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The U.S. economy continues to show resilience despite growing challenges. Consumers have grown weary of the future, although their confidence level about their current situation was still solid by historical standards. Their expectations slipped along with their confidence in the economy though for the months ahead. Signs of momentum easing in the housing market continue to appear in recent weeks. Higher home prices and high interest rates have contributed to a fall in mortgage demand to the lowest level since the end of 2018, which if continue would be a concern for the real estate market. Existing homeowners, on the other hand, have benefited from the robust price gains and accumulated a record level of home equity collectively.
The Unemployment Rate Remains Unchanged at 3.6% for the Third Straight Month: Despite a slight downshift in hiring from the previous month with the labor market growing at the slowest pace in over a year, the U.S. economy still added nearly 400K jobs in May. The ongoing solid pace of hiring has been fueled by strong demand and an increase in workers returning to the labor force. The labor force participation rate rebounded a tenth to 62.3% with 330k more workers joining the labor force. The labor market remained constrained and clearly unbalanced, however, and continued to add inflationary pressures on wages, albeit at a smaller clip. There are signs of hope that the labor shortages are no longer worsening though, as job openings declined nearly half a million in April.
Construction Spending Rose in April but Is slowing: Total construction spending has grown 12.3% from last year and improved on a month-to-month basis by 0.2% in April. Despite the monthly increase, the pace seemed to be slowing as the growth was a tick lower than March’s 0.3% upward revision. Residential spending keeps on growing despite rising costs though. In April, residential spending grew modestly at 0.9% from 0.7% in March and single-family construction spending alone grew 0.5%. Nevertheless, the housing market continues to be underbuilt as raw building materials and construction labor remained tight. While construction job openings grew year-over-year in April to the highest measure in the history of the data according to the National Association of Home Builders (NAHB), hiring in the construction sector ticked down to a 4.6% rate, suggesting a continued labor constraint in the construction industry.
Consumers Are Feeling Less Confident about The Economy amid Stubborn Inflation: Consumer confidence slipped 2.2 points in May to 106.4 from an upwardly revised 108.6 in April. The Conference Board’s consumer confidence survey showed high inflation expectations and rising interest rates were cooling consumers’ optimism and spending plans. Inflation remained top of mind for consumers, as higher prices continued to hit their wallets, while additional interest rate hikes pose a combined downside risk to consumer spending in the second half of the year.
Mortgage Rates Stay Flat but Will Likely Inch-up in the Coming Week: The average 30-Year Fixed Rate Mortgage (FRM) recorded in the first week of June dipped slightly on a week-over-week basis to 5.09% but remained significantly higher than last year’s level. Despite rates declining in recent weeks, daily movements suggest that rates could be trending up again. In fact, rates moved quite a bit higher on Monday (June 6th), with the average conventional 30 Year FRM reaching the highest level in nearly a month according to numbers reported by Mortgage News Daily.
Housing Equity Reaches New High: With home prices rising rapidly in the past two years, collective home equity hit a new record high in the U.S. According to an analysis from Black Knight, the amount of money mortgage holders could pull out of their homes while still keeping 20% equity cushion increased to an unprecedented $1.2 trillion in the first quarter of 2022. That is the largest quarter-to-quarter gain since 2005! Mortgage holders’ tappable equity was up 34% year-over-year in April, and the total tappable equity was at $11 trillion, twice the amount in the previous peak in 2006. On average, it is equivalent to $207,000 per homeowner.
If you're ready to discuss today's market and whether now is a good time for you to buy or sell, give me a call at (562) 900-9430.
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