You’ll often hear that the residential real estate market will be the first among all players in the economy to signal a cyclical change (e.g., from recession to recovery or vice versa) brought on by central bank interest rate action.

This is an important topic in the context of current worries about recession due to the Federal Reserve lifting its federal funds rate from essentially zero to a range between 1.50% and 1.75% and the Bank of Canada hiking its overnight rate from 0.25% to 2.50% in four steps since early March.

By the way, it’s not always true that new and resale home markets are ultra-responsive to interest rate moves. When the federal funds rate was lowered after the financial crisis of 2008-2009, it still took years for U.S. housing starts to regain anything like their former vigor.

The key determinants of housing demand are probably captured in the word ‘affordability’, which has several components, with mortgage rates and pricing taking precedence.

The latest Primary Mortgage Market Survey (PPMS) conducted by Freddie Mac has the conventional 30-year fixed rate mortgage in the U.S. now sitting at 5.54%. The average in 2021 was 2.96%.

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Article source: ConstructConnect

In the U.S. in June, according to the latest Employment Situation report from the Bureau of Labor Statistics, jobs creation maintained a strong pace, +372,000, although it didn’t quite keep up with the average through the first five months of this year, +474,000.

The seasonally adjusted (SA) unemployment rate stayed at the 3.6% level where it has been lodged for four months in a row now.

The 3.6% U rate is extremely low. There’s much talk by analysts and in media circles about a recession being imminent, or maybe even already underway. The speculation is reasonable given the rampant price inflation that is underway, the consequent hikes in interest rates being initiated by the Fed, and the darkening mood of consumers as reflected in confidence surveys.

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