A soft landing is looking more and more likely for the economy in 2024, said a report from the California Association of Realtors (CAR) this week.
The report added that a strong jobs report for the third month in a row and a decent growth rate in economic activity are also keeping inflation elevated and delaying the Federal Reserve’s move to cut rates any further soon.
The U.S. economy added another 303,000 jobs in March, exceeding economists’ expectations, and well above the average monthly gain of 231,000 jobs over the prior 12 months, as HousingWire.com recently reported.
According to data released by the Bureau of Labor Statistics (BLS) last Friday, jobs increased in March, up from a revised rate of 270,000 in February.
The national unemployment rate also changed little at 3.8%, down from 3.9% in February, still below the full employment rate of 4%. Since August 2023, according to the BLS, the unemployment rate has hovered between 3.7% and 3.9%. The number of unemployed Americans also remained at a somewhat steady 6.4 million.
“Some had been hoping that the Federal Reserve would cut interest rates at its June meeting; however, with today’s strong jobs report, it is all but certain that the first rate cut won’t be before July,” Bright MLS chief economist Lisa Sturtevant said in a statement. “As a result, mortgage rates are likely going to stay elevated for longer.”
Wall Street has adjusted its expectations on the number of cuts accordingly. Despite the change in expectations, said CAR, futures contracts continue to point to a 50-75 basis-point (bps) decline in policy rate this year.
Hiring remains a big economic story as the numbers came in much stronger than expected again, at the end of the first quarter, with nonfarm payrolls adding a seasonally adjusted 303,000 jobs in March.
According to the CAR report, last month’s report easily topped consensus expectations of 200k. The health care sector remained strong with an employment gain of 72k in March, followed by government (71k), leisure and hospitality (49k), and construction (39k).
Unemployment slipped down to 3.8% as a result of the strong jobs growth, despite a tick-up in labor supply. The labor force was at a four-month high, as the participation rate rose 0.2% to 62.7% in March.
Wage growth was consistent with Wall Street estimates, said CAR, with average hourly earnings rising 0.3% month-over-month, but slowing to a nearly three-year low of 4.1% year-over-year. The latest jobs report continued to suggest that the labor market remained solid, which might have provided more reasons for the Fed to stick with its wait-and-see approach to cuts.
Fallout from the rise in California minimum wages will likely be factored in over the coming month. The new state law, AB 1228, which went into effect on April 1, added sections 1474, 1475, and 1476 to the Labor Code, and increases the minimum wage for “fast food restaurant employees” to $20 an hour and established a Fast Food Council, which is empowered both to make future increases to the minimum wage and to adopt other minimum employment standards for fast food restaurants.
The strong jobs report could also affect how the Fed can keep rate cuts on track this year, said the CAR report.
“At the end of 2023, Wall Street was expecting the central bank to cut rates by 100 bps to 150 bps in 2024. Reports have shown that the economy is more resilient than previously thought and economists have adjusted their expectations downward since then,” said the report, which added, “More investors are now speculating that the Fed may cut its policy rate just once or twice before the end of the year.”
This likely has translated into a decline in Home Purchase Sentiment (HPS).
According to fanniemae.com, the Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 0.9 points in March to 71.9, its first decline since November 2023, due primarily to increased pessimism about the direction of mortgage rates.
Thirty-four percent of consumers now believe that mortgage rates will go up over the next 12 months, up from 32 percent last month and more than the 29 percent who believe rates will decline. Sid the report.
Despite the jump in pessimism toward rates, consumer perceptions of both homebuying and home-selling conditions ticked up slightly again in March, and both measures have now risen multiple months in a row. Overall, though, the lack of housing affordability continues to weigh on consumers’ belief that it’s a “good time to buy” a home, with only 21 percent agreeing with that particular sentiment. The full index is up 10.6 points year over year.
“The HPSI remained relatively flat in March, but we’re seeing signs that consumers may be adjusting their expectations for the housing market to better accommodate the higher mortgage rate and home price environment,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist.
“Both our ‘good time to buy’ and ‘good time to sell’ measures continued their slow upward drift this month. However, consumers took a slightly more pessimistic view on the likely direction of mortgage rates, likely reflecting the fact that actual mortgage rates have moved upward since the start of the year.”
