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The GDP in the first quarter of 2022 was negative and talk of an economic recession is circulating more widely. Yet in April, 428,000 net new jobs were created. The unemployment rate is low at 3.6%. Amazingly, there are two job openings for each unemployed person searching for employment. Even if the economy was to technically fall into a recession, it would be unique because of the tight job market.
Solid job growth is one of the factors contributing to higher inflation. Consequently, the Federal Reserve is raising interest rates and many more rate hikes are on the way. With higher mortgage rates, some would-be homebuyers are simply shocked at the high mortgage payments that are now required compared to one year ago. Another factor contributing to inflation and higher interest rates is surging gasoline prices. Much less oil drilling activity now than in pre-COVID days means elevated energy prices will be with us for a while (and despite sanctions on Russia, it is still collecting sizable oil revenue from selling to countries that have not imposed sanctions, such as China, India, and South Africa).
Job market conditions imply more potential homebuyers. But higher interest rates imply fewer homebuyers. This year at least, the negative impact of higher rates will outweigh the positive impact on jobs. Home sales are projected to decline by nearly 10% this year. Only when inflation calms down will the Fed stop raising interest rates and home sales make a turn for the better.
