According to Veros Real Estate Solutions’ forecast, the labor market is expected to cool down with the unemployment rate projected to reach 4.4% by the end of 2024.
Jobs and Unemployment Trends
From February 2022 to April 2024, the unemployment rate consistently ranged between 3.4% and 3.9%. However, in May 2024, it climbed to 4% for the first time in 27 months, and in June 2024, it reached 4.1%. Further, the number of long-term unemployed increased by 166,000 to 1.5 million in June.
Despite this, the United States economy continues to add jobs. There was an increase of 206,000 new non-farm positions in June 2024, and the average monthly job growth for 2024 is at a healthy 222,000.
Is the Market Slowing Down?
There are signs the market is facing a cooling effect. The number of jobs gained in April and May was 111,000 lower than expected, the unemployment rate has slowly increased since January 2023, and job openings declined by 1.2 million from May 2023 to May 2024. Additionally, the increase in average hourly wages was the slowest pace in three years, and quit rates decreased from 2.6% in May 2023 to 2.2% in May 2024.
Effects on the Housing Market
Most predictions indicate that the unemployment rate will rise to between 4% and 4.2% by year-end, suggesting a cooling job market. This has fueled speculation that the Federal Reserve might cut interest rates sooner than anticipated. Originally, a single rate cut by year-end was expected, but September is now a possibility. Crucial inflation data from June 2024 will influence the decision. Higher inflation could delay a rate cut, while lower inflation could boost confidence in a September move. Meanwhile, mortgage rates remain elevated with the current 30-year fixed rate at 6.95%. Forecasts for the year-end rate range from 6.5% to 7.0%, with Veros’ forecast at 6.9%.
Elevated mortgage rates are affecting housing affordability. With buyers unable to afford their dream home, factors like extra square footage or ideal locations are becoming less important. This could increase demand for smaller homes in less expensive areas.
Meanwhile, housing inventory is rising. While some sellers, who locked in historically low rates, are hesitant to list, others must move and are adding to available properties. Despite this increase, house prices remain high due to continued overall demand.
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