CHM Blog

Wishes don't make the trapped housing market go away

Numbers are numbers. Facts are facts and wishing for something different doesn’t make it so.

So here’s the scoop: According to Realtor.com’s chief economist, Danielle Hale, the July jobs report job growth slowed to a net gain of just 73,000, while the unemployment rate ticked up slightly to 4.2%.

The strangest thing about it? While this would have been considered a slowdown from last month’s surprisingly high figure, it had been revised so much lower that the most recent reading was actually a modest increase. The health care and social assistance industries saw the biggest job gains while the government shed workers like flakes falling off a donut.

“The relative stability in the unemployment rate highlights a phenomenon that Chair Jerome Powell called out in comments following the Fed’s July meeting last week,” says Hale. “Even as hiring, or labor demand, has slowed, labor supply has also slowed, keeping the labor market relatively balanced. Meanwhile, earnings climbed by 3.9%, modestly above recent readings.”

The June JOLTS report showed a drop in both quits and job openings. Both moves are a sign of tighter conditions for job seekers, even though the job openings rate of 4.4% remains elevated relative to its pre-pandemic average. It now hovers near post-pandemic lows.

“The job market remains relatively healthy – at a level that would be expected to contribute favorably to housing demand,” says Hale, but her caveats include a housing market weighed down by persistent unaffordability. “Data released this week showed that the homeownership rate dropped to 65% in the second quarter," she says.

Recent data shows that even though the number of homes for sale continues to climb, the median list price has not changed nationally. In many markets, prices have begun to decline and, in some cases, have eased by double digits since mid-2022. “Still, homebuyer demand has been slow to revive, causing forward-looking sales indicators to stall,” Hale says.

She uses the example of New York City—where housing affordability has been front and center in the mayoral race—a report showed that even if rents were to freeze at today’s levels and income growth were to continue, it would take decades before the median rent would be “affordable” to the median earner.

Renter and homebuyer alike are in a continuous holding pattern, as both the for-sale and rental housing markets are hampered by unaffordability. While a steady labor market that powers income growth is necessary for housing demand, it’s not enough on its own, says Hale. “Housing demand will recover faster if costs soften, by either lower home prices or lower mortgage rates.”

As for housing supply? It will hopefully further stem home price growth by reducing barriers to construction in the areas where housing is most needed. Indeed – we can wish and we can hope for a combination of a number of factors to change, but no one is betting on it any time soon. “Getting the economy to a place where the inflation threat has passed and interest rates, including mortgage rates, can ease will also improve affordability both directly and indirectly by lessening the current lock-in effect,” surmises Hale. “Rather than one quick fix, I expect to see all of these levers contribute to restoring housing affordability.”

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are getting some support today. The MBS market improved by +50 bps last week. This was enough to decrease mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Geopolitical, 2) Domestic News, 3) Central Banks.

1) Geopolitical: Fed Gov Kugler has resigned effective August 8th. Still very much is the spotlight is the August tariffs come into effect on Thursday and there is a massive push to get new trade deals.

2) Domestic News: The most important economic report this week is ISM Services which accounts for more than 2/3 of our economic engine. We will pay close attention to the Employment and Prices Paid components of this report.

3) Central Banks: The Bank of England is expected to cut by a 1/4 point this week.

Treasury Auction: We have a big week for Treasury auctions with Thursday's 30Y bond getting the most attention from long bond traders.

08/05 3 year note

08/06 10 year note

08/07 30 year bond

This Week's Potential Volatility: High

This morning markets have started off with some support. Volatility has started at high levels and will likely remain that way all week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.