprits are responsible for stubbornly high Inflation — energy, food, shelter, and wages.
- CPI rose 0.5%, up 6.4% YoY | Core CPI rose 0.4%, up 5.6% YoY
- PPI rose 0.7%, up 6.0% YoY | Core PPI rose 0.6%, up 5.4% YoY
- PCE rose 0.6%, up 5.4% YoY | Core PCE rose 0.6%, up 4.7% YoY
GDP Economic Data Released In February 2023
The second estimate for fourth quarter 2022 GDP showed the U.S. economy grew at a 2.7% annualized rate, up 2.1% YoY. The economy is 70% consumer-driven. Right now, workers feel secure in their jobs, their wages are growing, they have money in the bank and equity in their homes. The economy will continue to grow as long as the consumer feels confident and continues to spend. We won’t get a recession with a hard landing unless the consumer loses confidence and stops spending.
Consumer Economic Data Released In February 2023
The most recent consumer confidence and sentiment surveys show that consumers feel better about inflation. They think the worst inflation is behind them, but expect it to continue in the near future. Consequently, they continue to spend but are more selective about their spending — which is why retail sales jumped 3% in January. What did consumers buy last month? Spending at restaurant & bars was up 7.2% (+25.2% YoY), sporting goods was up 6.2% (+6.9% YoY), clothing was up 2.5% (+6.3% YoY), appliance and electronics was up 3.5% (-6.3% YoY), and furniture was up 4.4% (+3.8% YoY). Interestingly, sales at department stores rocketed up 17.5% (+5.4% y/y).
- Retail Sales rose 3% during January, up 6.4% in the last 12 months.
- Consumer Confidence Index fell 2.9% to 102.9 from 106 the prior month.
- Consumer Sentiment Index (University of Michigan) rose 3.2% to 67 from 64.9 the previous month.
Energy, International, and Things You May Have Missed
- West Texas intermediate crude fell to $77/barrel (Feb. 28) from $79/barrel (Jan. 31).
- North Sea Brent crude was unchanged at $84/barrel (Feb. 28) from $84/barrel (Jan. 31).
- Natural gas fell to $2.66/MMBtu (Feb. 28) from $2.75/MMBtu (Jan. 31).
- Shell Oil reported windfall profits in 2022 of $40 billion, the most profitable year ever for the 115-year-old company.
- Italy experienced a five-hour internet blackout that affected most of the country; a cyberattack is the suspected cause.
- A devastating 7.8 earthquake hit Turkey and Syria that collapsed 6,000 buildings and killed almost 50,0000 people. The high death toll is blamed on shoddy building construction.
- February marked the first anniversary of the Ukrainian War.
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.
