How to Win in a Slowing Market | Guest Post
Both closed units and volume dropped another two percent in August as summer came to an end and kiddos returned to school. Closed-to-list inched down to 99.46 percent as a majority of sellers found themselves negotiating to get their homes under contract. Anticipating the seasonal slowdown approaching, sellers put a few more listings on the market but ultimately remain 20-30 percent behind the previous four years. A lack of choices didn’t sway buyers from burning daylight viewing more homes before making a decision as Days-in-the-MLS popped up substantially. And what caused the 6 percent drop in mortgage purchase applications in August? Was it the jump in 30-year fixed mortgage rates to 7.5 percent? Or that everyone who wanted to buy already has?
On the economic front, a Sunday stroll of a slowdown is also happening. Talks of a swift hard landing, to a soft landing, to no landing now return to hopes of a soft landing after all, as the August unemployment rate surprised the markets by jumping from 3.5 percent to 3.8 percent. It’s worth noting that a rise of 0.5 percent in unemployment from the bottom has historically been a spot-on indicator of a recession, but is anyone sure this time? The big reason for the move up was adults over 16 are coming back to work or at least looking for jobs, as the labor participation rate increased by 0.2 percent. Not a huge surprise as credit card debt rose above one trillion in August, student loan interest resumes September 1st and the excess stimulus savings will be depleted by the end of September.
The BLS Jobs Report came out with a big 187,000 new jobs created but then revised June and July down by 110,000 jobs. All in all, confirming that the pace of hiring continued to cool in August. Hourly wages are also softening, as job switchers are no longer being swooned away from their current jobs for bigger paychecks and job stayers are faced with quiet cutting. Quiet cutting is a new phenomenon where companies eliminate a role only to reassign the employee to a lower position for less money. Additionally, the JOLTS report showed a significant drop in open jobs, closing 800,000 open positions. So, fewer options just as more people return to the job market.
This job market softening will begin to slow consumer spending, which is the tipping point for a slower economy, lower inflation and lower mortgage rates. Not yet, but soon. Consumer spending actually increased from 0.5 percent to 0.8 percent in August. Some want to chalk it up to Barbenheimer or Taylor Swift, but it was actually housing, portfolio management, investment services, food and recreational items that drove the increase. A little more spending, a little less saving. The savings rate dropped to 3.5 percent compared to the historical average savings rate of 8.8 percent.
Bad news is good news sometimes, as we watch a resilient economy show off its cracks. The Federal Reserve is set to meet again on September 20th, and all ears will be on Fed Chair Powell’s comments. But few, if any, believe another Fed rate hike is in store in September and only 35 percent of people now believe the Fed will raise it in November. So the question is less about how high they will go but how long will they hold. Time will tell. As Powell said, “We need to see two percent core inflation and a period of below-trend economic growth in addition to the softening of the labor market.”
So, what happens to rates and our affordability? They are hinging on the job reports and inflation. Mortgage rates dropped from 7.5 percent back to seven percent on fewer job openings and a revised lower quarter two GDP. Interestingly, we did not see rates rise back up with a higher annual PCE inflation since the market understood it was more math than anything else. When both the CPI and PCE are released next, they will replace a high 0.6 percent month-over-month number from August 2022, giving us a quiet little hope that rates may wane further. Notwithstanding global impacts like the Russia-Ukraine war or bank failures that kept rates from dropping earlier this year as projected. I do need to point out that the U.S. government is expected to run out of money and shut down on October 1st if Congress does not pass the 12 appropriations bills needed to sustain funding for the new fiscal year. A little much for today? I get that.
Here’s the bottom line: the road is not straight, and per Jerome Powell, “the mission is not complete.” So, in the meantime, we have a choice. Be fearful and negative, or charge into the uncertainty with strategy and passion, break down the fear with education and empathy and face winter and plan for spring. This is where market winners and financial futures are made.
Well, that’s a wrap. Until next time, this is Nicole Rueth with the Rueth Team. It’s my pleasure to keep you updated.
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