April 30, 2024 – More Jobs Than People?

Economic Commentary

Every month for the past three years we have been singing the same refrain – the job market is hot. Except there is a limit to the number of jobs that can be created. And not every person qualifies for every job. For example, if there are many job openings for doctors, it is not likely that most of us can apply. In other words, the unemployment rate is not likely to drop to zero. On the other hand, we can’t create more jobs than the employable population. So, let’s take a look at our history.

For the decade of 2011 to 2020 the economy added just over 20.0 million jobs, or approximately 200,000 per month. For a perspective, we lost between 8.0 and 9.0 million jobs in the previous two years during the Great Recession. Therefore, some of this was “catch-up” as we started that decade with a high unemployment rate and ended it with a low unemployment rate. This decade we started the exact same way due to the pandemic recession. We lost almost 9.0 million jobs in 2021. Because of the suddenness of the pandemic, the recovery was much faster, and we have gained over 14.0 million jobs in the past two and a third years, bringing the unemployment rate right back down.

Seem like too many jobs? Not really, if you take a normal year of 1.5 to 2.0 million jobs gained and subtract the 9.0 million jobs we had lost in 2021 from 14.0 million gained, we are now just about caught up. We have added 5.0+ million jobs net in the past three and a third years. Why does it seem like too many jobs were added? For one, many left the work force during the pandemic which brought down the labor participation rate. The participation rate has been coming back slowly and is just now approaching the rate seen just before the pandemic – alleviating some of the employment shortages. Thus, the answer is that we have not created too many jobs. But if we keep adding at the present rate, we could be asking this question again. The jobs report for April will be released Friday.

Weekly Interest Rate Overview

Another week of rising mortgage rates was reported by Freddie Mac last week. The string of strong economic news did end with a weaker than expected advanced first quarter GDP report. Rates did not come down initially in reaction to the data as inflation measures continued to come in hotter than expected. 30-year fixed rates rose to 7.17% from 7.10% the week before. In addition, 15-year loans increased to 6.44%. A year ago, 30-year fixed rates averaged 6.43%, 0.74% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates continued rising this week. Despite rates increasing by more than half a percent since the first week of the year, purchase demand remains steady. With rates staying higher for longer, many homebuyers are adjusting, as evidenced by this week’s report that sales of newly built homes saw the biggest increase since December 2022.” Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

The number of older Americans planning to remain in their current homes as they age is increasing, according to recent data released by Redfin. The real estate company surveyed baby boomers (60-78 years old) and a small segment of the silent generation (ages 79 and up) in February 2024. Findings indicate that 78% of older homeowners plan to stay in their current homes as they age. The next most common plan is moving to a 55-plus community, with 20% of respondents planning to or having already done so. A smaller group (10%) said they plan to move in with adult children, and 6% plan to move in with friends. There were 838 respondents representing the baby boomer generation and 62 respondents from the Silent Generation, all of whom are homeowners. The results from baby boomers who rent their homes were similar, according to Redfin analysts. “Aging in place is already contributing to the housing shortage and is likely to continue doing so. The fact that the vast majority of baby boomer homeowners plan to age in place could prolong the shortage of homes for sale,” Redfin data journalist Dana Anderson commented in her report. Freddie Mac surveyed 55 and older on their housing plans in 2021, comparing the results with the same survey performed in 2016. In 2016, 63% of respondents planned to age in place, while that percentage increased to 66% in 2021. Baby boomers staying put is one reason inventory remains at historic lows, according to a separate Redfin analysis. It found that empty-nest baby boomers own 28% of U.S. homes with three or more bedrooms, while millennials with kids own just 14% of this stock. Furthermore, nearly 80% of boomers own the home they live in, compared to 55% of millennials. More than half (51%) of baby boomers who are planning to age in place say it’s because they like their home and have no reason to move, according to the same Redfin survey. Source: National Mortgage Professional

Zillow research shows that more than 80% of prospective home buyers consider climate risks as they shop. Although this trend is seen across generations, Millennial and Gen Z shoppers – who comprise 54% of all home buyers – are more likely to consider climate risk when deciding where to buy a home compared to other generations. For younger home shoppers who are driving the market, climate risks are a major concern. The median age of today’s home buyer is 39, and first-time buyers make up 50% of all buyers. “Climate risks impact where most prospective buyers shop for a home”, said Zillow Senior Population Scientist Manny Garcia. “While all generations juggle trade-offs like budget, floor plans, and commute times, younger home shoppers are more likely to face another consideration: They want to know if their home will be safe from rising waters, extreme temperatures, and wildfires.” For many, flood risk represents the major concern, followed by wildfires, extreme temperatures, hurricanes, and drought, the report noted. A clear majority of prospective buyers in each region of the United States consider at least one climate risk when shopping for a home, Zillow said. People in the West are most likely to report climate risk as very or extremely impactful in their home search, followed by those in the Northeast. Alternatively, a third of Midwestern and Southern shoppers say climate risks are not very impactful or not at all impactful to their real estate journey. Although climate risk is affecting attitudes, it’s not to the point where the majority of buyers are considering moving to a region they deem less risky. About half plan to remain in areas that pose the same climate risks they already face. Just over a quarter of buyers are even thinking about moving to areas with more risks. Only 23% of buyers have reported that they are considering homes in areas that they believe to be safer from climate disasters. Source: Zillow

It’s not a battle of the sexes in the housing world: It’s a battle of the generations. Millennials surpassed baby boomers as the largest generation of homebuyers, totaling 38%, whereas baby boomers made up 31% of recent homebuyers, according to the National Association of Realtors’ latest generational trends report. “The generational tug-of-war between millennials and baby boomers continued this year, with millennials rebounding to capture the largest share of homebuyers,” NAR’s deputy chief economist and vice president of research, Jessica Lautz, said in an accompanying release. “This notable rise is attributed to both younger millennials stepping into homeownership for the first time and older millennials transitioning to larger homes that suit their evolving needs.” Younger millennials (25 to 33 years old) made up a smaller share of homebuyers for the generation, but interestingly enough, 24% of them moved directly from a family home before buying their own. Nevertheless, 75% of younger millennials and 44% of older millennials were first-time buyers. And they got help from their parents; 24% of younger millennials got money from their family for a down payment. A recent survey found more than a third of millennials and Gen Zers who are planning to buy a home expect their parents, or family, to help with their down payment. On the other hand, younger baby boomers (59 to 68 years old) made up a larger share of homebuyers within their cohort. Still, the entire generation primarily bought homes closer to family, or in an effort to downsize. As for sellers, baby boomers make up the largest share—45% to be exact. The same reasons why they are buying homes are why they’re selling: downsizing and wanting to be closer to family and friends. But baby boomers normally owned their homes for 15 years before selling. Millennials, however, sell because their homes aren’t big enough for their growing families and make up 40% of sellers. Source: Fortune