Good Friday AM,
Wow! The Non-farm payroll numbers stunned the markets this morning coming in at 528k, more than double the 250k expected. Dan Rawitch mostly shared, ‘How can we have had two consecutive quarters of negative GPD and jobs report well above twice what was expected?’ Jobs are always the last to fall in a recession, but we should not have seen a number like today. Especially with so many companies announcing significant layoffs. Looking deeper into the data though shows the jobs added were lower pay (hospitality, etc…).
In any event, bonds freaked out, as they should, and the ten-year is now above 2.84%. Ouch! Mortgage bonds are off 35 basis points and it may take some time for this to shake out of the market. The current thought is that so many jobs will create more wage inflation, leading to other inflation and further rate increases. I do not buy any of this, but what I think does not matter, the market is never wrong, and price is the only truth!
The WSJ shared some deeper insight..
July’s jobs report made the question over whether the U.S. is on the brink of a recession more confounding. For months, strong monthly growth in payrolls contrasted with flat to falling activity such as gross domestic product. Many companies have warned of sagging demand and a few have trimmed headcount. Yet payroll growth accelerated, to 528,000 in July from June, and June’s increase was revised up to 398,000. Perhaps the best explanation for the dichotomy is that many firms have such a shortage of workers—at hotels short of cleaners and desk clerks, managers are changing bedsheets and checking in guests—they are filling vacancies even as overall activity cools. Job growth is especially pronounced in lower-productivity sectors such as leisure, hospitality, education and health services, which further explains the dichotomy between output and jobs.
It’s never all bad…
ATTOM has released its Q2 2022 U.S. Home Equity & Underwater Report, which shows that 48.1% of mortgaged residential properties in the U.S. were considered equity-rich in Q2. This means that the combined estimated amount of loan balances secured by those properties was no more than 50% of their estimated market values.
The portion of mortgaged homes that were equity-rich in Q2 of 2022 increased from 44.9% in Q1 of 2022 and from 34.4% in Q2 of 2021. The latest increase, to virtually half of all mortgage payers, marked the ninth straight quarterly rise in the portion of homes in equity-rich territory. The report found that at least half of all mortgage-payers in 18 states were equity-rich in Q2, compared to only three states a year earlier.
And I also have to acknowledge my friends who continue to remind me that sellers are taking price reductions for the moment.
Roughly one in seven homes on the market had a price reduction in June, according to Realtor.com. That is nearly double the rate of one in 13 homes a year ago. Homeowners looking to sell in some markets could need to cut prices once or even several times. Eventually, the seller may need to accept less than they feel their home is worth or choose to take it off the market and try again when conditions improve. The average price drop for homes on the market 90 days is 11%
Please remain safe and healthy, enjoy the weekend and first, make today great!