Economists Predict No Interest Rate Cut Amidst Labor Market Conditions

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The U.S. Bureau of Labor Statistics reported This Week in Real Estate that the economy added 272,000 jobs in May, surpassing expectations. Economists now believe the Federal Reserve will maintain the current federal funds interest rate at its June meeting and may postpone any planned rate cuts for this year. The unemployment rate increased slightly to 4%, continuing a 30-month streak of unemployment at or below that level. Although the overall labor force participation rate declined to 62.5% from the previous month’s 62.7%, the participation among prime-age workers (ages 25-54) rose to 83.6%, the highest level in 22 years. According to ATTOM, lenders issued just under 1.3 million residential mortgages in Q1 2024, down from nearly 1.4 million in Q4 2023. The total dollar amount lent to homeowners in Q1 2024 was $405.6 billion, compared to $426.1 billion in Q4 2023 and $424.6 billion in Q1 2023. Despite inventory growth, housing supply remained approximately 40% below pre-pandemic levels in May. A supply-demand imbalance has a predictable consequence: rising prices. The result of continued home price appreciation is homeowner equity growth near record high during the first quarter of 2024. Below are a few newsworthy events from the first week of June that influence our business: 
U.S. HOMEOWNERS SEE EQUITY INCREASE TO NEARLY ALL-TIME HIGH IN Q1. CoreLogic released Homeowner Equity Report (HER) for the first quarter of 2024 showing that U.S. homeowners with mortgages (which account for roughly 62% of all properties) saw home equity increase by 9.6% year over year, representing a collective gain of $1.5 trillion and an average increase of $28,000 per borrower since the first quarter of 2023. This brought total net homeowner equity to more than $17 trillion at the end of Q1 2024. “With home prices continuing to reach new highs, owners are also seeing their equity approach the historic peaks of 2023, close to a total of $305,000 per owner,” said Dr. Selma Hepp, chief economist for CoreLogic. “Importantly, higher prices have also lifted some 190,000 homeowners out of negative equity, leaving only about 1.8% of those with mortgages underwater.” Read the full story here.
U.S. ADDS A MUCH-BETTER-THAN EXPECTED 272,000 JOBS IN MAY. The U.S. economy added far more jobs than expected in May, countering fears of a slowdown in the labor market and likely reducing the Federal Reserve’s impetus to lower interest rates. Nonfarm payrolls expanded by 272,000 for the month, up from 165,000 in April and well ahead of the Dow Jones consensus estimate for 190,000, the Labor Department’s Bureau of Labor Statistics reported Friday. At the same time, the unemployment rate rose to 4%, the first time it has breached that level since January 2022. Economists had been expecting the rate to stay unchanged at 3.9% from April. Following the jobs report, traders in the fed funds futures market reduced the possibility of a cut in September to about 56%, according to the CME Group’s FedWatch measure. That was down about 12 percentage points from Thursday. The market-implied probability of a second move lower in December fell to about a coin flip after being around 68% a day ago. The Fed has not lowered rates since the early days of the Covid pandemic in 2020 and hiked 11 times between March 2022 and July 2023. The benchmark federal funds rate is currently targeted between 5.25%-5.5%. Read the full story here.
MORTGAGE RATES FALL BUT ONLY SLIGHTLY AS HOME PRICES CONTINUE RISING. Mortgage interest rates fell this past week, but not by much. Rates for 30-year mortgages averaged just a hair under 7% at 6.99%, Freddie Mac reported in its weekly rates report. “Mortgage rates retreated this week given incoming data showing slower growth,” Freddie Mac Chief Economist Sam Khater said. “Rates are just shy of seven percent, and we expect them to modestly decline over the remainder of 2024.”  Nationally, home prices jumped by 0.6% in May, according to a Realtor.com report.   Read the full story here.

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