Pick your favorite headline:
- Unemployment rate dips to 6.3% in April
- Labor force declines by 806,000 in April
Both statistics are true. Nonfarm payrolls grew by 288,000 in April and the U.S. unemployment rate dipped to 6.3%. Meanwhile, the labor force participation rate of 62.8% was the lowest since 1978. Fewer Americans are working, which is a significant reason why the unemployment rate continues to drop.
Markets took the information in stride and moved very little. Though payroll growth was better than expected, the health of the employment market as a whole looks less impressive given the workforce exodus.
The housing market is also giving off conflicting signals. Home values and sales volume are significantly higher than they were several years ago, when real estate continued to struggle in the post-bubble, post-recession recovery slog.
However, the homeownership rate has dipped to a 19-year low of 64.8% through the first quarter of 2014. Home sales are expected to dip in 2014 by as many as 1 million.
Higher rates and higher prices are one reason why the pace of sales has slowed. Declining affordability conditions have reduced the size of the buyer pool, and cut potential first-time buyers out on the low end.
Another reason that sales have slowed is that household formation is down. Young, first-time buyers continue to extend their stays with their parents, roommates, or rentals into their 30s.
As population demographics shift – in both housing and employment – we may need a new way to measure “normal”, “balanced”, or “healthy.” Is lower workforce participation tenable for the United States economy? Or are we stuck in a post-recession cycle of slow, steady growth? For housing demographics, are younger people permanently going to wait longer to form households, build families, and purchase homes?
This is one problem with looking at the performance of markets now on a purely historical scale. If the underlying demographics have shifted, we need to find a way to measure growth – both housing and employment – in new ways and on its own terms.
Our take: the housing market works in cycles. Buyers purchase, refinance, move out/up, and invest at life intervals. After the post-bubble recession extended a period of dormancy for the housing market, the extremely affordable conditions offered by mortgage rates and home prices helped kick everything back into high gear. The real estate cycle was sped up for a lot of people and concentrated into about 24 to 36 months.
Home purchases and refinances have declined partly because a lot of people already took care of their real estate activity. Though it is true that fewer people now qualify for a home loan as affordability has decreased, we are still working towards a more normal, balanced market.
For now, mortgage rates took a notable dive over the past week. Click here to see an update of last week’s mortgage rates and movement.