July 5, 2022 – Jobs: The First Salvo. The June jobs report will be the first release in a busy, busy month of data and events.

Economic Commentary

Jobs—The First Salvo. The June jobs report will be the first release in a busy, busy month of data and events. With talk of a slowing economy and possible recession on the horizon, the pace of job creation will tell us plenty regarding the present health of the economy. If we produce enough jobs, more consumers will be spending, and a recession is much less likely.

With the economic focus squarely on the issue of inflation, the growth of wages in June may take as much importance as the growth in jobs. Actually, the two numbers are related. The lower the unemployment rate, the greater the competition for workers. If you can’t find enough workers, you are likely to bid for their services. If the Fed sees wage growth higher than expected, we are likely to see another significant increase in short-term interest rates at the end of July when the Fed meets.

And as we have counseled previously, long-term rates will react to the news a lot quicker than the Fed — as in the day of the report. So here is hoping for a modest month of jobs growth and a modest rise in wages. That would be the best of both worlds and is much more likely to help stave off a recession, though there are many other factors contributing to this equation. On Friday, we will have more information, but not necessarily the answer.

Weekly Interest Rate Overview

The Markets. Mortgage rates eased for the first time in a few weeks. For the week ending June 30, 30-year rates fell to 5.70% from 5.81% the week before. In addition, 15-year loans decreased to 4.83% and the average for five-year ARMs rose to 4.50%. A year ago, 30-year fixed rates averaged 2.98%, almost 3.00% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession. This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.” 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

Americans have more equity in their homes than ever before. Total U.S. home equity increased almost 20% in the first quarter to $27.8 trillion, a record high, according to the Federal Reserve. The increase is another consequence of a red-hot housing market. Double-digit price gains have driven some would-be homeowners out of the market. At the same time, rising home values are boosting the finances of the Americans who already own them. Still, rising rates have made it more expensive for homeowners to use that equity, the difference between the market value of a property and the mortgage balance. About 60% of equity was withdrawn via cash-out refinances in 2021, according to mortgage-data firm Black Knight. Homeowners are likely to turn to home-equity lines of credit, said Andy Walden, vice president of enterprise research strategy at Black Knight. Borrowing costs on such products are more closely tied to the Fed’s benchmark rate. With home-equity lines, borrowers pay interest on the amount of credit they use; with a cash-out refinance, the cash taken out of the home gets added to the outstanding mortgage, meaning the new rate is applied to a higher balance. The amount of tappable equity increased by a record $1.2 trillion in the first quarter of 2022, to more than $11 trillion, according to Black Knight. Close to 75% of it belongs to borrowers with mortgage rates below 4%, the Black Knight data show. Black Knight defines tappable equity as the amount homeowners can borrow while holding on to at least 20% of the home’s equity. Average tappable equity available to Americans with mortgages increased to a record $207,000 in the first three months of the year, according to Black Knight. The equity gains are expected to spark a record amount of home-improvement spending this year, according to CoreLogic Inc. Source: Realtor.com

As rising inflation and mortgage rates bring U.S. housing demand back from the chaos of 2021, Realtor.com’s updated 2022 forecast predicts inventory will grow double-digits over 2021, offering buyers a better-than-expected chance to find a home. New data finds that home sales will hit the second-highest level in 15 years —trailing the 2021 pace— as rising incomes combined with higher housing costs continue to present a mixed bag of affordability issues. The updated forecast anticipates a summer break from the intense pace of home sales that will provide space for active listings to grow at a faster year-over-year pace than originally projected (+15.0% vs. +0.3%). Combined with returning seasonality and builders ramping up production, these trends could lead to a refresh of the housing market by as early as this fall. “Financial conditions have shifted in a big way since the end of 2021 and the housing market is adjusting accordingly,” said Danielle Hale, Chief Economist for Realtor.com. “As Americans grapple with higher prices for everyday expenses while today’s buyers face housing costs that are up 50% from a year ago, recent home sales data shows some are taking a step back from the market.” While Americans have faced a whirlwind of changes so far this year, a changing economic landscape is the biggest driver of updates to Realtor.com’s 2022 housing forecast. The rapid shifts in the economic landscape have some silver linings when it comes to housing affordability. With the unemployment rate near 50-year lows, employers are feeling the pressure to compete for talent, driving wage growth upwards from earlier year-over-year predictions (+3.8% vs. +3.3%). Source: DSNews

Baby boomers hold the majority of real estate wealth in the U.S.—and as they age, they increasingly say they plan to stay put in their current homes. Sixty-six percent of U.S. adults aged 55 and older say they expect to age in place, according to a new Freddie Mac survey. But that could further exacerbate the housing supply shortage, the report notes. The housing supply in the U.S. has dropped to record lows over the past two years. Baby boomers are veering from traditional patterns of selling later in life and downsizing or moving to assisted living. That could prompt an even more severe housing shortage nationwide. Baby boomers’ financial gains over the past five years may better equip them to stay in place, too, the survey says. Still, baby boomers acknowledge that their home will require some degree of renovations to make the space more appropriate to age in place. But they feel confident that their personal savings and long-term retirement and investment accounts will allow them to afford to do so, the survey shows. The number of households headed by people aged 65 and older is expected to increase from 34 million to 48 million over the next two decades, according to Urban Institute data. Source: Freddie Mac