As the employment landscape exhibits indications of a gradual slowdown, there is a growing likelihood that the Federal Reserve may abstain from increasing interest rates during their imminent September gathering as the Fed finally yields some results that they’ve been looking for since the beginning of the battel against inflation.
Even though mortgage rates have stayed relatively high, despite some recent declines, the prospect of the Fed refraining from rate hikes is favorable news for the housing sector. Notably, after a five-week period of decline, mortgage applications have only recently begun to rebound, suggesting that the housing market may gain momentum if interest rates remain stable or even decrease in the upcoming weeks. But for the sake of our own mental health, let’s not keep our hopes up because we’ve been in this exact environment before!
Job Market and Fed's Rate Decision
During the month of August, U.S. employers continued to hire, adding a robust 187,000 jobs. However, the labor market is displaying signs of moderation, characterized by job growth experiencing its third consecutive month of gains below 200,000. Over the past three months, an average of 150,000 jobs were created each month, marking a decline from the earlier average of 238,000 jobs between March and May. Last month, the unemployment rate increased to 3.8%, with part of the blame placed on the closure of the trucking company ‘Yellow’ in early August.
Additionally, the labor force in the entertainment industry contracted due to recent strikes, further contributing to the rise in unemployment. Looking ahead, there is a less optimistic outlook for hiring and expansion in the coming months. Survey results from the Chief Human Resources Officer Confidence Index, released by the Conference Board for the third quarter, indicate a significant pullback in workforce expansion plans. Only 38% of respondents in the survey anticipate an increase in hiring over the next six months, marking a decline from the 51% reported in the second quarter of 2023.
Consumer Confidence Dips Amidst Softening Job Market
During August, consumer sentiment experienced a decline in optimism concerning both present circumstances and future prospects, primarily in response to the labor market’s deceleration and the marginal increase in food and energy prices. The U.S. Consumer Confidence Index, which had previously shown consecutive gains in June and July, exhibited a notable retreat last month, recording a value of 106.1. This figure fell well below the anticipated consensus value of 116.0. Several contributing factors to this decline included a narrowing availability of job opportunities, elevated interest rates, and a less-than-encouraging performance in the stock market throughout August.
Additionally, consumer confidence may face further challenges with the resumption of student loan payments scheduled to commence in October. Over 43 million American borrowers will need to allocate funds towards repaying their student debt, potentially leading to reduced discretionary spending on goods and services. While this may have an impact on the economy, the effects are not anticipated to be of significant magnitude
Mortgage Rates Experience a Decline After Five Consecutive Weeks of Increase
Following a continuous ascent over five successive weeks, the average 30-year fixed-rate mortgage, as reported weekly by Freddie Mac, finally recorded a slight dip at the conclusion of August, yet it remained above the 7% threshold. Factors such as reports of a cooling labor market, concerns surrounding a slowdown in consumer spending, and a downward adjustment in second-quarter GDP figures likely contributed to the recent decline in mortgage rates. While the prevailing market sentiment anticipates the Federal Reserve to maintain their policy rate without alteration in the upcoming September meeting, mortgage rates continue to hover at elevated levels, and the market is expected to remain volatile until the Fed communicates a more definitive stance regarding its future rate adjustments. Given the near-record high borrowing costs and an anticipated tight housing supply for the remainder of the year, the outlook suggests that home sales may exhibit subdued performance in the next few months
Despite the market’s persistent sluggishness, mortgage applications have shown a notable increase for the first time in five weeks, possibly reflecting the stabilization of interest rates. On a seasonally adjusted basis, mortgage applications rose by 2.3% compared to the previous week. Both the purchase index and the refinance index experienced gains of 3% and 2%, respectively, compared to the prior week. However, when examined on a year-over-year basis, unadjusted purchase applications demonstrated a significant decline of 27% compared to the same week in 2022. This sharp year-over-year drop in purchase applications, which is nearly double the decline observed in pending home sales in July, presents a challenging start to the month of September for home sales. Nevertheless, there remains potential for the market to regain momentum in the coming weeks should interest rates maintain a stable or declining trajectory
Mortgage Delinquency Continues to Stay Low
Mortgage Delinquency Rates Hold Steady Near Historical Lows: The U.S. mortgage delinquency rate, indicating payments overdue by at least 30 days, continued its favorable trend, recording a rate of 2.6% in June 2023. This represents a notable decrease of 0.3 percentage points from the 2.9% rate observed in June 2022, and it remained unchanged from May 2023. The most recent monthly figure aligns closely with historical lows and is significantly below the peak reached in 2009/2010 during the housing market crisis.
Simultaneously, the national foreclosure rate maintained its position near historic lows, with the U.S. registering a 0.3% rate in June 2023, mirroring the figure reported in June 2022. At the state level, California exhibited an even more remarkable foreclosure rate of 0.024%, equating to one foreclosure in every 4,188 households, as reported in ATTOM Data’s July 2023 analysis. This rate is substantially lower than the double-digit figures witnessed during the depths of the Great Recession. Notably, the counties with the highest foreclosure rates in California included Yuba, Shasta, Sierra, and Tulare
My Personal Take
Summer of 2023 hasn’t been an easy time for all of us as we faced multiple challenges economically (and environmentally). Now, especially with the Fed beginning to win the prolonging battle against inflation, more of Americans will start to save more and spend less eventually due to more layoffs and reduction in job growth, which is the result that the Fed hopes for in the long run. These events are not easy to digest because who in the world would love to lose their jobs and not have any source of income.
What I personally do not understand is how, in the world, that the mortgage delinquency rate remains to stay low given the environment that we are currently in? Housing cost and living cost are on the rise at a much higher rate comparing to household’s income. And yet, we seem to be in a decent place and not to worry about the future. Somehow, that doesn’t add up for me! But perhaps, we are still a little bit early in the stage or we just simply…. recovered from the recession. Only time can tell!
If you have any question, comment, or concern, feel free to reach out to our team at info@chadvorealestate.com.
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