Unemployemnt Lowest in Nearly 2 Decades

Unemployment statistics are promising but it may not be what you think. So far this year, job growth has actually been slower than anticipated, yet employment numbers continue to drop… more on the reason for that below. So what does this mean for our Real Estate market?

Higher unemployment was one of the main factors in the lengthy recovery of the Real Estate market. As of this past April, unemployment is below 4 percent, a strong enough statistic to give the Fed confidence to raise interest rates again this week. There’s no denying that low mortgage interest rates were a welcome advantage for home buyers, but low interest rates are generally an indicator of a bad economy, dashing the hopes of many home sellers. There must be balance in a strong financial market of any kind.

In our current Real Estate market, home buyers still outnumber home sellers, home prices are rising, mortgage interest rates are rising, new construction is flat. This is not yet a balanced market but considering we are in the ‘selling season’ and at the same time experiencing a ‘sellers market’, I think the cycle is fairly predictable. Even putting selling-season aside, all other conditions are ideal for home sellers to enter the market. Oddly the same goes for home buyers because from here until our next market peak, they’ll only be chasing prices and interest rates up.

Economy Experiencing Milestone Unemployment

By Suzanne De Vita

April brought the economy 164,000 jobs, and 3.9 percent unemployment—below 4 percent, and the lowest rate in roughly 20 years.

Though the additional jobs were less than predicted, the figure is promising, analysts say.

“The U.S. labor market continues to tighten, although job growth in April was 164,000—a little below expectations,” said Gad Levanon, chief economist, North America, for The Conference Board, a consumer confidence measurer, in a statement.

“The tightening labor market is a result of a simple reality: When the working age population is barely growing, even moderate job growth is enough to significantly tighten the labor market,” Levanon said. “Based on present data, there is no reason to believe that this trend will stop anytime soon, meaning a much tighter labor market a year from now.”

Another four cents were tacked on to wages, bringing the average earnings to $26.84 per hour. Earnings have grown 2.6 percent year-over-year—behind the growth in home prices, which in February increased 6.3 percent, and are expected to keep rising.

Earnings can and do influence policy; the Federal Reserve indicated it intends to raise rates three times total in 2018 but can change course if there is a pick-up in wages. The Fed carried out one of those increases in March and will announce its decision to either again hike or hold rates in June.

“Overall, with solid economic and job growth, a strong labor market, and an inflation rate that is about to surpass the Fed’s target, there is nothing to hold back the Fed from continuing on its present path towards full interest rate normalization,” said Levanon.

Borrowing costs can be impacted by a rate rise; though the average 30-year, fixed mortgage rate recently slipped, overall, it has risen sharply since the start of the year.

Additionally, construction jobs were unmoved—a persistent problem for the housing market, where a lack of labor is contributing to falling levels of supply. According to the National Association of REALTORS® (NAR), compared to 2017, there are 7.2 percent fewer homes on the market today—and, although homebuyers have more to spend, the ensuing interest squeezes supply tighter.

“Another month of job additions implies more households are in a position to buy a home; however, recent existing-home sales activity, at around 5.5 million per year, is well below its potential,” said Lawrence Yun, chief economist of NAR, in a statement. “That’s because similar home sales were occurring during the 2001-2002 period, when the housing market was considered fairly normal and somewhat boring, and well before the subprime-led bubble.

“Today, there are more than 16 million more jobs compared to back in 2002, yet home sales are running essentially even, meaning there is plenty of pent-up housing demand,” Yun said. “What is needed is new supply and new-home construction. The number of construction workers is rising, but is insufficient, even though the average wage rate of a non-supervisory construction worker, at $27, is much higher than the average wage of all workers, at $22 per hour.”

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Bill Salvatore / Arizona Elite Properties
Residential Sales, Marketing, and Property Management

Founder: AZVHV ⋅ MEMBER: Heroes Home Advantage
Voted East Valley Tribune’s: Best Gilbert Realtor

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