January’s strong jobs report could be trouble for the housing market


The labor market started off in 2023 with a bang, which could mean trouble for the housing market as the Federal Reserve continues to try and bring inflation under control this year.

Total nonfarm payroll employment rose by 517,000 jobs from December to January, according to data released Friday by the Bureau of Labor Statistics. In comparison, the job market gained an average of 401,000 jobs per month in 2022.

“The pace of job growth had been trending down over the past six months, but January broke that trend,” Mike Fratantoni, the Mortgage Bankers Association’s SVP, said in a statement.Recent data on unemployment insurance claims have indicated a stronger job market than the string of layoff announcements from the technology and financial sectors would suggest.”

Unemployment changed little from the month prior, with 5.7 million people unemployed for an unemployment rate of 3.4%. Overall, the unemployment rate has shown little net movement since early 2022.

“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data,” Fratantoni said. “We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”

However, the good news for the Fed is that wage growth has slowed.

Yearly growth in average hourly earnings for service employees has declined from a peak of 6.1% in March 2022 to 4.5% in January 2023,” Odeta Kushi, First American’s deputy chief economist, said in a statement.“

The employment-cost index (ECI), a more comprehensive measure of wage changes, confirms the deceleration. According to the ECI, service-sector wage growth has slowed from 8% in the second quarter of 2022 to 6.9% in the fourth quarter. Further reduction in wage growth is the key to getting the Fed to pause its interest rate hikes. There is hope that as consumers pull back on spending, more wages will continue to decelerate.”

The construction sector added 25,000 jobs in January thanks to a big uptick in the number of specialty trade contractors (up 21,900 jobs). However, 16,500 of those specialty trade contractors are employed in the nonresidential sector. In addition, non-residential building construction added 4,100 jobs, compared to just 100 jobs in residential construction

“Residential building construction employment is up 3.5% year over year, and non-residential increased 4.9%. Residential building construction employment is now up 11.6% compared with pre-pandemic levels, while non-residential building construction employment just surpassed pre-pandemic levels this month,” Kushi said. “Residential building construction employment was little changed from December. The slowdown in single-family homebuilding may be putting some downward pressure on residential building job gains, and there is likely more of that to come.”

The real estate and rental and leasing services sector also experienced jobs growth in January, adding 4,100 jobs, with real estate adding 8,800 jobs and rental and leasing services losing 4,500.

In February 2020, a combined 300,000 were employed in “real estate credit” and as mortgage and nonmortgage loan brokers. As of November, there were roughly 354,800 people in those jobs, suggesting that the industry still has a large number of cuts to make in the coming months as the housing market slows to a crawl.

According to the latest BLS statistics, mortgage banking companies cut 2,500 jobs in December. Mortgage brokerages, meanwhile, shed about 800 jobs in December.

The lion’s share of the job growth in January came from gains in the leisure and hospitality sector (up 128,000 jobs), the professional and business services sector (up 82,000 jobs), and the health care sector (up 58,000 jobs).

But while the threat of further rate hikes still looms, industry analysts feel the strong jobs report is good news for the housing market.

“The upbeat jobs report provides more positive signals for the already rebounding housing market. The strong labor market will encourage the Federal Reserve to continue hiking rates this year which could stall the downward trend in mortgage rates. Buyers have been enticed back into the market as rates have dropped over the past few weeks,” Lisa Sturtevant, the chief economist at Bright MLS, said in a statement.

“But while rates are important, what matters most for buyers and sellers is the state of the economy, generally, and the stability of their own economic situations, in particular. So far, the economic outlook has been relatively sanguine. Recession concerns are generally coupled with predictions of a shallow downturn without significant job losses. Today’s employment report suggests we should be prepared for a busy spring housing market as growing confidence encourages prospective buyers to get back into the market,” Sturtevant said.



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