The slowdown in the U.S. labor market adds more hurdles for a housing sector already struggling with affordability. Potential homebuyers are finding it challenging to save money due to ongoing inflation and an uncertain job market.
According to the Bureau of Labor Statistics, a jobs report released recently revealed that the U.S. economy lost 23,000 jobs in July. This was unexpected, as economists had anticipated an increase of around 80,000 jobs. Interestingly, the unemployment rate did drop to 4.1%, but that was mostly because more people left the workforce.
“The labor market really supports the housing market,” said Joel Berner, a senior economist at Realtor.com, in a conversation with FOX Business. “When individuals feel insecure about their jobs and income, they are less inclined to make significant purchases like a home.”
Berner described the July jobs report as a “pretty rough report,” noting the loss of jobs and that wage growth wasn’t keeping up with inflation.
“This isn’t a great situation for housing,” Berner mentioned. “It affects people’s confidence and, you know, also how much they can save up for a down payment.”
He referenced the declining participation rate in the labor force, suggesting this could lead to slower employment and wage growth, along with less competition among workers for higher wages.
“Basically, what it spells out is that wage growth is likely to trail behind inflation, making it tough for people to save and, consequently, buy a home,” he added.
Mortgage rates have been climbing recently and are expected to stay around current levels for the foreseeable future. This scenario doesn’t provide much relief for homebuyers when it comes to affordability.
“In a high mortgage rate climate, where rates have just hit their highest point this year, it creates a tough situation, especially for first-time buyers,” Berner explained.
“The affordability crunch is coming from multiple angles—earlier, saving for a down payment is difficult, and then mortgage costs add pressure at higher interest rates,” he remarked.
Berner anticipates the high mortgage rates will persist, especially as the Federal Reserve seems more inclined to increase rates to manage inflation, despite the sluggish labor market.
“I think we’ll be stuck with this mortgage rate situation for the remainder of the year,” he noted, suggesting a continued soft market.
“Listing prices have shown some slowdown this year, and sales activity is a bit more lively than last year, but it’s simply buyers and sellers engaging at a more steady pace than in previous years,” Berner said.
On the flip side, this high mortgage rate environment might dampen demand among potential homebuyers. This could result in lower prices and a decreased influx of properties on the market, as sellers hesitate, thinking, ‘Will I get the price I want for my house?’ and often decide against selling.
