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Does a Weak Economy Have its Perks?

home-in-your-handsWhile it is difficult to imagine anyone hoping for an economic downturn after the last mishap several years ago, Realtor.com believes that there are silver linings to having a weak economy.

The Bureau of Labor Statistics' employment summary is one of the most closely-watched economic measures used by the Federal Reserve to determine when to act as far as monetary policy.

The most recent jobs report makes it unlikely that the Fed will raise the federal funds target rate in mid-June as many analysts had anticipated.

The labor force participation rate fell by 20 basis points down to 62.6 percent and has fallen by 40 basis points over April and May to offset first-quarter gains, after hitting its lowest level since the 1970s in 2015. Not only did job gains total only 38,000 for May, but March and April totals were downwardly revised by a combined 59,000 jobs down to 186,000 and 123,000, respectively, making the average monthly job gain over the three-month period from March to May a less-than-stellar 116,000.

Economists have forecasted a healthy spring and summer homebuying season largely due to the release of pent-up demand and After the summer homebuying peak, however, Smoke said things will likely slow down on the housing front.

“This weak job report likely means that mortgage rates will remain about where they are through the rest of the spring and early summer homebuying peak and the short-term continuation of strong demand for new and existing homes,” said Realtor.com Chief Economist Jonathan Smoke. “Looking further out to the end of the year and into 2017, we will likely see a slowdown in household formation, which would be reflected in slowing construction. In fact, we’re already seeing year-over-year declines in multifamily construction.”

Fannie Mae's Chief Economist Doug Duncan added, “Encouraging signs seen in consumer spending and home sales at the start of the second quarter are now tempered by what appears to be a significant loss of momentum in the labor market.”

Mortgage rates are expected to remain low or even fall a bit more, according to Smoke.

Realtor.com noted that interest rates affect how much borrowers shell out each month to pay back their loans, which equals lower debt-to-income ratios and more approved loans. In addition, lower rates could also benefit those who have yet to refinance.

“The real beneficiaries are people who are in the process of buying a home this spring or summer,” Smoke said. “They can buy more of a home with the same amount of payment, or they have an easier time qualifying” for a loan.

 

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