February 28, 2023 – Due For Another Surprise?There is no doubt that the jobs report was a major shocker at the beginning of this month.

Economic Commentary

Due For Another Surprise? There is no doubt that the jobs report was a major shocker at the beginning of this month. We actually thought that we were about to slip into recession, but there is no evidence that the job market is slipping at all. Here is a basic concept—you can’t have a recession when the economy is adding millions of jobs each year. We were watching for a slowdown in job growth as a recessionary signal, but saw quite the opposite as we added over 500,000 jobs in January alone. Welcome to the economic twilight zone!

Now before we get too excited, these jobs reports are adjusted twice before they are finalized. Thus, we would not be surprised to see a downward revision in the January numbers when the next jobs report is released – especially since it will be released later in March. However, the January numbers were so strong, even a sharp revision leaves us with a great two months of job growth. Another basic concept—we can’t keep adding 500,000 jobs per month. Thus, we should expect some sort of gravitation towards the mean with this report. Even negative jobs growth for a month would still average out to a healthy start to the new year.

Let’s add one more concept. The Federal Reserve now has plenty of ammunition to keep raising rates a bit longer, as long as the economy keeps creating jobs, especially after the strong retail sales report for January. Though the real estate market has been affected negatively, there must be evidence that the rest of the economy is slowing for the Fed to hit their proverbial “pause button.” After the January surprise, we would expect that the markets will be watching February’s jobs report on March 10th very closely. Hopefully there is no more “jack” left in the box!

Weekly Interest Rate Overview

The Markets. Rates continued to increase in the past week, as the markets are reacting to several data points showing stronger than expected economic growth. This clears the way for additional rate increases by the Fed. For the week ending February 23, rates rose to 6.50% from 6.32% the week before. In addition, 15-year loans increased to 5.76%. A year ago, 30-year fixed rates averaged 3.89%, more than 2.5% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation.” 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

Last week, both FHA and VA announced a significant reduction in costs for homebuyers. FHA is reducing the monthly mortgage insurance premiums for the vast majority of borrowers by approximately 35%! The vast majority of FHA borrowers put 3.5% down (the minimum) to obtain a 30-year fixed mortgage. The monthly premium on that loan is being reduced from .85% to .55%. Here is a simple example:

$400,000 Mortgage Amount
$ 283.33 Previous Monthly Premium
$ 183.33 New Monthly Premium
$ 100.00 Savings Monthly (35.3%)

In addition, in high-cost areas, those who exceeded a loan amount of $625,500 had to pay a .20% premium. Now the premium starts above the present conforming limit of $726,200. The premiums are lower for those who put more money down and for those who opt for 15-year mortgages. We will be distributing a complete chart shortly. The effective date for the lower premiums is for loans “endorsed” (FHA insured) on or after March 20th. The upfront premium of 1.75% remains unchanged.

Not to be outdone, VA also announced a reduction in costs. VA does not have a monthly insurance premium, but charges an upfront funding fee, which can be financed into the mortgage amount like the FHA upfront mortgage insurance premium. The funding fee for first time use and less than 5% down was reduced from 2.30% to 2.15%. The funding fee for subsequent use and less than 5% down was reduced from 3.60% to 3.30%. Again, a simple example:

$400,000 Mortgage Amount
$ 9,200 Previous Funding Fee
$ 8,600 New Funding Fee
$ 600 Savings Which Lowers the Loan Amount if Financed

The VA funding fee reduction will be in effect for loans closed on or after April 7th. Sources: FHA and VA

If two people are better than one, then a whole team is the best. A recent study by Side, a real estate company that offers white-label services for agent teams, shows just that. The study went on to reveal that agents working on teams had the highest earning potential along with the most job satisfaction. Side notes that the benefits of joining an agent team include a positive team experience, a priority placed on team-wide success, Increased income and a focus on customer experience. The survey results of agents on teams compared to those working alone were clear: agents thrive when they are working in a team. “This study reinforced what we at Side have always known to be true: agent teams are the future of real estate,” said Michelle Denogean, chief marketing officer at Side. “Teams will always outperform solo agents; they’re better able to distribute the workload so each team member can focus on what they do best. Agents receive tremendous value when they join a team, and that value is compounded when they join a company led by a local expert.” Joining a team could be a saving grace during a down market, especially considering the large percentage of agents who have not experienced the challenges of a market like this one. According to a study by the National Association of Realtors (NAR), 50% of agents working today have been in the business for less than eight years. Source: Real Trends