Jobs and The Cost of Housing: The Weekly Market Update

Jobs and The Cost of Housing
Jobs and The Cost of Housing

Raises and Housing Prices

Last week we counted our blessings with regard to the shape of the economy. This week we will talk about the release of the June jobs numbers which give us another reading regarding the health of the economy. Overall this reading was stronger than forecasts. Thus far this year, job growth has been solid, with just over one million jobs created in the first half of the year. This compares to 2.2 million jobs created in 2016, which puts the economy on track to match last year’s numbers. Despite strong jobs growth for the month, the unemployment rate rose to 4.4% last month, but that is not necessarily a bad thing, as it typically means that more long-term unemployed are re-entering the workforce.

Just as important as the jobs created, wages increased by 0.2% last month and 2.5% over the last year, which was slightly lower than economists expected. Higher wages are important, because they positively influence consumer spending for big ticket items. For example, if wages do not go up as fast as the cost of housing, this provides a burden on renters and discourages home buying as well. Recently, home price data for April, as measured by the S&P CoreLogic Case-Shiller National Home Price Index, showed another record high — the fifth consecutive month of new peaks. Does that mean that housing will become unaffordable?

We caution you against reaching that conclusion. The First American Real Home Price Index currently shows that housing prices are still around 33% below their peak. To calculate the “real” cost of housing under the Real Home Price Index, incomes and mortgage rates are used to inflate or deflate house prices which are unadjusted for inflation in order to better reflect consumers’ purchasing power and capture the true cost of housing. It should be noted that lower interest rates do not directly benefit renters. The message? As long as rates stay low, housing is still more affordable today than it was when peak prices were achieved a decade ago.

The Weekly Market Update

Rates moved off their lows for the year for the first time in several weeks. For the week ending July 6, Freddie Mac announced that 30-year fixed rates rose to 3.96% from 3.88% the week before. The average for 15-year loans increased to 3.22%, and the average for five-year adjustables moved up to 3.21%. A year ago, 30-year fixed rates averaged 3.41%. Attributed to Sean Becketti, chief economist, Freddie Mac -- "Global interest rates turned up sharply over the last week. The 10-year Treasury yield was no exception, increasing 10 basis points in a holiday-shortened week. The rate on 30-year fixed loans followed suit, rising 8 basis points to 3.96 percent."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.