Mortgage Economic Review For October 2022

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 Data and Events During September 2022:

• Interest Rates: The 10-Year Treasury yield jumped to 3.83% (Sept. 30) from 3.26% (Sept. 1).  
• Housing: Existing home sales fell 0.4%, new home sales surged 28.8%, and pending home sales fell 2%. Home prices fell for the first time since March 2020. 
• Labor: The economy created 315,000 new jobs, the unemployment rate rose to 3.7%, and wages increased 5.2% year over year (YoY) in August, 
• Inflation: The Consumer Price Index (CPI) was up 0.1% (+8.3% YoY), PPI fell 0.1% (+8.7% YoY).
• The Economy: U.S. gross domestic product (GDP) contracted at a 0.6% annualized rate in 2Q 2022, up 1.8% YoY.
• Consumers: Retail sales rose slightly, consumer confidence and sentiment improved. 
• Stock Markets: The markets plummeted in September: Dow -8.8%, S&P -9.3%, Nasdaq -10.5%.
• Oil Prices: Fell to $80/barrel (Sept. 30) from $89/barrel (Aug. 31). Natural gas prices fell to $6.77/MMBtu (Sept. 30) from $9.13/MMBtu (Aug. 31).

Interest Rates and Fed Watch:

Don't fight the Fed. The Fed had its September Federal Open Market Committee (FOMC) meeting. As expected, it raised the federal funds rate by 0.75%. This move, which came as no surprise to many, was the third 0.75% rate hike since Jerome Powell was re-appointed as Fed Chairman in May 2022. The Fed is determined to tame inflation. If that means throwing the economy into a recession — it's just the cost of battling inflation. After the FOMC meeting, Chairman Powell said: 

"The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done…. We have got to get Inflation behind us. I wish there were a painless way to do that. There isn’t. So what we need to do is get rates up to the point where we’re putting meaningful downward pressure on Inflation, and that's what we're doing. And we certainly don’t hope — we certainly haven’t given up the idea that we can have a relatively modest increase in unemployment. Nonetheless, we need to complete this task."

That's as strong and clear as a message you'll ever get from a Fed chairman. Rates are going up until inflation comes down. That means the fed funds rate will probably hit 4.0% by year-end and stay above 4.0% throughout 2023. It's going to be a bumpy ride for the next 12-15 months. 

• 10-Year Treasury Note Yield rose to 3.83% (Sept. 30) from 3.26% (Sept. 01).
• 30-Year Treasury Bond Yield rose to 3.79% (Sept. 30) from 3.37% (Sept. 01).      
• 30-Year Fixed Mortgage rose to 6.70% (Sept. 30) from 5.66% (Sept. 01).   
• 15-Year Fixed Mortgage rose to 5.96% (Sept. 30) from 4.98% (Sept. 01).
• 5/1 ARM Mortgage rose to 5.30% (Sep 30) from 4.51% (Sept. 01).

Housing Market Data Released in September 2022:

Trees Can't Grow to the Moon. The red-hot housing market can't stay red-hot forever. Sooner or later, it had to cool off. What caused the cooldown? High mortgage rates. With high mortgage rates and sky-high home prices — few people can afford to buy a home. Many housing analysts predict a 5%-10% reduction in home prices over the next 6 to 18 months. The FHFA and Case-Shiller Home Price Indexes declined for the first time since May 2020. The supply side is improving, with a record number of new homes under construction. Higher supply and lower demand will bring prices down. 

• Existing home sales (closed deals in August) fell 0.4% to an annual rate of 4.8 million homes, down 19.9% in the last 12 months. The median price for all types of homes is $389,500 — up 7.7% from a year ago. The median single-family home price is $396,300, up 7.6% YoY. The median condo price is $333,700, up 7.8% YoY. Homes were on the market for an average of 16 days, and 81% were on the market for less than a month. Currently, 1.28 million homes are for sale, and 24% were all cash sales.
• New home sales (signed contracts in August) rose 28.8% to a seasonally adjusted annual rate of 685,000 homes — down 0.1% YoY. The median new home price fell 6.3% (+8.0% YoY) to $436,800. The average price fell 6.3% (+11.0% YoY) to $521,800. There are 461,000 new homes for sale, an 8.1-month supply.
• Pending home sales index (signed contracts in August) fell 2% to 88.4 from 89.8 the previous month, down 24.2% YoY.    
• Building permits (issued in August) fell 10% to a seasonally adjusted annual rate of 1.517 million units — down 14.4% YoY. Single-family permits fell 3.5% to an annual pace of 889,000 homes, down 15.3% YoY. 
• Housing starts (excavation began in August) rose12.2% to an annual adjusted rate of 1.575 million, down 0.1% YoY. Single-family starts rose 3.4% to 938,000 units, down 14.6% YoY.  
• Housing completions (completed in August) fell 5.4% to an annual adjusted rate of 1.342 million units — up 3.1% YoY. Single-family completions rose 0.4% to an annual adjusted rate of 1.017 million homes, up 6,5% YoY.
• S&P/Case-Shiller 20 City Home Price Index fell 0.4% in July, up 16.1% YoY.  
• FHFA Home Price Index fell 0.6% in July, now up 13.9% YoY.  

Labor Market Economic Data Released in September 2022:

The economy created 315,000 new jobs during August, and the unemployment rate rose to 3.7%. For an economy in a "technical" recession, the labor market has demonstrated remarkable resilience. Labor data continues to show strong wage growth and low unemployment with over 11 million job openings. Many economists believe Inflation can't be controlled while the unemployment rate is below 4%. Expect the labor data to deteriorate in the next months as higher interest rates cool off the Labor Market. 

• The economy created 315,000 New Jobs during August. 
• The unemployment rate rose to 3.7% in August from 3.5% in July.    
• The labor force participation rate rose to 62.4% from 62.1% in July.       
• The average hourly wage rose 0.3% in August, up 5.2% YoY.
• Job openings rose to 11.2 million in July from 10.7 million in June.

Inflation Economic Data Released in September 2022:

The September inflation data confirmed fears that inflation is worse than expected. Inflation continued to run hot, with the CPI at 8.3% and PPI at 8.7%. The Fed knows the longer inflation burns hot, the more damage it will cause to the economy. The Fed has no choice but to break out the fire hose and douse inflation with high interest rates. Shelter costs are particularly problematic as rents and mortgage payments continue to rise. Energy, food, automobiles, and medical care are other components that are contributing to high inflation. The only encouraging data was that gasoline prices had come down, but no one knows how long that will last as we enter the winter months.  

• CPI rose 0.1%, up 8.3% YoY     |    Core CPI rose 0.6%, up 6.3% YoY
• PPI fell 0.1%, up 8.7% YoY        |    Core PPI rose 0.2%, up 5.6% YoY.
• PCE rose 0.3%, up 6.2% YoY    |    Core PCE rose 0.6%, up 4.9% YoY

GDP Economic Data Released in September 2022:

The third and final estimate for second quarter GDP showed the U.S. economy contracted by a 0.6% annualized rate, up 1.8% YoY. That's after the economy contracted 1.6% in the first quarter. A big surprise was the larger than expected rise in inventories — an indication consumers are cutting back on purchases. A recession is “technically" defined as two consecutive quarters of negative growth. The U.S. economy is 70% consumer driven. A significant slowdown of consumer spending will tip the economy from a "technical" recession into a "real" recession. Next month we get a first look at the GDP numbers for the third quarter. 

Consumer Economic Data Released in September 2022:

Consumer data was encouraging in September as retail sales, consumer confidence, and consumer sentiment all rose. A big part of the improved mood is lower gasoline prices. Gas prices are notoriously volatile and can change quickly. If gas prices go up — consumer confidence will turn negative. Retail sales were up 3%, indicating consumer spending was robust, but a  deeper dive into the numbers shows consumers are buying more necessities and fewer discretionary items.  

• Retail sales rose 0.3% during August, up 9.1% in the last 12 months.
• Consumer confidence Index rose 4.2% to 108.0 from 103.6 the prior month, down -1.6% YoY.
• Consumer Sentiment Index (Univ. of Michigan) rose to 58.6 from 58.0 the previous month. 

Energy, International, and Things You May Have Missed:

• West Texas Intermediate Crude fell to $80/barrel (Sept. 30) from $89/barrel (Aug. 31).  
• North Sea Brent Crude fell to $88/barrel (Sep 30) from $96/barrel (Aug 31).   
• Natural Gas fell to $6.77/MMBtu (Sept. 30) from $9.13/MMBtu (Aug. 31). 
• The European Central Bank raised interest rates by 0.75%.
• The Turkish Central Bank cut rates by 1% despite a 66% Inflation Rate.
• Mass protests rocked Iran after a woman was beaten to death by Iran's morality police.
• Far-right Giorgia Meloni was elected as Italy's first female prime minister. 
• The Nord Stream 2 Pipeline supplying natural gas to European countries ruptured under the Baltic Sea; deliberate sabotage is suspected.  
• Queen Elizabeth died at the age of 96; she reigned for over 70 years.
• Hurricane Ian battered Florida with wind speeds over 155 mph.
• Russia announced the regions of Ukraine it captured are now officially part of Russia. 

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.