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Despite fears of a looming recession, unemployment remains low. That’s both very good and very bad for the housing market.
The U.S. added more than 300,000 jobs in March, the Labor Department reported on Friday. That brought the unemployment rate down to 3.8% from 3.9% in February.
A low unemployment rate is good for the housing market because most people don’t buy homes if they’re unemployed—or worry they’re about to be laid off.
However, it also means the U.S. Federal Reserve may hold off cutting interest rates for a little longer as it tries to bring inflation down to its 2% target. This is expected to keep mortgage rates higher for longer. (While mortgage rates are separate from the Fed’s rates, they typically follow the same trajectory.)
“It’s a mixed bag,” says Danielle Hale, chief economist of Realtor.com®. “The weaker the labor market appears, the more likely we’ll see rate cuts sooner. But the more likely it is people will struggle to find jobs and not be interested in making large purchases like homes.”
Mortgage rates averaged 6.82% in the week ending April 4, according to Freddie Mac. That’s down about a percentage point from the fall, when rates were nearing 8%.
But it’s far from rates in the high 5% and low 6% ranges that many homebuyers—already dealing with high prices and fierce competition over a limited supply of homes on the market—had been dreaming of this spring.
“Some had been hoping that the Federal Reserve would cut interest rates at its June meeting,” Bright MLS Chief Economist Lisa Sturtevant said in a statement. The multiple listing service covers the mid-Atlantic region. “However, with today’s strong jobs report, it is all but certain that the first rate cut won’t be before July. As a result, mortgage rates are likely going to stay elevated for longer.”
That could be a challenge for buyers as the housing market kicks off in earnest.
“Homebuyer demand is still strong, but there will be some prospective homebuyers who are going to wait for rates to come down later this year,” Sturtevant said. “The traditionally busy spring housing market could be pushed into summer—or even into the fall—if buyers hold out for the Fed’s rate cut and subsequent drops in mortgage rates.”
Those who do wait might find more homes available to purchase. About 39,000 people were hired in the construction industry in March. That is expected to translate into more homes going up at a time when they are desperately needed to ease the housing shortage.
“More housing supply is on the way in future months,” Lawrence Yun, chief economist of the National Association of Realtors®, said in a statement.
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