July 12, 2022 – What Did The Jobs Report Tell Us?Recession. Inflation. Stagflation.

Economic Commentary

What Did the Jobs Report Tell Us? Recession. Inflation. Stagflation. All of these words and more were on the line as we saw the jobs report last Friday. Reported a little later this month because of the July 4th holiday, the anticipation built over the past few weeks. So, how did it turn out? The addition of almost 400,000 jobs was seen as evidence of continued strength in the economy at a time in which recession warnings abound.

As we have said before, it is hard to have a recession with the economy producing hundreds of thousands of jobs per month. The headline unemployment rate number was not seen as important as the rate of wage growth. The unemployment rate remained at a low 3.6% as expected, and wages grew 0.3% month-over-month and 5.1% year over year. Overall, the report was seen as positive and provided some evidence that, while inflation is still a major factor, it is not continuing to accelerate.

Focus will now turn to the next “big” event, as tomorrow we will see the release of the Consumer Price Index (CPI). Today, the inflation report is a major event and the Producer Price Index, also known as wholesale inflation, will be released the very next day. These reports will give the Federal Reserve a lot to think about when they meet to raise rates in two weeks. The question is – how far will they go? The fear of a recession will be less of a factor, at least for now.

Weekly Interest Rate Overview

The Markets. Mortgage rates continued to fall back last week, though they rose as the survey results were released.  For the week ending July 7, 30-year rates fell to 5.30% from 5.70% the week before. In addition, 15-year loans decreased to 4.45% and the average for five-year ARMs eased to 4.19%. A year ago, 30-year fixed rates averaged 2.90%, almost 2.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Over the last two weeks, the 30-year fixed-rate mortgage dropped by half a percent, as concerns about a potential recession continue to rise. While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown.” 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

CoreLogic has released its latest Single-Family Rent Index (SFRI), which analyzes single-family rent price changes nationally and across major metropolitan areas. U.S. single-family rent growth continued its hot streak in April, with prices up by 14% year-over-year, the 13th consecutive month of record-breaking annual gains. As in past months, a shortage of rental properties on the market is putting pressure on prices, as is a thriving job market, with the nation’s economy adding nearly 430,000 new positions in April, and an annual wage increase of 5.5%. The year-over-year U.S. rent price growth once again was more than double the April 2021 increase and more than six times higher than the April 2020 growth. Rental cost gains slowed in early 2020 due to the uncertainty surrounding the pandemic, but rebounded by autumn of that year to surpass the pre-pandemic rate. “Single-family rents continue to increase at record-level rates,” said Molly Boesel, Principal Economist at CoreLogic. “In April, rent growth provided upward pressure on inflation, which rose at rates not seen in nearly 40 years. We expect single-family rent growth to continue to increase at a rapid pace throughout 2022.” Differences in rent growth by property type emerged after COVID-19 took hold, as renters sought standalone properties in lower-density areas. This trend drove an uptick in rent growth for detached rentals in 2021, while the gains for attached rentals was more moderate. However, as rental inventory remains slim, the gap between attached and detached rental growth started to close last fall. In April 2022, attached rental property prices grew by 13.7% year over year, compared to the 13.5% increase for detached homes. Source: MReport

U.S. house prices have increased nearly 24% since 2019, and more than half of that growth can be attributed to the shift to remote work during the COVID-19 pandemic, according to a new report. “Housing Demand and Remote Work,” a 61-page working paper produced for the National Bureau of Economic Research (NBER), a nonprofit research organization based in Cambridge, Mass., estimates that every percentage-point increase in remote work causes a 0.93% increase in house prices. The report notes that housing prices nationwide rose 23.8% from December 2019 to November 2021, “the fastest rate on record.” At the same time, the COVID-19 pandemic has reshaped the way households work, with 42.8% of employees still working from home part or full time by November 2021, and some evidence that a significant fraction of current remote work may be permanent. “This cross-sectional estimate, combined with the aggregate shift to remote work, implies that remote work raised aggregate U.S. house prices by 15.1%,” the report states. “Using a model of remote work and location choice, we argue that this estimate is a lower bound on the aggregate effect. Our results suggest that house price growth over the pandemic reflected a change in fundamentals rather than a speculative bubble, and that fiscal and monetary stimulus were less important factors,” the report states. “This implies that policymakers need to pay close attention to the evolution of remote work as an important determinant of future house price growth and inflation.” Source: National Mortgage Professional

66% of U.S. adults aged 55 and older expect to age in place, and in the past five years, the cohort has made notable financial gains. However, the accelerating trend of older adults choosing to age in place could contribute to housing shortages seen across the country, since homes that older people will stay in for longer periods will be unavailable for those seeking to become homeowners. This is according to a new research brief by the Federal Home Loan Mortgage Corporation (FHLMC, or “Freddie Mac”). “In two surveys, the first in 2016 and again in 2021, Freddie Mac sought to track the attitudes and perceptions of U.S. adults age 55 years and older in several key areas, including mobility in the housing market,” the research brief reads. These are important trends to track for two reasons: the first is that members of the baby boomer generation hold the majority of the housing wealth in the U.S., and the second is that the past two years have seen the housing supply fall to record lows, the brief says. Compared with the 2016 surveys, older adults feel more confident in their financial situation and their accompanying ability to live comfortably in retirement, rising to 72% in 2021 from 66% in 2016. Homeowners feel more confident in this than renters by a wide margin, 79% to 38%. Renters recorded no change in their own sentiments on this issue between 2016 and 2021. Those recorded financial gains affect the choice to age in place. “Today, 66% of [the 55-plus] population report that they plan to age in place,” the brief reads. “Little changed from 2016, when 63% said the same. Given their reported financial gains in the past five years, however, they may be more equipped to do so.” Additionally, 66% of respondents also report that they expect some need for home renovation or modification to more readily accommodate their needs in later life. Source: HousingWire