As the Fed has brought inflation down with higher interest rates, the economy is beginning to slow and the real estate market is stabilizing. The big news is that mortgage interest rates are falling, making homebuying more affordable. On Friday, August 2, the Labor Department announced that nonfarm payrolls grew by an unexpectedly low 114,000 and unemployment in the US rose to 4.3% (BLS). Unemployment in the Chicago area jumped to 6.2% (IDES). On the following Monday, August 5, the Dow Jones Industrial Average plunged 1,000 points. It has since recovered some of that ground.
Investment analysts are downplaying the possibility of a recession. “While I think the market volatility could continue, I’m less worried about the underlying fundamentals,” stated Ross Mayfield an investment strategist with RW Baird & Co. Corrections are to be expected even in bull markets. According to George Smith of LPL Financial, “On average, stocks experience a pullback of over 5% over three times per year and a correction of 10% or more around once per year — even in positive years” (CNBC).
The 10-year Treasury yield fell to its lowest point since December and will likely drive mortgage rates lower. Mortgage interest rates on a 30-year fixed-rate loan fell to about 6.5%. Rates this low could entice sellers into the market alleviating the inventory problem, and unlocking the real estate market. With employment weakening analysts now expect the Federal Reserve to lower interest rates at the next 3 meetings.
Homes in the Chicago area are selling, with closed sales rising 4.7% and prices up 8.5% annually. Inventory remains the biggest roadblock to buyers with only a 2-month supply at the current rate of sales. The supply situation is improving nationally, with housing inventory at the end of June was 1.32 million units, up 3.1% from May and 23.4% from one year ago (1.07 million). The National Association of Realtors reported that pending home sales nationally intensified 4.8% in June, but pending sales in the Chicago area fell 5.8% from a year ago on lower inventory.