Following the desperate debt crisis in early June, and despite higher rates in May, the U.S. labor market is still showing few signs of cooling down as employers added nearly 340,000 new jobs last month—well above expectations and raises the prospect that the Fed may have to raise rates one more time to help get inflation under control, according to a recent report from the California Association of Realtors (CAR).
Meanwhile, in spite of higher interest rates and rising economic uncertainty, California’s housing market continues to get more competitive as demand outstrips available supply. Sales appear to have risen slightly in May, but inventory remains extremely tight, said the report.
According to the CAR report, new home listings had already begun to decline in May, when they typically increase through the summer. As a result, homes are selling much more quickly than they were a few months ago—a median of 15 days last week vs. 42 days back in January.
The report added that, although the Freddie Mac primary mortgage market survey showed that the average 30-year fixed rate mortgage (FRM) for the week ending June 1, 2023 climbed to 6.79%, the eventual debt ceiling agreement helped to bring the daily mortgage rates down from 7.14% earlier in the week into the high-6s once again.
Since rates have already jumped, the report noted, the decline in mortgage demand has begun to slow and new applications are declining by less each week.
The purchase index, however, remains depressed and homebuyer demand is expected to remain below pre-pandemic levels, as rates remain in the 6-7% range in hopes of a cooling inflation rate.
While the feds continue to battle inflation, said the report, the labor market continues to outperform expectations. There were 339,000 net new jobs created in the U.S. economy in May, well above the consensus forecast. Thus, the labor shortage that began during the pandemic—due to both the shutdown of the service sector and early retirement—remains stubbornly high, the report noted.
With wage growth playing a significant role in the ongoing inflation battle, the job numbers keep pressure on the Feds as markets nervously anticipate one more raise in rates, at their upcoming meeting on June 13-14.
Meanwhile, although more jobs were created in May, consumers have now begun to worry about job prospects in the future, said the CAR report.
And while consumer confidence dipped in May, the dip was slight.
There were fewer ‘plentiful’ job opportunities and fewer workers are now quitting jobs than even the pre-pandemic levels, the report said, but as jobs become less abundant, that might ease inflation, but might also mean less wage growth.
Added to rise in credit card, debt, and less available credit consumers mayto take a step back after the high powered economy and economic growth of the past three years.
The report also noted that plans to buy big-ticket items in the near future, were you in down across the board in May.
More buyers are also paying premiums, as roughly 50% of all sales closed above list price in the past two weeks, said CAR, after having dipped to just 20% of the market at the start of the year.
