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What the jobs report means for real estate

What the jobs report means for real estate
by Brad Cartier, posted in Newsletter

The blockbuster jobs report surprised all in the media, adding half a million jobs and coming in significantly higher than the monthly average of 350,000 over the past few months. Further, unemployment is the lowest since 1969, sitting at 3.4%. Steve Matthews and Catarina Saraiva of Bloomberg report on what this means for real estate, noting that positive economic news will pressure the Federal Reserve to continue increasing interest rates to tame inflationary pressures (like a strong employment market). The article quotes Thomas Costerg, a senior U.S. economist at Pictet Wealth Management, as saying “[s]uch a strong employment report probably means at least two rate hikes of 25 basis points, and I wouldn’t dismiss the possibility of a 50 basis-point hike returning on some Fed officials’ radar screen for the next meeting.”

In commenting on the jobs data, the Mortgage Bankers Association (MBA) Chief Economist Mike Fratantoni stated:

“Beyond the surprising hiring jump in January, employment numbers were revised up for 2022 by about half a million and were marked up for the last two months as well. As strong as we thought the job market was, it was even stronger. With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data. We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”

Brooklee Han of HousingWire notes that in a positive sign for the fight against inflation, the yearly growth in average hourly earnings for service employees declined from a high of 6.1% in March last year, to 4.5% in January. “Further reduction in wage growth is the key to getting the Fed to pause its interest rate hikes. There is hope that as consumers pull back on spending, more wages will continue to decelerate.”

Case-Shiller Index

CoreLogic’s S&P Case-Shiller Index shows that housing price growth rate is cooling further in November, up only 7.7% year over year, down from a 9.2% increase in October. CoreLogic expects this deceleration trend to continue well into 2023. 

YoY growth of homes down

Source: CoreLogic (February 2023)

At this pace, and according CoreLogic’s Home Price Index forecast, annual home price growth is expected to slow further and post annual declines by the spring of 2023. Some markets will see more notable price slowing and declines in 2023, though decreases are expected to remain regionalized and specific to metro areas that saw relatively more price growth during the pandemic, such as Las Vegas and Phoenix. 

MoM declines in prices for homes

Source: CoreLogic (February 2023)

Nicole Bachaud of Zillow comments on the data, noting that the factor that has pushed housing price growth from a sprint to a crawl is primarily higher borrowing costs. Buyers and sellers are increasingly sitting on the sidelines waiting for the market conditions to improve, meaning 2023 will be a year of flatlining home price growth.

This strong downward trend in housing prices is primarily the result of higher borrowing costs, according to Dana Anderson of Redfin. That said, a small reduction in interest rates over the past month has brought back buyers to the market. “Pending home sales fell 23% from a year earlier during the four weeks ending January 29, the smallest decline since September and a notable improvement from the November trough, when pending sales declined 33% annually.”

Renter Bill of Rights

The White House recently released a Blueprint for a Renters Bill of Rights intended “to support the development of policies and practices that promote fairness for Americans living in rental housing…[and] is a statement of principles; it is not binding and does not itself constitute U.S. government policy. It does not supersede, modify, or direct an interpretation of any existing Federal, state, or local statute, regulation, or policy.”

Many housing commentators see this as the first interaction of a potential national rent control measure. Virginia Van Zandt of Forbes comments on the report, stating that “[t]he proposed housing regulations may cause a decline in both the quality and quantity of housing available due to artificial limits on rent. If rents are established at less than market rates, demand will exceed supply, and rent control will create a shortage of dwellings.”

NAHB Chairman Jerry Konter responded to the report, stating: “While not as bad as it could have been, the White House rental executive action is the wrong strategy, centering on rental protections instead of market-based solutions that will truly ease the nation’s housing and rental affordability crisis by spurring the production of badly needed affordable housing. Strengthening successful programs like the Low-Income Housing Tax Credit is the right way to proceed if we are to bring down rising home and rental prices.”

Jacob Knutson of Axios reports that the White House report follows the expiration of federal and state pandemic eviction protections and that several federal agencies are being encouraged to take action on housing affordability:

  • The Federal Trade Commission and the Consumer Financial Protection Bureau, for example, will collect information to identify practices that unfairly prevent applicants and tenants from accessing or staying in housing, such as the use of tenant background checks.
  • The Department of Justice will examine anticompetitive information sharing within rental markets, while the Federal Housing Finance Agency and the Department of Housing and Urban Development will also take part.
  • The Federal Housing Finance Agency (FHFA) will launch a stakeholder engagement process on adopting and enforcing tenant protections at properties with federally-backed mortgages. 

Next City, a nonprofit justice and equity advocacy group, commented on the announcement: “While clearly informed by tenant demands and advocacy, most of Biden’s announced protections are baby steps toward larger policy goals, and not the bold renter protections some expected.”

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