Last week’s big news was inflation readings – both the CPI and PPI came in really pretty and mortgage bonds had a great reaction. I could dive into those numbers because it’s fun, but I feel like I need to address the elephant in the room. I know you guys wait on the edge of your seat for these updates, I know you lose sleep when they don’t show up in your inbox, I know you think about me and what my take is on the market more than you want to admit. And I know I went dark on you right after that strong jobs report came out. So I feel like I need to redeem myself.
First, I was out of town for the Fourth, not fired. Sandi delivers jokes a little too seriously sometimes and I apologize to those of you who were upset. Or should I apologize to those of you who were upset to find out it was a joke…. while I was gone, interest rates shot up. I actually did consider not coming back because it really wasn’t pretty here. The culprit? This hot ass jobs report that came out for June. Over 200,000 jobs added!
But that’s only the headline number. The headline number moves markets. So it sucked. But we have to look a little into this because it’s just as fishy as it seems. If we subtract monthly revisions which were 110k for the prior two months and the Birth/Death add on of 60K – there were actually only 39,000 jobs added. The Birth/Death add on is for small businesses and they don’t get surveyed for the payroll report. And there were some interesting nuggets behind the scenes, within the report.
1. Government jobs were 60,000 up. So that means the private sector didn’t gain any jobs at all, it actually lost over 20,000 jobs.
2. Initial unemployment claims have skyrocketed and we are not 45,000 higher than we were seeing in February.
3. “We are hiring” announcements are down 87% from last year.
That’s all noteworthy information in looking at what’s really happening in the job market and consequentially what we could see for the overall economy very soon. I haven’t gotten to the real kicker yet though – there was a big uptick in second jobs. This means a ton of Americans are having to get another job just to make ends meet. So while this jobs report wasn’t what it appeared on the surface, I think our Fed is pretty shallow.
So I’m going to have to eat my words.
Based on the “strong” labor market, I think the Fed will hike next week – 25 bps. I know, I told you it was fake news and they were bluffing. A piece of me still hopes I wasn’t misleading you but…the smart folks are building it in – and by “it” I mean a rate hike - with 100% certainty.
The silver lining is that the more aggressive the Fed is, the more likely we are to have other economic problems. I know, I’m horrible for saying that’s a silver lining but I’m looking at this from the perspective of real estate which is heavily driven by interest rates. As we’ve discussed here, a recession would be good news for interest rates because while that kind of economic uncertainty isn’t great for equity markets – it is favorable for fixed-income investments like bonds. If the demand for bonds is good, mortgage rates will stop being so fired up. Plus, if a recession becomes glaringly apparent, the Fed may cut their rate.
There’s no going back.
The other reason I was MIA was that our team was at the Forward Event in Las Vegas. We got major insight into branding and marketing trends as well as real estate news. We’ll be going over the branding gold we got at the next Mortgage and Mimosas – I’m planning that for after the kids all go back to school. So for my realtor partners out there: Save the date for August 22nd. My goal is that you’ll leave that class telling yourself “I am the person you should never, ever bet against that’s why clients want me on their side in this market.” It’s going to be about mindset and marketing, my two favorite things.
Are the next six months going to be harder than the last?
It’s possible. Not because of a lack of demand from buyers but because we have hit a really bad point in terms of inventory. We have a 3.1-month supply nationwide right now. We could double that supply and the demand easily absorb it, according to Lawrence Yun who is the chief economist for the National Association of Realtors. So while June home sales numbers showed we were down almost 19% from last year, the median home price was the second highest it’s ever been. Supply and demand.
It's also important to note that most homebuyer activity is in that price range right now. And that’s why DRHorton is killing it. They are the nation’s largest homebuilder. They build homes at maybe not what we’d call an affordable price point but a lesser price point, so they’ve seen a 37% increase in new sales contracts.
What to do?
I’ll take a break from making predictions, because even I should note when it’s time to sit down. But I will continue with the cold, hard truths. The reality is this may not be the market for everyone to buy in. One point that no one can argue? This market is changing very fast. So if the numbers don’t make sense for you right this second, that’s ok. But, stay in the game. Keep in touch with your realtor, keep your preapproval up to date, keep a pulse on the market because all the experts agree – there is a lot of pent-up demand out there. So when the market starts to turn, you want to be ahead of the curve and ready to act quickly. NOT starting back at square one and watching the ship sail without you again.
You don’t have to get ready if you stay ready.