Continuing to hold up against the Federal Reserve’s campaign of rate hikes, the labor market remained strong in December as the country added another 223,000 jobs—spread across nearly every industry—offering more hope that the economy will avoid a severe recession.
Unemployment fell from already historically low levels, from 3.7% to 3.5%, and wage growth slowed modestly. Wages were up by 0.3% in December, a slower pace than earlier in the year—even though real wages have fallen due to spiraling inflation.
The report sent stocks shooting upward, with all three major indexes gaining around 1% in early trading. With a boost in construction jobs and gains across a broad swath of sectors, Bright MLS Chief Economist Dr. Lisa Sturtevant called the report good news for real estate.
“The current strength in the labor market will support a rebounding housing market in 2023,” she said in a statement. “There is pent-up demand from would-be homebuyers who have been sitting on the sidelines for the past few months. If unemployment remains low, employment growth continues and wages continue to move higher, more buyers will jump into the market this spring.”
With a “housing recession” in full swing, a so-called “soft landing” for the economy remains a much-debated topic by economists and pundits, with most still predicting a recession in 2023. But with job growth propping up the broader economy and helping prevent a 2008-level housing crisis, real estate professionals remain cautiously optimistic about what this year will bring.
“Job additions will be critical in generating fresh housing demand as mortgage rates show signs of stabilization,” said National Association of REALTORS® Chief Economist Lawrence Yun in a statement. “Housing affordability remains a challenge for those renters considering buying a home.”
At the same time, Fed Chair Jerome Powell has said that he needs to see the labor market cool to indicate that inflation is coming under control, meaning mortgage rates could remain stubbornly high as long as job creation continues. With wage growth slowing, it remained unclear how the central bank would interpret the data.
“Financial markets and the Federal Reserve are keeping a close eye on the labor market and wage growth for signs that a moderation would impact inflation,” said George Raitu, realtor.com® chief economist, in a statement. “As consumer prices have seen slowing growth over the past few months, there are expectations that the Fed will resort to more moderate policy rate hikes in the next few months.”
Payrolls in construction increased by 28,000 in December, and specialty trade contractors added 17,000 jobs. Construction employment increased by an average of 19,000 per month in 2022. Leisure and hospitality (with 67,000 new jobs) and health care (55,000) saw the biggest gains as those industries continued to grow post-pandemic.
With mortgage rates ticking up in recent weeks after peaking around 7% in November, it remains uncertain how and when buyers and sellers will return to the market, with spring just around the corner. Sturtevant said she believes that time will be a factor, regardless of where rates settle.
“Mortgage rates may also remain above 6%, but buyers have had time to adjust expectations and are beginning to come to terms with the new normal in the market,” she said.
