January 14, 2025 – The 2024 Jobs Picture

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Economic Commentary

On Friday, we had the last jobs report for 2024 with the release of December’s data.  Though there will be revisions to the last two months of data, we now have a pretty good picture of how strong the job market was last year.  Let’s start with December’s numbers.  We added 256,000 jobs in December and the unemployment rate came in at 4.1%, which was down from 4.2% in November. In addition, the previous two months of job gains were revised downward only slightly by 8,000.  Finally, wage growth increased by 0.3% from the month before. 

As we have pointed out previously, the growth in wages takes on a special importance right now because of the Federal Reserve’s battle to control inflation. While higher wages are good for workers, they contribute to the inflationary environment.  For the year, wages grew at a 3.9% pace, which is higher than the overall pace of inflation and the Fed’s wage growth “target” of 3.5%.  As for the growth of jobs, the economy added 2.2 million jobs last year, which is a strong pace of job creation.  As expected, the growth of jobs slowed down from the torrid pace of the previous year when slightly over three million jobs were added.

Moving to the headline number, the unemployment rate moved up from 3.7% in December of 2023 to the aforementioned 4.1% in December of 2024.  Historically, anywhere near 4.0% is considered a low unemployment rate. The bottom line?  The economy remains strong going into 2025. An economy near full employment means that consumers will continue to spend. It also means that the Fed will continue to be cautious with regards to lowering interest rates, which is why mortgage rates have remained at elevated levels throughout 2024. There is hope for some relief in this regard, so let’s hope the Fed is inclined to provide this relief in the new year.

Weekly Interest Rate Overview

The Markets. The new year did not bring any relief from the recent rise in mortgage interest rates, though Friday’s jobs report was released after last week’s survey results. 30-year fixed rates increased slightly to 6.93% from 6.91% the week before. In addition, 15-year loans rose one tick to 6.14%. A year ago, 30-year fixed rates averaged 6.66%, over .25% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “In the first full week of the new year, the 30-year fixed-rate mortgage remained elevated at just under 7 percent. The continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability. The lack of entry-level supply also remains an issue, especially for those looking to become first-time homeowners.” 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 median age of owner-occupied homes is 40 years old, according to the latest data from the 2022 American Community Survey. The U.S. owner-occupied housing stock is aging rapidly especially after the Great Recession, as the residential construction continues to fall behind in the number of new homes built. New home construction faces headwinds such as rising material costs, labor shortage, and elevated interest rates nowadays. With a lack of sufficient supply of new construction, the aging housing stock signals a growing remodeling market, as old structures need to add new amenities or repair/replace old components. Rising home prices also encourage homeowners to spend more on home improvement. Over the long run, the aging of the housing stock implies that remodeling may grow faster than new construction. New construction added nearly 1.7 million units to the national stock from 2020 to 2022, accounting for only 2% of owner-occupied housing stock in 2022. Relatively newer owner-occupied homes built between 2010 and 2019 took up around 9%.  Owner-occupied homes constructed between 2000 and 2009 make up 15% of the housing stock. The majority, or around 60%, of the owner-occupied homes were built before 1980, with around 35% built before 1970. Due to modest supply of housing construction, the share of new construction built within the past 12 years declined greatly, from 17% in 2012 to only 11% in 2022. Meanwhile, the share of housing stock that is at least 53 years old experienced a significant increase over the past 10 years. The share in 2022 was 35% compared to 29% in 2012. Source: NAMB

The stagnant 2024 housing market is one the real estate industry can’t wait to get away from, but not so for the niche luxury market.  The 2025 Red Paper from The Agency shows the luxury market making a sharp diversion from the broader existing home sales market. The number of homes sold at $1 million or higher rose by 5.2% in the first half of 2024, and the median luxury home price jumped by 14.2%. That’s compared to a 12.9% drop in overall home sales and a 5% rise in median price. Elevated rates have stymied the broader housing market in 2024, but the luxury segment is somewhat insulated from that because wealthy buyers are less likely to need a mortgage. According to the report, almost half of all luxury purchases in the first quarter of 2024 were made in cash. And the rich are getting richer thanks to the stock market boom. The S&P 500 was up 26% as 2024 wound down. Luxury buyers who were already owners also saw a rise in home equity.  The Agency also says generational wealth transfers will stimulate the luxury market, as roughly $31 trillion in wealth will be transferred by 1.2 million people over the next 10 years.  $20 trillion of it is estimated to be passed to 155,000 individuals. Most of the wealth will go to older Millennials and younger members of Gen X.  Source: HousingWire

Residential construction is increasingly moving to the suburbs and beyond as builders seek more buildable land and multifamily construction takes center stage, according to a report from the National Association of Home Builders (NAHB). Homebuilders are not only struggling to find affordable land, but also with higher construction costs and an ongoing shortage of construction workers. Those are among the findings in the NAHB’s latest Home Building Geography Index (HBGI) for the third quarter of 2024. The NAHB says that half of the U.S. population now lives in the top 10% of the nation’s high-density areas. These high-density counties constituted just under 40% of single-family home construction back in the first quarter of 2018. Since then, the construction market share of these counties has fallen to 35.7%. There was less homebuilding in high-density areas even before the pandemic, but the rate continued to fall between 2018 and 2022, reaching 35.5% of market share by the first quarter of 2022. It has remained fairly constant since then, standing at 35.7% in the 3rd quarter of this year. Multifamily construction has been the dominant player in those same high-density counties, accounting for 68.5% of construction in the first quarter of 2018 and now accounting for 63.2%. The market share in single-family home building has continued to increase in outlying suburbs and smaller metro areas. As of the 3rd quarter of 2024, 29% of home construction was in small metro core counties, while 10% was in small metro outlying counties. “The trend of construction expansion in lower density areas occurred prior to and during the COVID pandemic, as many households chose to move out of areas where population density was highest to take advantage of additional telecommuting flexibility and the ability to purchase larger homes in areas of the country where housing is more affordable,” said NAHB Chairman Carl Harris. Source: Scotsman Guide

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