Weak Jobs and Sticky Inflation Pull Housing Two Ways
Two economic readings arrived within weeks of each other, and they point in opposite directions for the housing market. Payroll growth in September was weak, while inflation stayed well above the Federal Reserve’s target. Both were summarized in a Scotsman Guide report on the September Fed minutes, and together they explain a good deal about why housing activity has stalled near four million sales a year.
Housing responds to the economy through two channels at once. Jobs and income determine who can afford to buy, while inflation and the central bank’s reaction to it determine what borrowing costs. When the two channels disagree, the result is a market that neither booms nor collapses and instead moves sideways.
Hiring slowed sharply
Nonfarm payrolls rose by 29,000 in September, short of forecasts above 80,000, and the Bureau of Labor Statistics revised the prior two months down by a combined 60,000 jobs. Slower hiring tends to cool demand for homes, because households that feel less secure about their income are less willing to commit to a 30-year loan. Revisions matter as well: a downgrade to earlier months means the labor market had less momentum going into September than first reported.
Inflation stayed high
August PCE inflation, the price measure the Federal Reserve prefers, came in at 3.4% overall and 3.0% for the core measure that excludes food and energy. Both readings were below the 3.7% and 3.3% consensus but far above the Fed’s 2% goal. The Scotsman Guide report said Fed staff had projected even higher readings. The video above, from Bloomberg Television, reports on a more recent consumer price release and describes the pace of price increases as the fastest in five months.
Persistent inflation keeps long-term Treasury yields elevated, and mortgage rates tend to follow those yields. A lender prices a 30-year loan by asking what investors would otherwise earn on a long-dated government bond, then adds a margin. When bond yields stay high because inflation stays high, mortgage quotes stay high too, regardless of what the labor market is doing.
Why housing feels both pressures
A buyer facing a softer job market and a rate near 7% is squeezed from two sides. Income feels less certain at exactly the moment financing costs more. A seller who locked a low rate years ago faces the mirror image, since moving means giving up that rate for a much higher one. That reluctance keeps listings scarce, which in turn props up prices even though demand is weak.
The combination helps explain why sales hover near four million a year while prices still edge higher. Weak demand would normally push prices down, but constrained supply offsets it. Both forces are being held in place by the same interest-rate environment, and neither can move far until rates do.
The next Fed meeting
The Federal Open Market Committee meets October 27 and 28. Market odds for an October increase differed sharply between mid-September and early October according to the sources linked here, so the outcome will move rate quotes in either direction. A useful habit for buyers and sellers alike is to check the weekly figure at Freddie Mac instead of relying on any single day’s headline, since daily swings can reverse within a week.
The central bank’s decision is covered in more detail in the post on the September Fed minutes.
This article reports published figures for general information. It is not financial, legal or lending advice, and every number reflects the date of its source, so confirm current figures before acting on them.
