Impact Of Labor Numbers On Housing Market Remains Unclear

Despite an uptick in job numbers and an increase in personal incomes, there is still uncertainty about how the latest Labor Statistics Report will impact the housing market.

The latest jobs report from the U.S. Bureau of Labor Statistics shows payroll employment growth as 467,000 in January and an increase of job growth at 1.8 million in the last three months of 2021. The report also shows an income increase of 5.7% since this time last year.

In short, more people have jobs and nearly everyone is at least making a little more money.

Elizabeth Rose is a Financial Planner and Lender with Mortgage 300 based in Dallas, Texas. She says the numbers show a lot of positive growth, but maybe not as much growth as may be needed right now to have a significant impact.

“I know it was a good number and that a lot of jobs were added,” Rose said. “But if you look at the details, you see that so many of these are in the leisure and hospitality areas. Which is, quite possibly the lower-paying jobs. Also, when I drive down the street, I see McDonald’s is hiring for $17 an hour and Starbucks is offering $22 an hour. It’s the last of people getting work. They can’t find people willing to work. I wonder how much of that is playing into that 5% pop.”

Tom Smith is an economics professor that the Emory University Goizueta Business School. He feels the numbers may be pointing in a positive direction but may not be painting an accurate picture as far as the perception of why the numbers are improving.

“There was a perception that people were staying out of the labor force because there were large amounts of stimulus out there, people had sort of socked that away,” Smith said. “But I am not seeing a lot of evidence that is true. There may be anecdotal evidence that some people were staying away because they put away savings, but I believe the savings are all gone. There is no more physical stimulus. At least not right now. So, I believe that is why people are returning to the labor market.”

Rose added though growth is positive, the country has the looming problem of historically high inflation. Smith agrees inflation is the largest factor at play.

“Inflation is a problem and there is just no way around it,” said Rose. “The only way to curb inflation is to hike rates. There is an old saying, once the Inflation Genie is out of the bottle, it is really hard to get it back in. We’ve worked over 10 years to get back to the ideal benchmark of 2% to 2.5% inflation and could not get anything to light the fire. Then here we are at 7% to 7.5%.”

Smith said the jump in the income revenues is usurped by the rise in inflation, so the amount of increase is not as good as it looks.

“I believe people are spending money,” Smith said. “And they are spending money on the same things they were spending money on before. But it’s costing more money to buy groceries, if you are buying a house, it would cost you more to buy that house.”

The Fed has announced it will be raising interest rates at the March meeting.           

“We are in a different world right now,” Rose said. “It is not just the inflation or the rising interest rates right now. We have this incredibly tight inventory market. Despite the recent data that shows the residential sector seeing some job growth, builders today are building substantially less inventory than 10 years ago. But our population growth is more than 10 years ago. We have the lack of housing, and we have supply chain issues. We have inflation so the cost is rising. So, you have supply and demand at work.”           

Rose does not feel there is a quick fix.

“As prices rise, it is going to get tougher and tougher even if interest rates were to stay the same,” Rose said. “People are having a tough time feeling comfortable buying, especially a first-time home. People who would be upgrading and moving to a larger home may hold off on doing that. Even with the rate hike happening and assuming the interest rates retreat just a little bit, the reality is it is becoming more uncomfortable.”

Both Smith and Rose advise being cautious, but alert.

“The idea,” Smith said. “Is that the as the Fed makes these moves, quantitative easing is decreased, there is less money in the economy which should have downward pressure of prices, or at least counter the upward pressure on prices we are seeing. I think people should pay attention to what the Fed says they are going to do and make adjustments now.”

Rose said when the interest rates are raised, she hopes the Fed goes about 2022 more productively than in the past.

“I am not sure how aggressive the Fed will be,” Rose said. “Historically, what the Fed does is hike several times in a row without really giving it time to take effect. My hope would be they would hike once, sit back and see what happens before hiking again.”

She adds the more important factor on home buying in how the figures look in your portfolio. Now may or may not be the time to buy.

“We all have a personal economy,” Rose added. “We can be driven by the global economy or by the U.S. economy. But really and truly our decisions are made on our personal economy. While a lot of people look at buying a home as an investment, when you buy a home, you are buying a place to live and grow and have pride in. Even in today’s environment buying a home is a great investment. The pros tend to outweigh the cons of it.”