Below are reports from NAR’s REALTOR® magazine on the Fed interest rate cut and an excerpt from Bloomberg’s coverage of Friday’s Labor Department jobs report.
Last Wednesday’s action by the Federal Reserve was the first time it cut interest rates since the Great Recession took hold in 2008. The move is not likely to deliver significant juice to an already favorable borrowing environment for home buyers, reports REALTOR® magazine.
The federal funds rate, which is what banks charge one another for short-term borrowing, will now hover between 2% and 2.25%, according to news reports.
The Fed says its decision to lower interest rates, which comes after months of pressure from President Donald Trump, is designed to stave off the threat of an economic downturn. But it’s unlikely to translate into additional mortgage savings for many buyers.
Certain Borrowers Will Benefit
With the interest rate for a 30-year loan already hovering below 4%, the Fed’s move may be more meaningful for buyers with other types of financing, says Lawrence Yun, chief economist for the National Association of REALTORS®.
“Many borrowers will benefit, especially those with adjustable-rate mortgages and commercial real estate loans,” Yun says. “The longer-term 30-year fixed-rate mortgages will see little change in the near future because they had already declined in anticipation of this latest move by the Fed.
“These low interest rates will partly help with housing affordability over the short-term. Both rents and home prices have been consistently outpacing income growth. The only way to mitigate housing-cost challenges as a long-term solution is to bring more supply of both multifamily and single-family homes to the market,” adds Yun.
Still, lower borrowing costs are helping buyers manage rising home prices. For example, buyers who spend $1,500 on monthly mortgage payments can afford to purchase a $402,500 home this year compared to $367,500 last year, when mortgage rates averaged 4.57%, according to realtor.com®.
“Last year, buyers would have needed an additional $145 a month on top of the $1,500 to afford a $402,500 home,” says Danielle Hale, realtor.com®’s chief economist.
Bloomberg Excerpt On Jobs Report
While overall payroll gains were healthy in July, retail employment dropped for a sixth straight month to a three-year low, Labor Department figures showed Friday, amid fierce competition from Amazon.com Inc. and other online sellers. At factories–already in a technical recession thanks to global weakness and the trade war–average weekly hours worked sank to the lowest since 2011.
Both industries are poised for further pain. Trump’s levies and China’s retaliatory actions have hit goods producers hardest, with businesses paying higher costs, delaying expansion and hiring fewer people. The latest tariffs would expand that impact to consumers, who are driving the expansion, with a 10% tax on an additional $300 billion in goods including electronics and clothing.
U.S. stocks tumbled Friday, heading toward the worst week of 2019, as investors fretted over trade war escalation. Treasuries rose.
“Employment growth is still pretty solid, although there has been some slowing,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics. “The accumulation of the trade actions is only acting as a drag on the economy.”
Beyond the details, the report broadly showed employment in good-enough shape to sustain the economic expansion and the Federal Reserve’s statement this week that that the labor market “remains strong.”
Payrolls rose 164,000, though the two prior months were revised lower. The jobless rate held at 3.7%, near a half-century low, while average hourly earnings climbed 3.2% from a year earlier, better than forecast.
Despite July’s healthy payrolls figure, the three-month average increase of 140,000 was the slowest in almost two years. That trend is in line with forecasts for a gradual slowing of job gains as the labor market tightens, but it could also be seen as a sign that the economy is losing steam.
The Overall Picture
While factories added 16,000 employees, the most since January, the overall picture is less encouraging: Goods producers including construction and mining companies added 15,000 jobs, less than half the five-year average.
At retailers, the decline in workers brought total employment to the lowest level since early 2016. Employees in warehousing and storage, sometimes seen as a proxy for online sellers, rose to a record 1.19 million.
Fed Chairman Jerome Powell pointed to the trade fight as one of the major factors risking the U.S. economy’s health in a press conference this week, after policy makers cut interest rates by 25 basis points. Powell said that while U.S. indicators show the economy remains in good shape, the central bank signaled it was watching trade developments closely.
Investors boosted bets on additional Fed easing following Trump’s tariff threat. Economic adviser Larry Kudlow said Friday that “any impact on U.S. consumers is minuscule” from the levies. “The economic burden of these tariffs has fallen most heavily on China,” he told Bloomberg Television.
Other points in the jobs report were positive. The pickup in wages indicates employers face a tough time finding workers and also bodes well for resilient consumer spending amid tariffs.