January 18, 2022 – 2021: The Year of Jobs in Review. While all the numbers for the 2021 economy are not released yet, the December jobs report has been released.

Economic Commentary

2021 – The Year of Jobs in Review. While all the numbers for the 2021 economy are not released yet, the December jobs report has been released. And though the December numbers will be subject to two revisions, we do have a good idea of how we have fared in 2021 – and the news is very good in this regard. Let’s start with the headline number.

The unemployment rate started the year at 6.3%, as the economy was still recovering from the pandemic shutdown. We ended the year with an unemployment rate of 3.9%. That is a reduction of 2.4%. This is better than what was forecasted at the beginning of the year, as initially it was predicted that we would not reach “full employment” levels until sometime in 2023. Now this target has been moved up to 2022. The addition of 199,000 jobs in December brought us to 6.45 million jobs added in 2021, the highest on record.

Along with the 141,000 revision of the previous two months of job gains, this means that approximately 90% of the jobs lost in the pandemic have been recovered. We really have more jobs to go because of labor force growth during this recovery time. Even though many left the labor force during the recession, some are expected to return, which will increase the labor participation rate. Who could have predicted that we would have a labor shortage in 2021? Certainly, forecasters did not see this coming when we were in the midst of losing 20 million plus jobs during the pandemic induced shutdown.

Weekly Interest Rate Overview

The Markets. The rise in mortgage rates accelerated in the past week. For the week ending January 13th, 30-year rates moved up to 3.45% from 3.22% the week before. In addition, 15-year loans rose to 2.62% and the average for five-year ARMs increased to 2.57%. A year ago, 30-year fixed rates averaged 2.65%, more than .75% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week. This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains. The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future.”  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

More family members are moving in together under one roof, a trend that may help many better compete in the ultra-hot housing market. With record-high home prices still climbing, family members who pool their money may be able to afford a larger, higher-end home. Multigenerational households have been on the rise since the start of the coronavirus pandemic. “I think multigenerational households could be a trend that’s here to stay,” Jessica Lautz, vice president of demographics and behavioral insights at the National Association of REALTORS®, told The New York Times. Families of Asian and Latino descent are the most likely to live with aging parents, Lautz said. Fifteen percent of home buyers purchased a multigenerational property during the first wave of COVID-19 infections in the U.S., according to NAR data. That was the largest share since 2012. The most common reasons for this move were to bring aging parents into the home and to have grandparents help with child care. Respondents also cited greater affordability as a reason for family members to pool their finances for a home purchase. Source: The New York Times

The current inventory of vacant developed lots is at its lowest level since the Zonda market research firm began tracking it in 2015. They’re “disappearing … faster than replacement lots can be brought to market,” says the company’s chief economist, Ali Wolf. “Builders are snatching them up,” she says — in some cases, “aggressively” buying parcels “they wouldn’t even have considered a year ago. … All the top markets are significantly undersupplied.” The number of building sites in development is up 14% from a year ago, Zonda recently reported. However, the lion’s share are still in the excavation stage. So, they won’t be ready for builders until sometime next year. The rest are waiting for the developer to put in streets (or the streets are currently being added). These sites are expected to be ready to accept construction later this year — but only “if everything goes smoothly,” Wolf says. Nevertheless, the economist believes “a lot more houses will hit the market in the next 24 months.” And that, she says, should put a stop to the extraordinary run-up in new house prices. Or at least slow it down. Many factors go into the price of new construction. But a principal one is what builders pay for building sites, and that cost is up significantly. Lot values for detached, single-family homes started last year surged 18%, Census figures show, driving up the cost to a record median of $53,000. And that doesn’t include custom-built houses. Though the jump in prices is “unprecedented,” Natalia Siniavskaia, an NAHB economist, says it is “consistent with other significant building material price hikes and undeniable supply challenges that have been constraining the pandemic-fueled housing boom.” Higher lot costs are occurring even though lot sizes are shrinking. The median stood at 8,306 square feet, or just under a fifth of an acre, in 2020, the NAHB says. That’s about 125 feet from the smallest lot size ever. And a record 39% of all lots are under 0.16 acres. Source: Lew Sichelman, The Housing Scene

Homeowners who are renewing their home insurance policies are finding their rates are drastically climbing. Insurance companies point to rising material costs and climate change as the main reasons behind the increases. Premiums are up, on average, by 4%. The average annual homeowner insurance premium is $1,398, according to the Insurance Information Institute, known as Triple-I. Since 2017, premium rates are up 11.4%. That is faster than inflation, The Washington Post reports. Insurance companies say homeowners should brace themselves for further rises. Homes near areas prone to natural disasters are seeing some of the steepest spikes. Insured damage from tornadoes, hurricanes, severe storms, wildfires, and other natural disasters reached $82 billion last year. “Climate risk is continuing to put pressure on all things weather-related,” Dan Porfilio, the chief insurance officer at Triple-I, told The Washington Post. “We are seeing more severe hurricanes, more severe wildfires, and the science isn’t as clear on tornado events in terms of whether they’re changing in frequency or not. But what we definitely do know is that severity is going up.” In general, it’s getting costlier to rebuild homes due to supply constraints and rising material costs such as lumber prices that are also driving up insurance premiums. “There are some constraints with how quickly insurers can adjust their rates,” Karen Collins, the assistant vice president for personal lines at the American Property and Casualty Insurance Association, told The Washington Post. “You may have some [states] who haven’t experienced the same amount of rate increases simply because the carriers are still in that process of negotiated filing that is getting drawn out for a lengthy period of time.” Source: The Washington Post