Jeff Cox of CNBC starts us off this week with an update on the jobs data released last week, showing that the U.S. economy added 142,000 jobs in August, slightly below the expected 161,000. Cox notes that this signals a slowing labor market. The unemployment rate dipped to 4.2%, aligning with forecasts, while the labor force grew by 120,000, holding the participation rate steady at 62.7%. An alternative measure of unemployment, which includes discouraged workers and part-timers, rose to 7.9%, the highest since October 2021.

Source: CNBC (September 2024)

Cox quotes Seema Shah, chief global strategist at Principal Asset Management, who commented on the data:

“For the Fed, the decision comes down to deciding which is the bigger risk: reigniting inflation pressures if they cut by 50 [basis points] or threatening recession if they only cut by 25 [basis points]…On balance, with inflation pressures subdued, there is no reason for the Fed not to err on the side of caution and frontload rate cuts.”

Josh Schafer of Yahoo! News reports that year-over-year wages increased by 3.8%, up from 3.6% in July, signaling continued inflationary pressure. Despite a slight drop in the unemployment rate to 4.2%, revisions to June and July data revealed 86,000 fewer jobs than initially reported. Some economists see the solid wage growth as enough to push the Federal Reserve toward a modest 25 basis point rate cut at its upcoming meeting instead of a more significant cut, as the labor market shows signs of cooling.

Lauren Kaori Gurley and Rachel Siegel of the Washington Post report on the jobs report, noting that specific sectors helped support the overall labor market. Construction led the way by adding 34,000 jobs, driven by nonresidential projects spurred by federal infrastructure spending. Health care followed with 31,000 new positions, supported by steady demand from an aging population, while the public sector added 24,000 jobs, mostly in local government. However, other industries struggled, including retail, wholesale trade, and manufacturing. 

Brooklee Han of HousingWire highlights that while construction saw growth, adding 34,000 jobs, residential building construction only gained 4,800 jobs, and the real estate sector added just 3,500 jobs. This slowdown suggests a tempered demand for new housing projects. The cooling job market, combined with downward revisions in previous months’ data, could encourage the Federal Reserve to implement a 25-basis-point interest rate cut, which would likely support more favorable borrowing conditions in the real estate market, helping to sustain demand despite slower employment growth.

Rentals

Zumper released its August Rental Report, confirming continued demand for rentals nationwide. Zumper’s National Rent Index shows rising rental demand, with one-bedroom rents increasing 1.6% annually to $1,534 and two-bedrooms up 2.7% to $1,915. Monthly rents for both types rose 0.2%. Despite a surge in rental supply, high resident retention keeps demand strong, as fewer people are leaving the rental market to buy homes. 

Source: Zumper (September 2024)

Zumper CEO Anthemos Georgiades comments: “In an era where the amount of new supply is shattering records, it’s remarkable to see vacancy rates holding steady this year…Strong renter retention alongside our growing national rent index underscores the robust demand present in the U.S. market.” At a more local level, Zumper found that New York City one-bedroom rents hit $4,500 this August, an all-time high, and San Francisco one-bedroom rents hit $3,160, a 4-year high.

Source: Zumper (September 2024)

Apartment List released its August Rent Report showing a modest -0.1% rent decrease in August, bringing the national median rent to $1,412. This marks the second consecutive summer of sluggish rent growth due to new supply, with year-over-year rent growth at -0.7%. Despite the decline, rents remain over $200 higher than a few years ago. The national vacancy rate is slightly elevated at 6.7%, and more vacant units are expected as new apartments flood the market. Rent declines are particularly sharp in Sun Belt cities like Austin (-7.5%) and Raleigh (-5.6%).

Source: Apartment List (September 2024)

“Seasonality has shifted slightly in the past two years. Peak monthly rent growth occurred in March both this year and last, two months earlier than what was typical in pre-pandemic years. And cumulative rent increases during the summer season have been lower than previous years. Meanwhile, seasonal declines have been more pronounced. This reflects the sluggish, supply-rich rental market that has persisted since late-2022.”

That said, new data from Zillow shows more caution, highlighting that more property managers offer concessions, such as free rent or parking, to attract tenants. One-third of rental listings now include these concessions, reflecting the ongoing multifamily construction boom and opening up more options for renters. 

Zillow highlights that while rent growth has slowed, with July’s typical U.S. rent rising 0.4% to $2,070, rents continue to rise. Annual rent growth has also decelerated to 3.4%, helping renters stay near the edge of affordability. In several major metros, over half of rental listings now offer concessions, while a few cities, like San Jose and Baltimore, show a more competitive market with fewer perks offered.

Market news

Realtor.com recently released its Hottest Zip Codes report, highlighting the markets leading in demand and days on the market. Here are the highlights:

• ZIP 43230 in Gahanna, OH, is this year’s hottest zip, taking the crown for the second year.
• This year’s hottest zips offer buyers value in the Midwest and the Northeast, with 3 and 7 metros representing the regions, respectively.
• In the first half of 2024, homes in the hottest zips saw an average of 3.7 times the page views per property, and they sold more than a month faster than the typical U.S. home.
• Home shoppers in large metro areas contribute significantly to viewership in the hottest zip codes. Buyers in these zip codes also tend to earn more and have a higher credit score than the U.S. average. Moreover, these zip codes attract older buyers who are well-equipped to face a competitive housing market.

Source: Realtor.com (September 2024)

“In an impressive display of popularity, the Northeast makes up the majority of this year’s hottest zips, with zip codes near the region’s biggest economic hubs drawing significant buyer attention and activity. These markets offer urbanites the opportunity to find a larger home in a desirable area without giving up convenience.”

Indeed, Kim O’Brien of RealPage reports on the Northeast, highlighting that apartment occupancy remains tight due to limited supply. In July, 14 Northeast markets ranked among the top 25 for occupancy nationwide, with New York at 97% (ranked #4) and Newark at 96.2% (ranked #16). While new construction is expected to soften occupancy across the U.S., Northeast markets will maintain strong performance soon, even as the supply of new units doubles over the next 12 months.

Dana Anderson and Mark Worley of Redfin report on Florida and Texas, where condo inventory is soaring in markets like Miami, Austin, and San Antonio. Pending sales are declining due to high HOA fees, rising insurance costs, and natural disaster concerns. 

Source: Redfin (September 2024)

In July, Tampa condo listings jumped 57.2% year-over-year, while prices fell 4.9%. Houston saw a 35.9% increase in inventory and a 6.5% price drop. While single-family homes in these states are faring slightly better, condo prices are struggling as supply outpaces demand. Nationwide, condo inventory is also rising, though not as sharply as in Florida and Texas.

ATTOM Data Solutions reports on markets at risk of a downturn, highlighting that California, New Jersey, and Illinois had the highest concentrations of at-risk housing, with vulnerable areas clustered around New York City, Chicago, and inland California. Factors such as home affordability gaps, underwater mortgages, and unemployment contributed to the risks. Conversely, less vulnerable markets were mainly located in the South and Midwest. Virginia, Wisconsin, and Tennessee have many minor at-risk counties, including the Washington, DC, and Nashville metro areas.