Positive jobs report confirms March rate hike
Unseasonably warm weather increases construction
January’s jobs report came in stronger than expected with an increase of 235,000, and experts agree this increase confirms a rate hike in March.
The Federal Reserve will meet next week to decide if they will raise interest rates. Previously, the market priced a rate hike at 52%, but this increased significantly after Fed Chair Janet Yellen commented in her speech that a rate hike would likely be appropriate.
“The 235,000 gain in non-farm payrolls in February will erase any lingering doubts that the Fed might not hike interest rates next week,” Capital Economics Chief Economist Paul Ashworth said. “It will also be greeted with a cheer from the White House.”
Other experts agreed that the increase solidifies the chance of a rate hike.
“If there were any lingering doubts around the Federal Reserve's upcoming decision on whether or not to raise key interest rates in coming weeks, it's fair to say this report probably sealed the deal and rates are very likely to rise soon,” Zillow Chief Economist Svenja Gudell said.
“Those rising rates will impact mortgage rates, which will have a somewhat negative impact on housing affordability,” Gudell said. “But the prospect of higher rates to come has likely already been priced into the lending market, and slightly higher rates may actually have the effect of cooling home price appreciation somewhat, especially in pricey and popular coastal markets where jobs have grown the most over the past few years.”
And another expert explains that the market was already fairly certain of a rate hike even before the jobs report, but this report should eliminate any lingering doubts.
“Most doubts about whether the FOMC would hike at its March meeting were put to bed last week after a series of hawkish remarks from Fed officials, but any lingering uncertainty has certainly been squelched with today's strong report,” said Curt Long, National Association of Federally-Insured Credit Unions chief economist.
But this rate increase won’t be the last for this year, according to one economist. Actually, there could be a total of four rate hikes in 2017.
“With more new construction coming to market and improving jobs and wages, home sales should continue to expand as the Fed gradually normalizes monetary policy, which we expect to entail one rate increase next week followed by two additional rate increases this year,” Fannie Mae Chief Economist Doug Duncan said.
Some markets are even now pricing the chance of a June rate hike as high as 50%.
Ashworth also explained the reason for the uptick in construction jobs this year.
“Looking at the breakdown for February, the unseasonably warm weather resulted in a big 58,000 gain in construction, which followed a 40,000 gain in January too,” he said.
One expert points out this increase in construction jobs could bring much-needed relief to the housing market.
“Construction jobs benefitted from an unseasonably warm February and were a key driver to strong national job creation,” Redfin Chief Economist Nela Richardson said.
“This is good for housing in the short run, as the market so far in 2017 has been plagued by low inventory and anemic new listings, even as sales rose higher on strong early demand,” Richardson said. “The question going forward is whether construction can continue to add jobs at the levels needed to boost housing supply.”
And part of that construction increase could also be due to the increasing need for home improvement and infrastructure development.
“Specifically for the housing market, construction employment continues to add jobs, 177,000 over the last six months,” First American Chief Economist Mark Fleming said. “It’s interesting that specialty trade contractors, and heavy and civil engineering job categories were highlighted – a sign of growing demand for home improvement and infrastructure development, perhaps.”
But the report was not all good news. The report showed wage growth continues to be stagnant. In fact, with the stagnant wage growth, the current rate of home price increases is not only unhealthy, it is also unsustainable.
“Despite the welcomed surge in employment, the jobs report falls short of nirvana in terms of February’s mediocre wage growth,” Richardson said. “Even before the peak home buying season, we are already seeing strong home price growth, which we expect to continue through 2017.”
“Incomes will need to adjust at a steadier clip in order for first-time buyers and millennials to overcome the 2017 housing-market trifecta of inventory shortages, price growth, and interest rate increases,” she said.
And one expert pointed out that wage-growth was not the only weak point of the report.
“One weakness in the report is in the hours worked each week by an average worker, which remained stuck at 34.4 hours,” said Lawrence Yun, National Association of Realtors chief economist. “I would like to see this figure rise a bit to assure a clearer sign of future wage growth.”
However, one expert explained wage growth was not stagnant at all, and that the small increase was positive news for the industry.
“Average hourly earnings posted a strong 2.8% annual gain, too, potentially making homes and apartments somewhat more affordable for many,” Gudell said. “The increasing numbers of jobs may also encourage more younger workers to strike out on their own and form new households.”