By Mark Paolett
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 August 2022
- Interest Rates: The 10-Year Treasury yield rose to 3.26% (Sept. 1) from 2.60% (Aug. 1).
- Housing: Existing home sales fell 5.9%, new home sales fell 12.6%, and pending home sales fell 1%. Home price appreciation is rapidly slowing.
- Labor: The economy created 315,000 new jobs in August and 528,000 in July. The unemployment rate rose to 3.7% in August and 3.5% in July. Wages increased 5.2% year over year (YoY).
- Inflation: Consumer Price Index (CPI) up 1.3% (+8.5% YoY), Producer Price Index (PPI) down 0.5% (+7.6% YoY).
- The Economy: U.S. Gross Domestic Product (GDP) contracted at a 0.6% annualized rate in the second quarter of 2022, up 1.7% YoY.
- Consumers: Retail sales were unchanged in July, while consumer confidence rose.
- Stock Markets: Declined over 4% in August: Dow Jones, -4.2%; S&P 500, -4.2%;, Nasdaq, -4.6%.
- Oil Prices: Fell to $89/barrel (Aug. 31) from $104 (July 29). Natural gas prices rose to $9.16/MMBtu (Aug. 31) from $8.23/MMBtu (July 29).
Interest Rates and Fed Watch
All eyes were focused on Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole Economic Symposium on Aug. 27. In his speech, he reaffirmed three keys issues:
- The Fed's responsibility to fight Inflation — and this could be a long fight.
- The Inflation fight will "bring some pain to households and businesses."
- The dire consequences of having inflationary expectations embedded in consumer psychology.
Powell said: "Restoring price stability will take some time and requires using our tools forcefully to bring demand and supply into better balance. Reducing Inflation is likely to require a sustained period of below-trend growth. Moreover, there will very likely be some softening of labor market conditions. While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."
Fedspeak Translation: Don't expect interest rates to come down anytime soon. The Fed is going to keep monetary policy tight until inflation is under control, and inflationary expectations are banished from consumer psychology — which could take some time.
- 10-Year Treasury Yield rose to 3.26% (Sep. 1) from 2.6% (Aug. 01).
- 30-Year Treasury Bond Yield rose to 3.37% (Sep. 1) from 2.92% (Aug. 1).
- 30-Year Fixed Mortgage rose to 5.66% (Sep. 1) from 5.3% (July 28).
- 15-Year Fixed Mortgage rose to 4.98% (Sep. 1) from 4.58% (July 28).
- 5/1 ARM Mortgage rose to 4.51% (Sep. 1) from 4.29% (July 28).
Housing Market Data Released in August 2022
There were a lot of negative numbers (again) in the August housing data as sales of new and existing homes continued to decline. New home sales fell a whopping 26%, and builders are starting to discuss price concessions. Home completions eked out a small gain of 1.1%; expect that number to increase because many homes are still under construction as material shortages delayed completion. The inventory of new and existing homes for sale is finally beginning to grow. The Federal Housing Finance Agency (FHFA) Price Index was up only 0.1% in June. Adjusting for inflation of 1.3% means that "real home prices" actually declined in June.
- Existing Home Sales (closed deals in July) fell 5.9% to an annual rate of 4.81 million homes, down 20.2% in the last 12 months. The median price for all types of homes is $403,800 — up 10.8% from a year ago. The median single-family home price is $410,600, up 10.6% YoY. The median condo price is $345,000, up 9.9% YoY. Homes were on the market for an average of 14 days, and 82% were on the market for less than a month. Currently, 1.31 million homes are for sale; 24% were all cash sales.
- New Home Sales (signed contracts in July) fell 12.6 % to a seasonally adjusted annual rate of 511,000 homes — down 29.6% YoY. The median new home price rose 5.9% (+8.2% YoY) to $439,400. The average price rose 19.6% (+18.3% YoY) to $546,800. There are 464,000 new homes for sale, a 10.8-month supply.
- Pending Home Sales Index (signed contracts in July) fell 1% to 89.8 from 91.0 the previous month, down 19.9% YoY.
- Building Permits (issued in July) fell 1.3% to a seasonally adjusted annual rate of 1.67 million units — up 1.1% YoY. Single-family permits fell 4.3% to an annual pace of 928,000 homes, down 11.7% YoY.
- Housing Starts (excavation began in July) fell 9.6% to an annual adjusted rate of 1.45 million, down 8.1% YoY. Single-family starts fell 10.1% to 916,000 units, down 18.5% YoY.
- Housing Completions (completed in July) rose 1.1% to an annual adjusted rate of 1.42 million units — up 3.5% YoY. Single-family completions fell 0.8% to an annual adjusted rate of 1.01 million homes — up 7% YoY.
- S&P/Case-Shiller 20 City Home Price Index rose 0.4% in June, up 18.6% YoY.
- FHFA Home Price Index rose 0.1% in June, now up 17.7% YoY.
Labor Market Economic Data Released in August 2022
The economy created 315,000 new jobs during August and 528,000 during July. The unemployment rate rose to 3.7%. The July and August numbers reaffirm that labor continues to be in short supply. The labor issues are exacerbated by retiring Baby Boomers, as shown in the low labor force participation rate of 62.4%. Despite all the recession talk, the labor market remains strong, with no signs of slowing down.
- The economy created 315,000 new jobs during August and 528,000 during July.
- The unemployment rate rose to 3.7% in August from 3.5% in July and 3.6% in June.
- The labor force participation rate rose to 62.4% from 62.1% in July and 62.2% in June.
- The average hourly wage rose 0.3% in August and 0.5% in July, up 5.2% YoY.
- Job openings rose to 11.2 million in July from 10.7 million in June and 11.25 million in May.
Inflation Economic Data Released in August 2022
Everyone is talking about inflation; that's a bad sign. It means that inflation expectations are getting ingrained into consumers’ psychology — and the beginning of a wage-price spiral. Once a wage-price spiral starts, it's tough to stop. The last spiral began in the 1960s and raged on during the '70s. It finally came to a halt in 1979, after the Fed jacked interest rates up to a whopping 18%. It caused a severe recession and a lot of pain for the country. Here is some good news: PPI and PCE declined in July. That slight decline was exclusively due to lower oil prices and will disappear quickly if/when oil prices rise.
- CPI rose 1.3%, up 8.5% YoY | Core CPI rose 0.3%, up 5.9% YoY
- PPI fell 0.5%, up 9.8% YoY | Core PPI rose 0.2%, up 7.6% YoY
- PCE fell 0.1%, up 6.3% YoY | Core PCE rose 0.1%, up 4.6% YoY
GDP Economic Data Released in August 2022
The second estimate for second-quarter GDP showed the U.S. economy contracted by a 0.6% annualized rate, up 1.7% YoY. An ominous sign most people missed this month was the huge decline in productivity of 2.5% YoY. This is very bad, and few people are talking about it. This is the largest decline since the index was started in 1948. Productivity is essential for economic growth, so this significant decline is a big deal. Without productivity gains, economies can't grow. In the meantime, the yield curve remains inverted. The 2-10 spread hit almost 0.5% in August — the widest inversion in decades. An inverted yield curve is a very accurate predictor of an upcoming recession. With all the signs indicating an impending recession, the question is: Will it be a soft or hard landing?
Consumer Economic Data Released in August 2022
Another month of mixed consumer data. Retail sales data was flat, the result of lower gasoline prices. Consumers are feeling better about the economy. Both consumer confidence and sentiment improved after several months of decline. I think it's amazing how lower gas prices can quickly improve consumers' mood.
- Retail sales were unchanged during July, up 10.3% in the last 12 months.
- Consumer Confidence Index rose 8.3% to 103.2 from 95.3 the prior month, down -10.4% YoY.
- Consumer Sentiment Index (University of Michigan) rose to 58 from 51.5 the previous month.
Energy, International, and Things You May Have Missed
- West Texas Intermediate Crude fell to $89/barrel (Aug. 31) from $99/barrel (July 29).
- North Sea Brent Crude fell to $96/barrel (Aug. 31) from $104/barrel (July 29).
- Natural gas rose to $9.16/MMBtu (Aug. 31) from $8.23/MMBtu (July 29).
- An assassination attempt (car bomb) against Russian nationalist Alexander Dugin, a staunch supporter of Putin, missed him and killed his daughter.
- The FBI raided former President Trump's Palm Beach home looking for classified documents.
- President Biden forgave up to $10,000 of student loan debt for borrowers making under $125,000/year.
- China's Central Bank: The People’s Bank of China announced it would cut interest rates.
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.
