A surprisingly positive report released today by the U.S. Department of Labor shows that payrolls rose by a seasonally adjusted 336,000 jobs in September. The growth was nearly double what most economists had expected and showed the strength of the labor market, with the national unemployment rate unchanged at 3.8% from August.
Employment increased in the leisure and hospitality sectors. government; health care; professional, scientific and technical services; and social assistance. Furthermore, employment increased in September for the 33rd consecutive month. The unemployment rate has been below 4% since December 2021, the first monthly increase since the late 1960s.
While the report appears to be an overall positive sign for the country, it may also portend a short-term downturn in the housing market. Fed still deciding to raise interest rates further It is an attempt to slow down a still resilient economy and job market.
At the same time, economists said there were still serious weaknesses in the data when looking at how builders, investors and banks were navigating the high interest rate environment.
NAR Chief Economist Dr. Lawrence Yun urged caution in the real estate industry despite the positive news.
“The job market continues to see strong job creation, but not all is well,” he said. “However, employment statistics are seen as a lagging indicator as companies only make decisions to cut staff after cutting costs in other areas. Red flags are flashing, especially in commercial real estate.Retail space Net leasing of industrial and warehouse space has slowed.The office sector continues to bleed due to rising vacancy rates.
Many regional banks with exposure to commercial real estate are monitoring their balance sheets closely. The rapid rise in interest rates is destroying several sectors of the economy. If interest rates continue to rise, cracks are likely to appear in the remaining sectors as well. Given that inflation has already cooled, the Fed should stop raising rates and strongly consider cutting rates next year. It would be a soft landing without any net job cuts to the economy. ”
Dr Lisa Sturtevant, chief economist at Bright MLS, said the good news for job seekers did not mean smooth sailing for the real estate industry.
“The economic situation doesn’t feel right,” she says. “While there are more jobs in the economy and wages are rising, consumers and businesses are becoming more anxious. For the housing sector, this uncertainty and rising mortgage rates mean fewer buyers in the market. Sales activity will decline, with home sales likely at their lowest in more than a decade.
“Rising interest rates and the Fed’s indication that it plans to keep rates the same for an extended period of time will eventually force businesses to exit. Consumers are also feeling challenged by higher borrowing costs. In addition to pure economic indicators, it’s also helpful to look at the monthly confidence index. Business confidence among U.S. small businesses also declined, and so did homebuilder confidence. Consumer confidence. The indicators have also dropped significantly.”
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, acknowledged that the news won’t move the needle when it comes to real estate sales.
“While wage growth has slowed slightly over the past 12 months to 4.2%, it is still likely too fast to match the Fed’s 2% inflation target,” he said. “This news certainly surprised markets that were expecting an economic slowdown, and long-term interest rates soared in response. Mortgage rates will likely follow suit, but they are probably already at their lowest level in decades. It will mean that some lending activity will not recover quickly.”
Daniel Hale, chief economist at Realtor.com®, said higher interest rates are likely in the long term, even with other good economic news.
“At the September Fed meeting, the committee did not raise rates, but the latest economic forecasts showed that short-term policy rates were likely to remain high for a longer period of time, reaffirming that the Fed was not bluffing.” “That may have ultimately convinced the market that we are committed to doing whatever it takes to get inflation back to 2%,” she said.
“Since that meeting, investors have rapidly changed their tune to prepare for that reality, which is likely to mean longer term interest rates. A paradoxical phase has arisen in the business cycle where data rising to unprecedented levels and better than expected means further rise in interest rates, which is actually bad news.Today’s data shows that the labor market This indicates that the situation is likely to be affected by recent trends pushing up interest rates, including mortgage rates.
“Long-term mortgage rates remain a major challenge for homebuyers and are unlikely to drop anytime soon, but this year we are entering a period where predictable seasonal trends in the market offer some respite for homebuyers. “There are,” Hale concluded.