Housing MarketMortgage

What a dismal jobs report means for the housing market

A gain is a gain as 266,000 workers reenter the market

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April was supposed to be the month that proved America’s economy had definitively kicked back into full gear. After all, roughly one million jobs were added in March, roughly 40% of the population had achieved vaccination, and key sectors of the economy planned large-scale reopenings. Instead, the U.S. Labor Department reported that a mere 266,000 new jobs were created in April, far below projections. HousingWire spoke to housing market economists and mortgage industry veterans to get their take on how they believe the jobs report will impact the mortgage and housing industries.

April’s jobs numbers were so disappointing that the U.S Chamber of Commerce, the nation’s largest lobbying group, even called for an end to the $300-a-week federal unemployment benefits, claiming that people being paid not to work were keeping consumers from returning to the labor force.

While some on Capitol Hill scratched their heads over the lackluster numbers that kicked off the second quarter, economists within the housing industry noted that the economy that was still poised for significant growth.

Some speculated that the previous month’s report was impacted by seasonal adjustments. April is typically a robust month for job gains, but the normal seasonal pattern of employment has been greatly disrupted over the past year. Regardless, a gain is a gain, and the Bureau of Labor Statistics reported nearly eight million jobs are open for those seeking to reenter the market. The difficulty is getting the right people to find the right job.

“Recent weeks have seen increasing reports that employers are having difficulties filling open positions,” said Mike Fratantoni, senior vice president and chief economist of the Mortgage Bankers Association. “Additionally, supply chain challenges across the economy are likely impeding the pace of activity and pushing up input costs for many employers. We continue to expect robust job growth and housing demand through the remainder of the year, but this report suggests that the rate of improvement in the job market is going to be much less consistent than other indicators would suggest.”

More hammers, more homes

For those in residential building, the number of workers fell slightly (0.1%) month over month, but remains near the highest level since 2008. First American deputy chief economist Odeta Kushi noted that although the housing market continues to suffer from a lack of housing supply due to years of under-building, heightened employment in this sector will pay off in the long run.

“The prime-age labor force participation rate is also an indicator of likely wage growth,” Kushi said. “As the labor force participation rate rises, competition among employers for workers increases, leading to higher wages. With more vaccinations and businesses reopening, there is greater opportunity to draw residential workers off the sidelines.”

Throughout the near entirety of the pandemic, the housing market has been flagged as one of the most resilient sectors in the nation – mortgage originations totaled roughly $4 trillion last year, easily a record. But a lack of housing supply from a shrunken building force and competitive lumber prices have begun to overheat borrowers’ willingness to get into bidding wars.

“It’s part of a strong economy that there are people that have money to spend and want to invest in housing, but my hope would be, over time, housing builders can react to this demand and come up with more supply,” Federal Reserve Chairman Jerome Powell said in April.

Doug Duncan, chief economist at Fannie Mae, believes at the current pace, these unemployment numbers will likely not be enough to help ease supply constraints present in the homebuilding sector. However, Duncan said Fannie is still comfortable in its forecast of accelerated growth over the next few quarters.

“At the moment, builders seem able to pass rising input costs onto homebuyers as the supply of homes remains tight,” Fannie Mae’s economic strategic group said. “As long as homebuilders can keep up with buyer demand, we expect new home sales to remain strong in the near term due to the limited existing supply and low mortgage rates.

Speaking of low rates…

Historically speaking, higher rates symbolize an economy rejuvenated. However, for the third consecutive week, mortgage rates managed to remain under 3%, dropping three basis points last week to an average of 2.96%, according to Freddie Mac‘s PMMS.

“The expectation, and the realization, of stronger growth and a stronger job market puts upwards pressure on rates, fundamentally, through the rest of year,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting said. “The spending and stimulus bills needed to be funded somehow, and that is going to come from  Treasury auctions which is going to push rates upwards.”

However, because COVID is still a very present factor in market movement, the rest of the world’s economies aren’t rebounding as well on bond yields, essentially stifling mortgage rates from having massive upwards velocity.

The Federal Reserve has been unwavering in its stance on maintaining inflation at 2% before any form of new policy can be made. If inflation does rise above its target, it would put upward pressure on mortgage rates because investors who buy fixed assets use inflation as the mainstay of their calculation that determines the yield, or return, they are willing to accept.

Logan Mohtashami, lead analyst at HousingWire, believes that the Fed won’t make any large policy changes until nearly 80% of the workforce that was lost to the pandemic returns. The number of permanent job losers, at 3.5 million, is still about three times prepandemic levels, while the labor force participation rate in April went unchanged from March at 61.7%.

But rates will continue to respond to fluctuations in the 10-year treasury regardless of inflationary changes and unemployment.

“Don’t put all your weight in to this one report,” Mohtashami said. “The trends still look excellent and as long as jobless claims are falling and openings are high the economy will fix itself. We don’t need the entire country to walk free for the numbers to be able to perform on their own. To help the labor market and housing, its just going to take getting rid of COVID.”

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