What a month of September we had right? Well, in October, here comes the headwind, not only for the Real Estate Market, but also for the U.S. economy as a whole.
With companies tightening up their hiring strategies and trimming their headcounts, the labor market is staying stagnant but not showing any sign of weakening. Unfortunately, gas prices are taking us on an emotional roller coaster ride as it fluctuates frequently and there are absolutely no sign of pricing dipping anytime soon.
And yes, you guessed it! Once again in October, as the Fed continues to fight inflation, interest rate is continuing to climb (luckily at a slightly slower pace), which caused the demand for home purchases to drop following the reduction in purchasing powers for most buyers.
interest rate updates
According to Freddie Mac, the average 30-year fixed-rate mortgage is floating around 6.6%, which is now more than double where the rate was from a year ago. As the result, mortgage applications overall level is now at the slowest pace for over 2 decades as refinancing activities almost vanished comparing to the past 2 years on top of moderately slower buying activities
JOB OPENINGS VS. LAYOFFS
Yes, there are lots of mixed reports out there showing both pessimistic and optimistic perspectives on the economy’s outlook, especially when it comes down to employment rate. But what really is happening?
At the end of September, the U.S. Economy added 263,000 jobs, which dropped the unemployment rate down to 3.5% at its 50-year low level. That is indeed a good news for most part. However, we must account for the delayed reports on job slashes as well, which did not seem to get accounted for on the official report.
If you’re like me, who enjoys scrolling and reads professional news on LinkedIn, you may come across many unfortunate status updates about job loss and layoffs. Especially lately, the number of layoff updates is becoming quite overwhelming. As the economy outlook remain uncertain, many companies have made difficult decisions to not only reduce the job openings (estimated 1.1 million job openings removed from July to August) but also reduced their headcounts to keep a semi-healthy balance sheet.
Moving forward, we can expect the job growth to slow down as the atmosphere can potentially get worse as more companies will be on hiring freeze and/or tighten their hiring needs.
market supply & demand report
As rates are taking a hike, home inventory continues to rise as pending sales is trending downward. September 2022 ended with the Single-Family Home pending sales is almost 30% lower comparing to last year and 15% lower comparing to August. In Southern California, there’s a 31% dip in pending sales across all categories vary from Condominiums to Luxury Real Estate.
How about new developments / new constructions? Last year, builders were having trouble keeping up with the high demand for new homes. But that is no longer the case! Expenses on new construction and even on renovations are also showing sign of slowing down as it decreased 0.7% in August from July. And to be honest, it is expected as this sector is not immune to the side effect of inflation combat. To learn more about the New Construction Dilemma, read here.
We’re mid-way through October and entering the slowest season of the year for the Real Estate Market historically speaking. It will be interesting to see how everything is given the Fed’s decision and commitment to continue fighting inflation. And that may include another rate hike decision coming very soon!
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