Weekly Economic Update

Economic News:

Key Indicator – The Jobs Machine

A possible recession could happen in 2024.

Well, it is settled. There will not be a recession in 2023 despite the fact that just about every market analyst was predicting one to start this year. This does not mean that a recession won’t hit in 2024. As a matter of fact, we are convinced that a recession is more likely now that more analysts are not predicting one. You can tell what we think of economic forecasters. Why did we not have a recession in 2023, despite the Federal Reserve jacking up interest rates to levels not seen for many years? One word – jobs.

We have made this statement again and again. You can’t have a recession in an economy that is producing millions of jobs each year. People who have jobs spend money. September was a perfect example of this indicator.  The economy produces about a third of a million jobs. And retail sales beat expectations. This capped off a quarter that had a growth rate of close to 5.0%. That was not a coincidence. Again, we are not predicting the future, but if the jobs machine keeps humming, we are expecting no recession and the Federal Reserve to have plenty of fodder to keep interest rates higher for longer as a result. Thus, the question is – will the job market slow down so we can give the Fed some breathing room?

How did the jobs machine do in October? The economy produced 150,000 jobs last month, less than expected, but still a solid number. In addition, the previous two months of job gains were revised downward by 101,000 jobs, which took some steam out of previous data. The unemployment rate rose to 3.9%. Overall, that was a moderate report, finally showing some easing of the hot jobs machine. While the Fed met last week, they may not have raised rates, but they were watching this report closely to see what they should do before the end of the year and beyond. Especially important to them was wage growth, which came in 0.2% monthly, lower than expected -- though annual gains still hovered around 4.0%. All in all, good news for interest rates in the short-term and long-run.

MBA's 2024 Outlook

Policies contributing to higher interest rates.

The Mortgage Bankers Association’s 2024 outlook was presented at its 2023 Annual Convention & Expo by Mike Fratantoni, Chief Economist and Senior Vice President for Research and Industry Technology; Joel Kan, Vice President, Deputy Chief Economist; and Marina Walsh, CMB, Vice President of Industry Analysis. According to Fratantoni, the U.S. economy has been resilient throughout 2023, but MBA is forecasting that the combination of higher interest rates, tighter credit conditions, and a depletion of pandemic-era household savings will lead to a mild recession in the first half of 2024. “Both fiscal and monetary policies have contributed to the much higher level of mortgage rates in 2023,” said Fratantoni. “The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected. Lower rates should help boost both homebuyer demand and increase the inventory of existing homes, thereby supporting purchase origination volume in 2024. The job market will likely slow as we enter 2024, with fewer jobs added and the unemployment rate increasing from its current rate of 3.8 percent to 5.0 percent by the end of 2024. Inflation will gradually decline towards the Fed’s 2 percent target by the middle of 2025,” Fratantoni continued. Fratantoni believes that as the economy slows and inflation moves lower, longer-term rates will decline from current levels, helping to bring mortgage rates lower. However, the spread between mortgage and Treasury rates remains roughly 120 basis points wider than typical, due to a combination of factors. MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1 percent and reach 5.5 percent at the end of 2025, as Treasury rates decline and as the spread narrows. MBA expects national home prices will grow over the next three years, as tight inventory supports price growth. Kan emphasized that first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages. There will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, particularly for entry-level homes, and credit availability is low. “New home sales continue to be stronger than existing-home sales, as buyers increasingly turn to newly constructed homes given the dearth of existing home listings and how competitive the bidding process still is. Data from our Builder Applications Survey have shown solid year-over-year gains in purchase applications in recent months,” Kan said. (Source: The MBA)

Real Estate News:

Homebuying: The Family Factor “I Do” -- Want a Home!

Creative financing for home buyers.

Amidst the challenging landscape, there's been a notable trend: couples planning to wed are looking at innovative ways to finance their dream homes. Zillow Home Loans and The Knot conducted an analysis revealing an increasing number of couples are registering for home funds on their wedding registry. According to The Knot, "home funds" on wedding registries have surged by 55% since 2018. Nearly one in five couples on The Knot now ask wedding guests to contribute towards their down payments. Esther Lee, deputy editor of The Knot, stated, "It's heartening to see couples personalizing their registries to align with their goals, such as achieving the significant milestone of homeownership."

Zillow’s data underscores the struggles faced by first-time buyers in today's market. Affordability remains a key challenge, with the average monthly mortgage payment doubling since before the pandemic. However, it's not all bleak. Many first-time buyers are putting down less than the traditionally perceived 20% for their homes. And a significant portion, about one-third, receive grants to help with their down payment, especially buyers of color. While the housing market's future remains uncertain, it's clear that individuals and couples are continuously adapting, seeking innovative solutions to achieve the dream of homeownership. (Source: National Mortgage Professional)