Chief economists weigh in on mortgage outlook now that recovery appears to be stalling
The US economy lost jobs in December. According to the US Bureau of Labor Statistics, the economy dropped a net 140,000 jobs last month due to an increase in COVID-19 cases and resultant lockdowns across the country. Most of those losses came from temporary layoffs in the leisure and hospitality industry as well as in private education. Professional and business services, retail, and notably construction all added jobs in December, offsetting lockdown-related losses somewhat.
“The December jobs report data reinforced the two-speed economy, with job losses once again heavily concentrated in lower wage industries, particularly leisure and hospitality. These are industries that were hit hardest at the onset of the pandemic, but were on the rebound until this month’s report,” said Odeta Kushi (pictured), deputy chief economist at First American. “Similarly, after months of falling, there was an increase in the number of people on temporary layoff/furlough in December. These reversals are a sign that the most recent surge in coronavirus cases is resulting in a return to pandemic-induced job losses. Health and (economic) welfare are inextricably tied to each other in our service-dominated economy.”
Kushi sees this jobs report as indication of permanent economic scarring and a prolonged recovery. Long-term unemployment, while largely unchanged in this report, remains at around 37% of the total unemployed population. She believes this is potentially more worrying as the number of people jobless for 27 weeks or more is reaching close to the chronic 40% level of 2009-2013.
At the same time, however, housing remained an economic bright spot, with construction employment rising to 0.8% above pre-pandemic levels, which can help alleviate the country’s acute shortage in housing stock.
For the MBA, the poor employment news hasn’t forced a reassessment of their positive forecast for the mortgage industry in 2021.
“MBA not only expects that job growth will pick up in the second half of the year, we anticipate a strong rebound, as pent-up demand for a range of goods and services will require rapid hiring as the pace of vaccine deployment accelerates,” MBA SVP and chief economist Mike Fratantoni said. “Despite the negative news from this report, we still expect 2021 to be a record year of purchase mortgage originations volume.”
Kushi explained why these job losses may not have a huge impact on the purchase market, noting that workers laid off in December are disproportionately younger and lower earning. Homebuyers and homeowners, she noted, are far more likely to be part of higher wage sectors that have mostly transitioned to a work-from-home arrangement and have been less impacted by pandemic-driven job losses.
She sees those jobs as continuing to be resilient, supporting the MBA’s positive outlook for the housing market.
Renters, on the other hand, have been disproportionately impacted by pandemic-related layoffs. News of new job losses could impact renters’ ability to make payments and while new stimulus should help those renters in the short-term, Kushi believes that only a successful vaccine rollout will end the “stop-start cycle” of reopening and lockdown the service sector and its workers have been subjected to since March of 2020.
In the meantime, Kushi believes that mortgage pros need to operate fully aware that the recovery is slowing and that we are in a new period of pandemic-related uncertainty.
“Always look to the housing market fundamentals,” Kushi said. “The economic outlook in the winter months is uncertain due to the downside risks from the pandemic-induced labor market slowdown. However, by the time spring arrives, there will likely be more economic certainty driven by the dissemination of a vaccine and the housing market fundamentals - low rates and millennial demand– which will keep home-buying demand strong.”