August 23, 2022 – What’s With The Employment Situation? July was a very important month with regard to the growth of jobs.

Economic Commentary

What’s With The Employment Situation? July was a very important month with regard to the growth of jobs. Not only did the economy add a significant number of jobs – much more than expected – but also, we have now recovered all the jobs lost during the pandemic. The 3.5% unemployment rate is the level we were at before the pandemic hit as well. Does that mean the economic effects of the pandemic are in our rearview mirror? Not quite.

For one thing, if there was not a pandemic, the economy would have produced several million jobs over and above the February of 2020 level during the past two-plus years. Thus, the labor participation rate is not at the level it was before the pandemic. Overall, we would expect less employment growth from here because we are fairly close to full employment levels. Ask the airline and a few other industries. It is hard to find workers right now.

As we have previously pointed out, recessions don’t happen when the economy is close to full employment. As long as we are adding jobs and consumers are spending, there is no recession – regardless of the other statistics. But as job growth slows down, we expect the economy to slow down in reaction to higher interest rates. Will the economy slow enough to make it a “no doubt” recession? That still remains to be seen.

Weekly Interest Rate Overview

The Markets. Mortgage rates eased back a bit in the past week, but rose after the survey was released. For the week ending August 18, 30-year rates fell to 5.13% from 5.22% the week before. In addition, 15-year loans eased to 4.55% and the average for five-year ARMs decreased to 4.39%. A year ago, 30-year fixed rates averaged 2.86%, more than 2.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Inflation appears to be beyond its peak, which has stopped the rapid increase in mortgage rates that the housing market was experiencing earlier this year. The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability. As a result, over the rest of the year purchase demand likely will continue to drag, supply will modestly increase, and home price growth will decelerate.” 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

Elevated home prices and rising interest rates are feeding into housing affordability woes for potential buyers–especially those with lower credit scores–reported Zillow, Seattle. A Zillow analysis found buyers with “fair” credit could be paying up to $288 more on their monthly mortgage payment than those with “excellent” credit. The firm examined credit scores against current mortgage rates and found that such monthly cost increases are exacerbated for millions of Americans with low credit scores or less than perfect credit histories. Zillow noted a borrower with an excellent credit score–between 760 and 850–can qualify for a 30-year fixed-rate mortgage with a 5.09% interest rate. For the same loan, a similar borrower with a fair credit score between 620 and 639 qualifies for a 6.68% rate, a $288 difference monthly and nearly $103,626 in interest over the life of a 30-year loan, based on the $354,165 current price of a typical U.S. home. “When you are thinking about buying a home, the best first step you can take is to fully understand your financial picture, what you can afford and your outstanding debts or obligations,” said Libby Cooper, Zillow Vice President. “If you find you have low credit, take realistic steps to improve your credit score by doing things like disputing possible report errors and paying down as much debt as possible. This could increase the amount of home loan you qualify for.” Zillow found a direct correlation between credit security–having a strong credit history and structural access to credit offerings–and higher homeownership rates. “The homeownership rate is lower in counties that are more credit insecure, meaning they are home to high numbers of residents with poor or no credit history,” the report said. Source: Zillow — The Solution? Make sure you are getting clients to a qualified mortgage advisor early in the process so that they can work on their credit and save them money.

The prospect of choosing – or competing against – multiple offers adds another layer of stress to the process. However, despite the added complexities, experts explain that having multiple offers on a house is a positive thing – most especially as you’re likely to receive a better price for your home. Yes, it is certainly okay to have multiple offers on a house. In fact, Dennis Shirshikov, a Strategist at Awning, suggests it is a good thing as you are likely to receive a better deal for your property. ‘It’s absolutely ok to have multiple offers on your house and can be quite common in a hot market,’ he says. Here’s what you need to remember: The purpose here is to get as much information as possible on what the seller wants – you may be surprised by what sways them in your favor. ‘Does the seller need a leaseback or long closing period? Would they rather sell all their furniture and just leave the house as is?’ says Christian, the CEO of Repair Pricer. Being accommodating can count as much as extra money, but you won’t know unless you ask. Christian cautions that sometimes, what a seller truly wants is a buyer who will give the property due respect: ‘Do they want a buyer who will appreciate the house for what it is and not tear it down to build a McMansion? You’ll be surprised that what really swings offers in buyers’ directions is the small stuff that no one bothers to ask about. ‘An extra $15,000 may not be important to a seller who’s poured 10 years of their life into restoring a property and simply wants it to be preserved and appreciated by the right buyer.’ Finally, once you’ve gathered as much information as possible, put in your offer ‘even if you don’t think you’re in with a shot.’ This is not just hoping for luck; there’s a logical reason behind giving it a go: ‘In markets where multiple offers are common, buyers (especially investors) will often place offers on multiple properties and actually walk away from executed contracts when they find a better option, which leaves the property available for another buyer. ‘This is where it’s important to make it clear that you are willing to be a ‘backup buyer’ should the winning offer fall through, and if your state law allows, make arrangements so that your offer becomes an executed contract if this happens.’ Source: Homes and Gardens

Foreign buyers purchased $59 billion-worth of U.S. existing homes from April 2021 through March 2022, an 8.5% increase from the previous 12-month period and stopping a three-year skid in foreign investment in U.S. residential real estate, according to a new report from the National Association of Realtors (NAR). Foreign buyers purchased 98,600 properties, down 7.9% from the prior year. Overall, in the U.S., existing-home sales totaled 6.12 million in 2021 — the highest annual level since 2006. “For the second year in a row, restrictions and general caution tied to international travel during the pandemic slowed home buying by wealthier foreign buyers,” said NAR Chief Economist Lawrence Yun. “Even so, domestic home buying demand was exceptional and, therefore, boosted home sales nationally.” Foreign buyers who resided in the U.S. as recent immigrants or who were holding visas that allowed them to live in the U.S. purchased $34.1 billion worth of U.S. existing homes, a 5.2% increase from the prior year and representing 58% of the dollar volume of purchases. The average ($598,200) and median ($366,100) existing-home sales prices among international buyers were the highest ever recorded by NAR. The increase in foreign buyer prices partly reflects the uptick in U.S. home prices, as the monthly average existing-home sales price rose to $374,300, which is up 10% from the prior period. “Affordability challenges along with the inability to find the right property were the top reasons given for prospective international buyers who showed interest but ultimately did not purchase a home in the United States,” Yun said. Source: NAR