Housing Market at a Turning Point

Housing Market at a Turning Point

The Fed hiked its benchmark Fed Funds Rate despite signs of cooling inflation and concerns about the banking sector. Plus, job growth isn’t as strong as it seems while home prices have reached an inflection point. Here are the key stories:

Fed Hikes Rates Another 25 Basis Points

Strong Jobs Report or Not Really?

What’s Really Boosting Private Payrolls?

Challenges Remain for Job Seekers

Appreciation Data Turning Around

Fed Hikes Rates Another 25 Basis Points

At its meeting on last Wednesday, the Fed increased its benchmark Fed Funds Rate by 25 basis points, bringing its range to 5% to 5.25%. The Fed Funds Rate, which is not the same as mortgage rates, is the interest rate at which banks borrow money overnight. The Fed aims to slow the economy and contain inflation when it raises the Fed Funds Rate. Since last March, the Fed has increased interest rates ten times.

What’s the bottom line? The Fed’s decision to hike the Fed Funds Rate was unanimous, despite clear signs of falling inflation, forecasts of a recession, and concerns about the banking sector.

And while Fed Chair Jerome Powell stressed that the banking system is “sound and resilient,” one result of the Fed’s rate hikes is the stress they have put on many regional banks. Depositors have been incented to withdraw their money and invest it in higher-yielding money market accounts or short-term treasuries. Over the last two months, three banks with a combined $550 billion in assets have failed, which is 50% more than the 511 banks that have failed since 2009. The stability of regional banks is crucial, as they make up almost 40% of all loans.

There was also a big change to the Fed’s policy statement, which saw the removal of language saying they “anticipate” further rate hikes would be needed. Instead, the Fed said that going forward they would determine whether additional firming policy would be appropriate. This lays the groundwork for a pause in rate hikes at their next meeting in June, although Powell noted in his press conference that the Fed has not made that decision as of yet. He also denied the Fed would cut rates this year even though economists forecast otherwise.

Strong Jobs Report or Not Really?

More than anticipated, the Bureau of Labor Statistics (BLS) revealed that 253,000 jobs were added in April. However, significant changes to the data from February and March resulted in a combined loss of 149,000 jobs, which restrained April’s growth. 3.5% of the workforce was unemployed, down to 3.4% now.

What’s the bottom line? There are two reports within the Jobs Report and there is a fundamental difference between them. The Business Survey is where the headline job number comes from, and it’s based predominately on modeling and estimations. The Household Survey, where the Unemployment Rate comes from, is derived by calling households to see if they are employed.

The Household Survey has its own job creation component, and it showed some underlying weakness with only 139,000 new jobs created last month. Plus, the labor force decreased by 43,000, which is not a positive sign. When we combine these two factors, the unemployment rate did decline – but not because of strong job growth.

In addition, while the headline job growth number appeared strong, there were some cracks in the data. One of the biggest reasons we saw job gains was the birth/death model, where the BLS estimates hiring from new business creation relative to closed businesses. The problem with this modeling is it overestimates during the inflection point of a downturn (like we’re in right now) and underestimates at the inflection of an upturn after a recession.

In April, this modeling added 378,000 jobs but it’s hard to believe that many businesses were created last month in the current economic climate where there is less lending from banks.

What’s Really Boosting Private Payrolls?

Given that there were 296,000 new positions created in April, according to the ADP Employment Report, private payrolls than surpassed estimates last month. Job changers’ average annual income climbed by 13.2%, while job keepers’ increased by 6.7%. Even while these numbers are still high, they show a year-long slowdown and less salary pressure on inflation. Job changers in particular experienced the smallest pay gain since November 2021.

What’s the bottom line? The leisure and hospitality sector once again led the way with 154,000 job gains, and this sector has been a huge driver of job growth after the massive losses seen during the height of the pandemic. However, these jobs may not bolster the overall private payroll total for much longer. In April 2019, there were 16.2 million leisure and hospitality employees and there are now 16.25 million after last month’s gains, meaning we have eclipsed where we were pre-Covid.

In addition, private sector job growth has been quite volatile so far this year, with monthly gains averaging 205,000 from January through April. This is compared to an average of 306,000 new jobs per month throughout last year, so we’re seeing a clear  slowdown notwithstanding April’s strong print.

Challenges Remain for Job Seekers

The number of people filing for unemployment benefits for the first time rose by 13,000 in the latest week, as 242,000 Initial Jobless Claims were reported. Continuing Claims, which reflect people continuing to receive unemployment benefits after their initial claim is filed, declined by 38,000 to 1.805 million.

What’s the bottom line? Jobless Claims can be volatile from week to week, but they continue to trend higher. Initial Jobless Claims have remained above 200,000 since early February. Plus, the four-week average of Initial Jobless Claims, which smooths out some of the weekly fluctuation among first-time filers, has hovered around 240,000 near a yearly high in recent weeks. Meanwhile, Continuing Claims have now risen by over 500,000 since the low reached last September, which shows the challenges people are subsequently facing as they search for new employment.

Housing Market at a Turning Point

According to CoreLogic’s Home Price Index, national home prices increased by 1.6% from February to March and were 3.1% higher than in the same month last year. This comes after home prices rose 0.8% in February, indicating that the housing market is nearing a turning point. According to CoreLogic’s projection, home prices will grow 0.8% in April and 4.6% in the coming year, which is an increase from the 3.7% predicted in the February report.

In addition, notable appreciation statistics from Case Shiller (+0.2% in February), the Federal Housing Finance Agency (+0.5% in February), Black Knight (+0.5% in March), and Zillow (+0.9% in March) have all demonstrated that home prices are once again on the increase. This is further evidence that home prices have reached an inflection point.

What’s the bottom line? CoreLogic’s Chief Economist Selma Hepp said, “While housing markets across the country continue to send mixed signals, prices in many large metros appeared to have turned the corner, with the U.S. recording a second month of consecutive monthly gains. At 1.6%, the month-over-month increase was twice the average seen between 2015 and 2020.” 

She added that, “The monthly rebound in home prices underscores the lack of inventory in this housing cycle. In addition, while the lack of affordability generally weighs on home price growth, mobility resulting from remote working conditions appears to be a current driver of home prices in some areas of the country.”


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MasonMac Corporate

Mason-McDuffie Mortgage Corporation

Office: (925) 785-7851

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San Ramon, CA 94583


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