Alicia Wallace of CNN starts this week with commentary on the unusually strong jobs report. The economy added 336,000 jobs in September, well above the expectation of 170,000 jobs. Further, average hourly earnings jumped by 0.2% month-over-month, below economists’ expectations of 0.3%. Currently, the markets are predicting a 71% chance of no rate hike at the next Fed meeting; however, inflation data this week will strongly affect this.

Source: Realtor.com (October 2023)

Chen Zhao of Redfin comments on the hot jobs report, noting that “[t]his report could be indicative of a very healthy labor market where a lot of jobs are being created and we don’t have wage growth pushing us into an inflationary spiral due to a labor shortage.” Zhao believes that the Fed will not raise rates at the next meeting.

Sarah Marx of Housing Wire reports that the stronger economic growth and falling wage growth could indicate a soft landing. Further, the addition of jobs in core sectors with prospective homebuyers is another positive sign for the housing market, according to Marx.

Fannie Mae comments on the jobs data, concluding that:

“All told, in our view, the robust job growth combined with modest wage growth is good news for the prospects of a “soft landing,” but it’s unclear whether such large employment gains can be sustained with lower wage growth. Further, this jobs report is not affected by the significant increase in long-term interest rates over the past month, which will likely act to slow the economy and the labor market moving forward.”

Indeed, Danielle Hale of Realtor.com comments on what this means for the rental market: “[M]any households trying to decide whether to buy or rent are likely to settle on renting as the monthly costs of buying a starter home are lower than renting in just 3 of the 50 major metro markets. With a significant amount of rental housing supply currently under construction, this financial advantage of renting is likely to continue.”

Rent update

Several rent reports were released last week, beginning with Jeff Tucker of Zillow outlining that asking rents increased by 0.2% to $2,047 in September. Compared to last year, rents are now 3.2% higher, marking a 19-month slowdown in annual growth since reaching a peak of 16% in February 2022. The annual growth rate in September is lower than before the pandemic, which ranged from 4.0% to 4.2% in 2019. 

Lily Katz of Redfin also reports on rents, highlighting that the median U.S. asking rent increased by 0.4% to $2,011 in September, marking the sixth consecutive month of minimal change compared to the previous year. Before this, rent growth had been rapidly slowing for about a year, returning to normal after a price surge caused by the pandemic. In September, the median asking rent decreased by 2% compared to the previous month.

Source: Redfin (October 2023)

Redfin Economics Research Lead Chen Zhao comments: 

“Rents have flattened because a boom in apartment building in recent years has flooded the market with supply, but they haven’t yet posted a substantial decline because there’s still demand for rentals—especially as high mortgage rates keep many would-be homebuyers and sellers on the sidelines…There are still a lot of apartments under construction that will continue to hit the market, which should keep rents from increasing much in the near-to-medium term. But construction has started to slow, which should eventually help bolster rent prices.”

Zumper highlights a similar trend, reporting that rent for one-bedrooms is up just $1 to $1511 month-over-month and up only 0.5% year-over-year. That’s the smallest annual increase Zumper has reported in over two years.  

Source: Zumper (October 2023)

Finally, Apartment List released its October 2023 Apartment List National Rent Report. We find similar findings of growth deceleration of national average rents. Specifically, national median rent fell by 0.5% to $1,364. According to their metrics, annualized rent growth is now -1.2%, a marked difference from the high teen growth in recent years. Overall, this will help to further cool inflationary pressures.

“This cooldown is widespread; rents fell month-over-month in September in 85 of the nation’s 100 largest cities, and thanks to sluggish rent growth over the past 12 months, prices are down year-over-year in 71 of these 100 cities.”

Sidelines

Due to the ongoing affordability challenges in the housing market, more buyers are choosing to sit on the sidelines, according to Jiayi Xu of Realtor.com. The Freddie Mac fixed rate for a 30-year mortgage rose to 7.49% this week, up 0.18% from last week. Due to the Federal Reserve’s “tighter for longer” monetary policy, Xu expects mortgage rates to stay above 7% for a while. That said, limited inventory is hampering buyers who are in the market for a home.

Source: Realtor.com (October 2023)

“[M]ore than 60% of homebuyers have encountered challenges related to inventory, struggling to find homes that align with their budget or meet their specific needs. While declining pending home sales and new home sales signaled a slowdown in buyer activities, the increasing home listing prices and shorter days spent on market suggested that home buyers are competing over the limited inventory.”

Dana Anderson of Redfin comments that a homebuyer with a monthly mortgage budget of $3,000 has lost $40,000 in purchasing power over the past year as rates push toward 8%. The typical buyer can now only afford up to a $419,000 purchase price, down from $595,000 at the beginning of 2022.

A recent survey by Redfin found that about two-thirds of recent U.S. homebuyers (59%) said purchasing a house was more stressful than dating. Redfin Chief Economist Daryl Fairweather comments on the survey: “Buyers are increasingly ghosting sellers as housing costs climb, and high mortgage rates are prompting many homeowners to stay put instead of selling—meaning house hunters have a record low number of homes to swipe right on.”

Homebuying is stressful

Source: Redfin (October 2023)

ATTOM Data Solutions released its Q3 2023 U.S. Home Affordability Report, showing that affordability worsened nationwide due to higher home prices and mortgage rates. The typical portion of average wages needed for major home expenses is now 35%, exceeding the common lending standard of 28%. This is the highest level since 2007, surpassing the 21% figure from early 2021. There are still some pockets of affordability left; these are the top 10 markets still considered affordable by ATTOM:

Source: ATTOM Data Solutions (October 2023)