Weekend Talking Points - 'Drift'

Mortgage rates have drifted higher since the Fed rate cut, as job openings (JOLTs) and job growth (ADP) came out stronger than expected, and Fed Chairman Jerome Powell talked up the economy’s strength. The big BLS jobs report is out today!

Jerome Powell, the party pooper. In a recent presentation, the Fed Chairman strongly suggested that two 25 bps cuts before year-end were much more likely than one or more 50 bps cuts. He said that the economy was strong and the labor market was solid. Naturally, the bond market didn’t like these less-dovish comments. [Federal Reserve]

TP: If the economy and jobs situation is so strong, then why did (almost) every Fed member agree to cut rates 50 bps on September 18?

Early, but encouraging signs. Are lower mortgage rates finally starting to revive demand? The Mortgage Bankers Association said that applications for purchase mortgages rose 9% YoY last week. The NAR said that its Pending Home Sales Index rose 0.6% MoM in August. Redfin’s buyer Demand Index was up 1% YoY in September, the first positive figure in a year.

Inventory jumps again. The nation’s active inventory (listed homes excluding those under contract) rose 3.5% MoM (+34% YoY) to 941K. That’s the highest figure since January 2020. But because inventory levels are seasonal and tend to peak around Sep-Oct, it’s still 23% below September 2019. [Realtor.com]

It’s jobs week again!
JOLTS: Job openings rise, but hire rates stay low. The latest JOLTs (Job Openings and Labor Turnover) report showed that total job openings rebounded 4% month-over-month in August to 8.0 million (was 7.7m in July). However, the hire rate was just +3.3% for the month, the lowest since Oct 2013 (excluding the onset of COVID). [BLS]

TP: Companies tend to stop hiring before they start firing. As the chart below illustrates, a steep decline in the hire rate has historically been coincident with a recession (gray bars).

ADP: Job growth rebounds, but wage growth eases. Private employers added 143K jobs in Sept (was +103K in Aug). While that’s a chunky monthly bounce, I’d note that the 3-month moving average continues to trend downward. In addition, the annual wage growth for “job changers” plunged to 6.6% YoY (from 7.3% in Aug), while the annual wage growth for “job stayers” eased to 4.7% YoY (from 4.8% in Aug) [ADP]

TP: Should I stay or should I go now? That’s the question workers are always asking themselves. During the pandemic, you could make a lot more money by switching jobs, but today the premium for switching (vs. staying) is just 1.9% annual wage growth. Example: If you stayed at your job, you’d get an annual wage growth of 4.7%, but if you left, you’d get an effective 6.6% annual pay rise. (6.6% — 4.7% = 1.9% premium in the graph above.)

Big BLS jobs report out today (Friday). Consensus expectations are for jobs growth of +140K in September (was +142K in August), with the unemployment rate expected to be steady at 4.2%. [BLS, Trading Economics]

Mortgage rates climb. Average 30-yr mortgage rates have increased 14 bps (0.14%) since September 17, the day before the Fed rate cut. Why? First, a lot of good news had already been “priced in” before the decision. Second, since then, the economic and jobs data has been admittedly mixed. [Mortgage News Daily]

Still feeling locked-in? According to Realtor.com’s analysis of FHFA data, 84% of outstanding mortgages have an interest rate below 6%. 75% have a rate below 5%. 56% have a rate below 4%. But…16% (that’s ~8 million residential mortgages) have a rate above 6%. [Realtor.com]

Taking Inventory

As a housing data freak, I look forward to the latest monthly data from the Realtor.com Residential Listing Database, which offers key metrics (median listing price, active inventory, days on market etc.) at the national, state, and metro level. The September 2024 data just dropped, and here’s what stood out to me.

• After a huge decline during the pandemic, the active inventory is once again approaching 1 million. In September 2024, active inventory rose 3.5% MoM to 941,000, the highest level since January 2020.
• That said, the nationwide inventory is still 22% below where it was in September 2019 (pre-pandemic).
• 34% of the active inventory in September 2024 came from three states: Florida (15%), Texas (12%), and California (7%). Those three states make up ~26% of the US population.
• 27% of the new listings in September came from the same three states: Florida (10%), Texas (9%), and California (8%).
• 8 states now have inventory levels ABOVE where they were in September 2019: Tennessee (+11%), Idaho (+10%), Texas (+10%), Florida (+9%), Colorado (+4%), Utah (+4%), Arizona (+3%), and Washington (just above 0%).
• The 7 states where inventory levels are still far BELOW where they were in September 2019: Connecticut (-71%), New Jersey (-63%), Illinois (-62%), Rhode Island (-58%), Vermont (-57%), New Hampshire/Maryland (-52%).

Mortgage Market

Here are the current odds on Fed rate cuts at upcoming FOMC meetings. Note that the current Fed Funds Rate policy range (AFTER the 50 bps cut) is 4.75–5.00%.

• Nov 5: US presidential election.
• Nov 7 FOMC Meeting: 65% probability of a 25 bps cut (way up from 39% last week!); 35% probability of a 50 bps cut (way down from 61% last week).
• Dec 18 FOMC Meeting: 42% probability that rates will be 50 bps below current levels (two 25 bps cuts in Nov & Dec), 46% probability that rates will be 75 bps below current levels (a 50 bps cut at one of the two upcoming meetings).

They Said It

“Stronger hiring didn’t require stronger pay growth last month. Typically, workers who change jobs see faster pay growth. But that premium over job-stayers shrank to 1.9 percent, matching a low we last saw in January.” — Nela Richardson, ADP’s Chief Economist

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