This Week In A Nutshell: Rates are likely to stay volatile this week as markets balance several important pieces of jobs market data against the tumultuous peace talks with Iran.
Upcoming Attractions
The key economic release this week is Friday’s May jobs report. Economists expect job growth to slow, with payrolls rising around 60k-90k and the unemployment rate holding at 4.3%. A solid report would reinforce the idea that the Fed can stay patient. A weak report would revive concerns that higher energy prices and slower income growth are starting to bite. And a strong report would deepen fears that the Fed may cut if inflation doesn’t cooperate.
Before Friday, we’ll get JOLTS job openings and layoffs data on Tuesday, ADP’s report on non-government hiring on Wednesday, and jobless claims and productivity data on Thursday. Several Fed officials will speak, including Kashkari, Hammack, Logan, Barkin and Daly. The key question is whether more officials push to remove the Fed’s easing bias at the upcoming June meeting.
Last Week’s Highlights
The biggest market story last week was again Iran. Crude prices fell sharply on reports of a possible 60-day ceasefire that could reopen the Strait of Hormuz. If tankers start moving again, risk to the global economy should ease. But it will take time for oil prices to return to pre-conflict levels because inventories need to be rebuilt and the geopolitical risk premium could linger.
Last week’s data were mostly resilient. Q2 GDP looks to come in higher than previously expected after solid April activity data. Consumer spending rose modestly, durable goods and equipment investment looked decent, and the economy still appears to be holding up despite the oil shock.
Inflation data were roughly as expected. Core PCE inflation edged up to 3.3% year over year, which keeps the Fed on alert. Fed officials also sounded increasingly ready to move from an easing bias to a neutral bias. A few officials put hikes on the table, though even the hawks generally stopped short of saying the Fed needs to hike soon.
Diving a Little Deeper
Income growth appears to be slowing. Real disposable personal income fell 1.1% year over year in April, and real income excluding transfers fell 1.0%. Some of that weakness reflects one-off distortions, but even adjusting for them, income growth looks unusually soft.
So far, spending has held up because tax refunds boosted cash flow and households saved less. The saving rate fell to 2.6% in April, which is very low by historical standards. That can support spending for a while, especially with household wealth elevated, but it cannot do so forever.This is bad news for a housing market already challenged by affordability. Even if the labor market does not crack, slower real income growth is a headwind. Higher gas prices are eating into purchasing power, especially for lower-income households, and the tax-refund boost should fade.
Redfin Housing Market Reports
Investor Home Purchases Fall to Lowest Level Since 2020
- Elevated housing costs, a slower-than-usual housing market and a cooling rental market are squeezing potential returns for U.S. investors.
- Real estate investors’ market share was 19%, largely unchanged from a year earlier, reflecting the overall sluggishness of the U.S. housing market in the first quarter.
- Investors cut back sharply on buying condos, and on buying lower-priced homes.
- When investors buy fewer homes, there are fewer homes to sell: Investors had 7.8% of all listings, the smallest share in 5 years.
- Investor purchases of condos fell most in Detroit and Orlando, and rose most in the Bay Area.
29% of U.S. Homebuyers Paid Cash in March–the Lowest Share For That Month Since 2020
- With hundreds of thousands more home sellers than buyers in the market, fewer house hunters feel inclined to make cash offers to stand out in bidding wars. Economic uncertainty is also encouraging buyers to hold onto cash and finance home purchases.
The Income Needed to Afford a Home Declined For Seventh Straight Month in April
- Homebuying affordability improved slightly in April because mortgage rates declined while incomes rose. Still, the income required to afford a home was $29,000 higher than the typical U.S. income–and mortgage rates rose again in May, potentially erasing some of the affordability gains made in April.
- A household earning the average U.S. income would need to spend 40% of their income on the median-priced home, down from 42% a year ago.
- 33% of home listings are affordable, up from 29% a year ago–but down from more than half five years ago.
- Buying a home is getting more affordable in 34 of the 50 most populous U.S. metros, led by Chicago, Oakland and Dallas.
Luxury Home Prices Rise Amid Uptick in High-End Homebuying and Selling
- The median luxury sale price is up 4% year over year—more than double the gain in non luxury prices.
- Luxury pending home sales are also up 4%—the biggest increase in over a year. San Francisco’s luxury market is booming, with sales up nearly 50%—the most in the nation.
- Rising demand and prices are buoying luxury new listings, which are rising more than twice as fast as non luxury listings.
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Chen Zhao