November 7, 2023 – Key Indicator – The Jobs Machine

Economic Commentary

Well, it is settled. There will not be a recession in 2023 despite the fact that just about every market analyst was predicting one to start this year. This does not mean that a recession won’t hit in 2024. As a matter of fact, we are convinced that a recession is more likely now that more analysts are not predicting one. You can tell what we think of economic forecasters. Why did we not have a recession in 2023, despite the Federal Reserve jacking up interest rates to levels not seen for many years? One word – jobs.

We have made this statement again and again. You can’t have a recession in an economy that is producing millions of jobs each year. People who have jobs spend money. September was a perfect example of this indicator. The economy produces about a third of a million jobs. And retail sales beat expectations. This capped off a quarter that had a growth rate of close to 5.0%. That was not a coincidence. Again, we are not predicting the future, but if the jobs machine keeps humming, we are expecting no recession and the Federal Reserve to have plenty of fodder to keep interest rates higher for longer as a result. Thus, the question is – will the job market slow down so we can give the Fed some breathing room.

How did the jobs machine do in October? The economy produced 150,000 jobs last month, less than expected, but still a solid number. In addition, the previous two months of job gains were revised downward by 101,000 jobs, which took some steam out of previous data. The unemployment rate rose to 3.9%. Overall, that was a moderate report, finally showing some easing of the hot jobs machine. While the Fed met last week, they may not have raised rates, but they were watching this report closely to see what they should do before the end of the year and beyond. Especially important to them was wage growth, which came in 0.2% monthly, lower than expected — though annual gains still hovered around 4.0%. All in all, good news for interest rates in the short-term and long-run.

Weekly Interest Rate Overview

The Markets. The Fed continued their rate hike pause and the bond markets rallied, as more analysts seemed to believe that the Fed statements are softening their tone a bit. Though mortgage rates did not move much this week according to the survey, the rally occurred just as the survey period was ending and part of the movement lower was not reflected. For the week ending November 2, 30-year rates fell to 7.76% from 7.79% the week before. In addition, 15-year loans remained at 7.03%. A year ago, 30-year fixed rates averaged 6.95%, over.75% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “The 30-year fixed-rate mortgage paused its multi-week climb but continues to hover under eight percent. The Federal Reserve again decided not to raise interest rates but has not ruled out a hike before year-end. Coupled with geopolitical uncertainty, this ambiguity around monetary policy will likely have an impact on the overall economic landscape and may continue to stall improvements in the housing market.” 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

Amidst the challenging landscape, there’s been a notable trend: couples planning to wed are looking at innovative ways to finance their dream homes. Zillow Home Loans and The Knot conducted an analysis revealing an increasing number of couples are registering for home funds on their wedding registry. According to The Knot, “home funds” on wedding registries have surged by 55% since 2018. Nearly one in five couples on The Knot now ask wedding guests to contribute towards their down payments. Esther Lee, deputy editor of The Knot, stated, “It’s heartening to see couples personalizing their registries to align with their goals, such as achieving the significant milestone of homeownership.” Zillow’s data underscores the struggles faced by first-time buyers in today’s market. Affordability remains a key challenge, with the average monthly mortgage payment doubling since before the pandemic. However, it’s not all bleak. Many first-time buyers are putting down less than the traditionally perceived 20% for their homes. And a significant portion, about one-third, receive grants to help with their down payment, especially buyers of color. While the housing market’s future remains uncertain, it’s clear that individuals and couples are continuously adapting, seeking innovative solutions to achieve the dream of homeownership. Source: National Mortgage Professional

Although rent growth has cooled significantly over the past year, the national median rent is still 23 percent higher than it was just three years ago, and in some markets, the increase has been even more substantial. Newly released data from the U.S. Census Bureau shows that these rapid increases in housing costs have been taking a meaningful toll on affordability. According to the most commonly accepted measure of housing affordability, a household is considered to be “cost-burdened” if housing costs eat up more than 30 percent of gross household income. Households that spend more than 50 percent of their household income on monthly housing costs are considered to be “severely” cost-burdened.” The latest estimates from the Census American Community Survey, based on data collected in 2022, show that the share of American renters who are cost-burdened has risen to the highest level since 2012, erasing improvements made in the decade preceding the pandemic. The majority of this increase is attributable to a surge in the number of severely burdened households who spend more than half their incomes on rent. In the five years preceding the pandemic, from 2014 to 2019, the number of cost-burdened renter households fell by 826,000, while the number of renter households who could comfortably afford their rent increased by 1.9 million. But in the following three years, that dynamic has been flipped on its head – the number of cost-burdened renter households has spiked by 1.9 million from 2019 to 2022, while the number of non-burdened renter households fell by 957,000. Source: Apartment List

In the latest U.S. Home Sales Report for the third quarter of 2023, ATTOM highlighted that profit margins for median-priced single-family homes and condos in the U.S. have surged to 59%. This is the second consecutive quarterly gain following several drops. The uptick, from 56.6% in Q2 2023, is synchronized with the ongoing rebound in the U.S. housing market, leading to a 2% increase in the median nationwide home price, settling at a record $350,000. This rebound contrasts with the unusual dip observed from mid-2022 to early 2023 that threatened to end the market’s decade-long boom. However, even with the recent gains, the typical investment return was still beneath the 62% of Q3 2022 and 62.3% of Q2 2022. “Prices and profits around the U.S. got another boost over the summer as the housing market continued recovering from last year’s setbacks,” said Rob Barber, CEO of ATTOM. “Things do remain uncertain heading into the market’s annual Fall slowdown, especially at a time when mortgage rates are rising again, home affordability is getting tougher, and the potential for a recession hangs in the air. But the latest gains fell in line with what we often see during the third quarter and showed that any predictions of an extended market fallback may have been premature.” Furthermore, raw profits on single-family home and condo sales nationwide saw a 5% quarterly increase, amounting to $129,900, marking a 3.2% annual rise. Source: ATTOM