A Tale of Two Housing Markets: Job Growth and Homeowner Equity Insights

As we navigate through 2024, the U.S. housing market presents a compelling narrative shaped by robust job growth and significant homeowner equity gains. This dual perspective offers a deeper understanding of the market dynamics influencing both homeowners and potential buyers.

Big Job Growth in May 2024

In May 2024, the U.S. economy added 272,000 jobs, much more than expected. This strong job growth is helping the economy and making life better for workers, who are now seeing their wages grow faster than inflation.

Even though job growth is strong, the unemployment rate went up a bit to 4%, ending a 27-month period of very low unemployment. This shows that even in a strong job market, there are still challenges to face.

Key Highlights:

Wage Growth

Average hourly wages increased to $34.91, up 4.1% from last year. This has helped improve the standard of living for many Americans.

More Women Working

A record 78% of women aged 25 to 54 are now working or looking for work, the highest level since records began in the 1950s. Higher wages and more job opportunities, especially in health care, government, and hospitality, have encouraged more women to join the workforce.

Job Gains in Different Sectors

Health care added 68,000 new jobs, local government added 43,000 jobs, and leisure and hospitality added 42,000 jobs. Professional services also saw a boost with 32,000 new jobs.

This strong job report is a bit tricky for policymakers, especially the Federal Reserve, as they try to balance keeping the economy growing and managing inflation.

Understanding the Jobs Report

For those who don’t know, the "jobs report" actually comes from two different surveys:

1. The Establishment Survey:

This survey collects data from business HR departments and shows a hot economy with strong job growth.

2. The Household Survey:

This survey collects data from workers and shows signs of a cooling economy.

Unfortunately for the housing sector, bond markets are giving more weight to the Establishment Survey than the Household Survey. This means mortgage rates have already increased and are likely to stay high. Tomorrow, the latest Consumer Price Index (CPI) report will be released while the Federal Reserve concludes its June meeting. It's very unlikely that the Fed will cut interest rates at this meeting, which means mortgage rates will probably remain elevated.

Homeowner Equity Insights – Q1 2024

Alongside the strong job market, homeowner equity has also seen big improvements. According to CoreLogic’s Homeowner Equity Insights report for Q1 2024, U.S. homeowners with mortgages gained a total of $1.5 trillion in equity since Q1 2023, a 9.6% increase over the year.

Key Findings:

Less Negative Equity:

The number of homes with negative equity decreased by 2.1% from Q4 2023, representing 1 million homes or 1.8% of all mortgaged properties. Year-over-year, negative equity fell by 16.1%, down from 1.2 million homes in Q1 2023.

Regional Equity Gains:

California homeowners saw the biggest gains with an average increase of $64,000, and Los Angeles homeowners gained $72,000. Other big gains were in New Jersey, with an average increase of $59,000.

Value of Negative Equity:

The total value of negative equity was about $321 billion at the end of Q1 2024, down $2.8 billion from Q4 2023 and $17.6 billion from Q1 2023.

Impact of Home Price Changes 

Home equity depends a lot on home prices. If home prices go up by 5%, 111,000 homes would gain equity. If prices go down by 5%, 153,000 homes would fall into negative equity. The CoreLogic HPI Forecast predicts a 3.7% increase in home prices from March 2024 to March 2025.

The Tale of Two Housing Markets

We are truly seeing a tale of two housing markets. On one hand, there is an enormous affordability crisis where many people can't afford to buy homes. On the other hand, many homeowners are cashing in big time. The rise in the cost of living has boosted equity for many existing homeowners. It has also helped many homeowners who were upside down on their home loans. Currently, only 1.8% of mortgages are underwater, but if home prices increase another 5%, that will lift 111,000 underwater homeowners out of their negative equity situation.

Regional Insights:

Florida and Texas:

These states have lower rates of negative equity. In Florida, only 1.1% of homes are underwater, and in Texas, it’s 1.7%. This shows they are strong markets even with some price weaknesses.

Conclusion

Looking at both job growth and homeowner equity gives us a clear picture of a strong U.S. economy. As job growth continues to improve the economy, rising homeowner equity provides financial security for many Americans. This connection is important for keeping the housing market healthy and ensuring long-term economic growth.

For more insights on how these trends affect the real estate market, follow our blog. Whether you're buying, selling, or just interested in real estate, we have the information you need to stay informed.