Things that happen to one sector of the economy can often have a ripple effect on others, and one expert said that’s happening right now with mortgages and the job market.
“A push in rates has slowed mobility and it affects the job market, because some of these job openings are in places that people don’t want to move to right now because of, you know, the high cost of buying a new home, the high cost of insurance,” explained Guy Williams, president of Gulf Bank and Trust.
He said that month over month rates are high compared to historical figures. With high rates, people become cautious about purchasing homes and the market stalls.
“So, we’re seeing very few transactions, particularly here in south Louisiana,” said Williams.
Along with high rates, the job market has also been cooling, which has also contributed to a dip in home purchases. The National Association of Realtors also reported that elevated prices and low inventory were barriers for potential home buyers.
“What’s happening is people are holding on to existing homes and they’re not accepting the reality of a potentially lower price,” Williams said. “And what we’re seeing is activity in new homes where contractors have adjusted, they’re building smaller homes and they’re seeing a lot of demand for a smaller home at a reasonable price point.”
How does this impact the job market? Well, in addition to making it less attractive to move for a new job, these pressures have also caused employment in the mortgage industry itself to decline.
This is all a byproduct of actions by the Federal Reserve Bank to deal with inflation. This Wednesday, the Fed announced a pause in recent interest rate hikes, which make it more difficult for people to borrow money. At this point in the rally to bring inflation down, the Fed is actually hoping for unemployment to rise, Williams explained.
“So, the Fed's thought is: ‘Well, if we can keep people from buying houses, we can slow the economy.’ Very painful, though. If you’re a home seller and the Fed is working against you.”
Listen to Williams’’ full explanation of the current mortgage landscape in the U.S. and more here in his talk with WWL’s Newell Normand.