October 11, 2022 – More Jobs. For months we have been predicting job growth would slow down.

Economic Commentary

More Jobs. For months we have been predicting job growth would slow down. This prediction was not only predicated on the forecasts for the economy to slow down, but also because we have now recovered the jobs lost during the pandemic-reduced recession. From here on out, job growth will be a factor of the growth of the adult population and returns by those who left the workforce. 

Thus, when it was announced that the economy had produced 263,000 jobs in September, it was the smallest advance since April of 2021. But it was still seen as a strong number. The unemployment rate fell to 3.5%, keeping us near full employment levels. The decrease was mainly due to people leaving the workforce, though the labor participation rate was stable. 

In today’s inflationary environment, all eyes were on wage growth. For the month, wages grew 0.3%, and they were up 5.0% for the year.  These numbers came in on target with forecasts, with wage growth cooling, but not enough to convince the Fed that inflation is retreating quickly enough.  You can be sure that the members of the Fed were watching these numbers closely. The next meeting of the Fed is at the start of November, one week before the election. Thus, we are expecting the rhetoric by the Fed will be toned down, so they are not accused of influencing the election one way or the other.  But the jobs report will not deter them from another rate increase.

Weekly Interest Rate Overview

The Markets. Rates stabilized a bit in the past week, albeit at a higher level than last month.  For the week ending October 6, 30-year rates fell to 6.66% from 6.70% the week before. In addition, 15-year loans eased to 5.90% and the average for five-year ARMs increased to 5.36%. A year ago, 30-year fixed rates averaged 2.99%, more than 3.50% lower than today. Attributed to Sam Khater, Chief Economist, Freddie Mac, “Mortgage rates decreased slightly this week due to ongoing economic uncertainty. However, rates remain quite high compared to just one year ago, meaning housing continues to be more expensive for potential homebuyers.”  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

Asking rents hit another high in July, a new report from Redfin found, with the national median asking rent price up 14% year over year to $2,032. The annual increase was the smallest posted since November, compared with a revised 15% in June and 16% in May. On a monthly basis, the median rent only inched up 0.6% – the slowest growth since February. Asking rents have risen more than 30% in some of the 50 largest markets and they will continue to increase in markets with strong job growth and limited housing construction. “With the sharp rise in mortgage rates from the beginning of this year, we have seen home sales come down,” National Association of Realtors Chief Economist, Lawrence Yun, told Yahoo Finance Live. Decades worth of under-building have pushed inventory levels near record lows, both for for-sale homes as well as rental units. The supply of homes for sale increased 27% at the start of September compared with a year ago, Realtor.com data showed. Still, active inventory of for-sale homes remained 43% lower than it was in 2019. The lack of inventory has kept home prices high and out of reach for some buyers struggling to enter the market. “We had a housing shortage before the pandemic” Yun said, “…and then it worsened during the pandemic as people went rampant in terms of purchasing properties.” Sidelined buyers have had no other choice but to rent. The problem? Rent prices have been skyrocketing as well, as landlords capitalize on the growth in demand. Source: Yahoo Money

Since the onset of the COVID-19 pandemic, homebuilders have shifted from high-density, high-cost areas to lower density and lower cost areas, according to the National Association of Home Builders second quarter 2022 Home Building Geography Index (HBGI) report. The index shows that the market share for single-family home building in large metro core areas and inner suburbs has fallen from 44.5% in the fourth quarter of 2019 to 41.6% in the second quarter of 2022. Meanwhile, single-family home building in outer suburbs in large and medium sized metros has expanded from 17.4% to 19% during the same period. Experts attribute the shift in homebuilding trends to migration patterns caused by the pandemic and increasing housing affordability issues. “The geography of home building has shifted over the last two and half years, with more single-family and multifamily construction occurring in lower density markets,” Robert Dietz, the NAHB’s chief economist, said in a statement. “This shift was first caused by the initial impact of Covid on housing demand, which favored lower density neighborhoods. The shift continued in recent months due to housing affordability conditions that are causing both prospective renters and buyers to expand their geographic search for housing, aided by hybrid work patterns that allow for a combination of remote and office work.” Source: Real Trends

Fannie Mae and Freddie Mac, the federally backed mortgage giants, have changed its lending rules. “In the past, these agencies bought apartment loans based on a building’s financial health,” says Jerry Niemeier, an authority in co-op lending. Then came the deadly Florida condo collapse. “Now they are asking lenders to essentially certify that there are no significant deferred maintenance issues or unsafe conditions in the building. And if repairs are needed, they have to demonstrate that boards have the ability to pay for them.” Lenders will now place the burden of proof on co-op and condo boards to show that repairs have been made or are planned — and funded — before they will issue mortgages to potential apartment buyers. To this end, co-ops and condos are being put under the microscope. The agencies have expanded the form it requires lenders to submit to boards and their property managers before deciding to finance a purchase in their building, which now includes detailed questions about the building’s inspection history and its action plan to remedy deficiencies — and even asks for copies of board-meeting minutes. While lenders are reviewing balance sheets and cash-flow statements as usual, they’re now giving extra scrutiny to reserve funds and special assessments. The upshot: the rules change by Fannie Mae is making it harder for people to buy into co-ops and condos. Under the new guidelines, condominiums must keep 10% of their operating budget in their reserve fund. Source: Habitat Magazine