The Jobs Numbers Were Wrong!! | Phoenix Real Estate Market Update

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Recent revisions to the labor market data are set to affect the real estate market. Additionally, a record number of homebuyers are reportedly canceling their contracts—or are they? Let's delve into the data and see what's really happening.

Labor Market Revisions: A Significant Shift

Last week, significant news emerged regarding the U.S. labor market. The Bureau of Labor Statistics revised down its total tally of jobs created in the year through March by 818,000 jobs. This revision suggests the economy added an average of 174,000 jobs per month during that period, rather than the previously reported 242,000. This marks the largest downward revision since 2009.

Why Does This Matter for Real Estate?

Mortgage rates are sensitive to market movements and Federal Reserve (Fed) policy decisions. The Fed has been particularly focused on the labor market, which they previously deemed "too tight" and "too strong," preventing them from altering their restrictive policy. However, with the revised data revealing a less robust labor market, the Fed is now more inclined to consider rate cuts. In fact, the financial markets are currently anticipating a rate cut in the September meeting, with speculation that the cut could be as large as 50 basis points.

It's important to note that while the federal funds rate is not the mortgage interest rate, mortgage rates do move based on what happens in the broader markets, which are influenced by Fed policy statements. For instance, following the Fed’s annual meeting in Jackson Hole, mortgage rates fell to a two-week low, ending the week around 6.4%.

Mortgage Rates and the Housing Market

According to Fed Chair Jerome Powell, inflation is on a sustainable path back to the 2% target. Inflation has fallen significantly from its peak of 7.1% two years ago to 2.9% last month, which has been a key goal of the Fed’s rate hikes since 2022. As mortgage rates have begun to drop, we are seeing some movement in the housing market. Buyer demand has started to increase, though it hasn’t yet significantly shifted the overall market.

The Story Behind Contract Cancellations

You've probably seen the headlines about a record number of buyers canceling contracts. A reported 60,000 homebuyers backed out of deals in July, with the highest cancellation rates occurring in markets where builders have been particularly active. However, it's crucial to understand the context. The cancellation rate of 16% for July is the highest for any July on record since 2017. Given the unusual nature of the market over the past few years, this statistic might be somewhat misleading.

In Phoenix, for instance, the data I’ve reviewed indicates a cancellation rate of around 20-21%, slightly higher than the national average. While this may seem alarming, it's important to consider that the market is still balancing itself out after a period of intense activity and price growth.

What’s Next for the Phoenix Real Estate Market?

The Cromford Market Index (CMI), which measures the balance between supply and demand in the Phoenix metro area, shows that the market is fairly balanced overall. However, there are variations within different cities. For example, Fountain Hills is currently leading with a CMI of 176, indicating a stronger seller's market, while other areas like Goodyear and Surprise are in buyer's markets.

We're also seeing changes in the contract ratio, which tracks the number of active listings compared to those going under contract. Recent data indicates that more ZIP codes in the Phoenix area are warming up, showing increased activity and demand. This suggests that if mortgage rates continue to decline, we could see a stronger market for sellers in the coming months.

Conclusion

In summary, while the labor market revision may lead to lower mortgage rates, and there is some concern about contract cancellations, the Phoenix real estate market is showing signs of stability and potential growth. For homebuyers, now might be a good time to explore opportunities, especially as we anticipate more demand if rates continue to fall.

Sources:

• Bureau of Labor Statistics
• Federal Reserve
• Cromford Report
• Redfin
• MarketWatch
• National Association of Realtors
• Mortgage News Daily
• ARMLS