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Experts: Wage growth could further rate hikes in 2019

But one expert thinks 2018 will end on a jolly note

In November, the unemployment rate held steady at 3.7% and wages climbed, leading some experts to predict the likelihood of continual rate hikes in 2019.

According to the U.S. Bureau of Labor Statistics Employment Situation Summary report, the average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents, coming in at $27.35. Notably, over the course of 2018, average hourly earnings have climbed by 3.1%.

Experts believe the increase in wages could prompt the Federal Reserve to further rate increases in the upcoming year.

“The recent volatility in financial markets has increased speculation that the Fed will moderate the pace of rate increases but continued strong wage growth is one data point in favor of further rate increases in 2019,” First American Chief Economist Mark Fleming said.

The U.S. stock market experienced a tumultuous week with the Dow Jones Industrial Average losing 4.04% (so far) in volume this week.

That being said, LendingTree Chief Economist Tendayi Kapfidze said the Employment Situation Summary report indicates the labor market remains robust, and the economy remains quite strong despite recent turmoil in the financial markets. 

“This report is supportive of a Fed rate hike despite recent market volatility. The outlook for rates is heavily dependent on expectations for inflation which in term are influenced by wages where gains are starting to emerge," Kapfidze said. “However, 10-year treasury rates have moved lower over the past two weeks as trade tensions increased concerns about the economy slowing in 2019.” 

So, what does this mean for the housing market? Well, Fleming thinks bigger checks could bring consumers some buying power throughout the remainder of the year.

“While rising mortgage rates reduce consumer house-buying power, rising household income increases house-buying power,” Fleming said.

Fleming might be onto something, as Freddie Mac Chief Economist Sam Khater said this week’s rate reaction could offer consumers some relief.

Mortgage rates declined this week amid a steep sell-off in U.S. stocks,” Khater said. “This week’s rate reaction to the volatile stock market is a welcome relief to prospective homebuyers who have recently experienced rising rates and rising home prices.”

All in all, although the threat of impending interest rate hikes in 2019 may cause concern, Fleming signals homebuyers will end the year on jolly note.  

“While the monthly average for the 30-year, fixed-rate mortgage increased from 4.83% in October to 4.87% in November, an early December decline in long-term Treasury bond yields will likely cause mortgage rates to decline in December – a likely early Christmas present for consumer’s house-buying power,” Fleming said.

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