Cooling Labor Market Solidifies Case for Fed Cut as Housing Shifts Toward Buyer Market Power

The housing market today is vastly different from the one that homeowners bought into decades ago. The affordability picture has shifted dramatically as home construction has lagged, yet the months supply signals more buyer market power than at any time in roughly the past decade. 

The substantial equity longtime homeowners have accrued, likely a multiple of their original purchase price, gives them options. If they choose to sell, they may just need extra time and some expert guidance to acclimate to all of the shifts.

The already high hope for an interest rate cut from the Federal Reserve has been strengthened after Friday’s jobs report from the U.S. Bureau of Labor Statistics shows that, while hiring continued, the pace slowed yet again. Employers added a net 22,000 jobs to payrolls. Nevertheless, unemployment was little changed at 4.3%, and wages continued to advance.

Data on July labor turnover showed that the gradual slowdown in the labor market has led to a significant milestone: The number of unemployed job seekers outnumbered job openings for the first time since April 2021.

There was already near-certainty among investors that we would see a Fed rate cut in September, and neither the jobs report nor potential personnel changes seems to have altered that sentiment. At the next Fed meeting, I’m watching to see what the Fed’s projections suggest about its views on economic growth and appropriate policy over the next year or so.

As we move closer to the anticipated Fed rate cut, mortgage rates edged lower, dropping to 6.5%, their lowest in 11 months. 

The improvement is good news for those currently shopping, and may spur refinancing among those who took on mortgages two years ago, when rates were highest. 

Nevertheless, it’s likely not low enough to spur significant unlock for existing homeowners with a mortgage, 81% of whom have a rate below 6%.

Underscoring that point, weekly data shows that new listings continue to grow, but momentum has faded as price growth has flattened. Even as time on the market lengthens, active listing growth has also slowed. 

This data points to conditions that are not as favorable for sellers as we’ve seen in recent years, but a recent Realtor.com® analysis found that 1 in 4 homeowners has lived in their home for over 25 years, and their expectations could be benchmarked to a vastly different real estate market. 

Finally, as the country navigates hurricane season in the South and East and fire season out West, we issued a Climate Risk Report. We found that more than $12 trillion in real estate value is exposed to severe or extreme risks from flooding, hurricane-driven wind, and wildfire. 

These risks are spread unevenly, and this is reflected in variations in homeowners insurance costs that tend to be just less than 1% of a home’s value each year in many areas, but exceed 3% in some of the highest-cost markets.