With buyers already taking a “wait-and-see” approach due to high interest rates, low inventory, and an upcoming Presidential election, economists say another factor – the unemployment rate – could affect the housing market moving forward.
“Higher unemployment can make individuals and families feel less secure about their personal financial situations, which could make them less likely to take on a big financial decision like buying or selling a home,” said Lisa Sturtevant, chief economist at Bright MLS.
The unemployment rate ticked up from 4.1% in June to 4.3% in July. Predictions are that the next jobs report, to be released on Sept. 6, will show an unemployment rate of 4.2% in August.
While the labor market has been cooling, Sturtevant said it’s important to note that the current unemployment rate is still below the long-term average. Over the past four decades, the rate has averaged 6%.
Sturtevant said the recent rise in unemployment was due to more people entering the labor force as well as slower private-sector job creation. She predicts that more jobs will be created as consumer demand improves.
“When the Fed cuts interest rates this month — which it is broadly expected to do — businesses may see more opportunities to expand their workforce. But they’ll also be watching consumer spending and consumer confidence and may hold back on ramping up job creation until there is solid evidence that consumer demand will remain strong,” said Sturtevant.
Mike Fratantoni, SVP and chief economist at the Mortgage Bankers Association, said that job growth is weakening due to signs of contraction in the manufacturing sector and signs of stress for households.
“The Federal Reserve kept the federal funds target unchanged at its July meeting but hinted at a cut in September,” said Fratantoni. “The weakness in this report including the slower rate of wage growth and the higher unemployment rate certainly support such a cut, but the next inflation report needs to confirm that price growth is also slowing.”
Construction employment shows gains, as builders continue to work to add to the housing supply given the ongoing shortage. This could indicate the housing market is relatively safe, despite recent economic downturns.
Fratantoni said when it comes to mortgages, the market is moving ahead of the Fed, bringing down longer-term rates, which should lead to both more home purchases and a pickup in refinance activity.
Sturtevant said it’s likely that rates will bump around a bit and generally come down further in 2024. She’s expecting that rates will remain above 6%, with an average rate for a 30-year fixed-rate mortgage of around 6.2% by the fourth quarter.
