Fed Eases Rates Amid Strong Jobs Growth:What It Means for the Housing Market

Introduction
Two major developments in recent weeks are shaping the U.S. economic outlook: the Federal Reserve’s (Fed) decision to cut interest rates in September 2024 and a surprisingly strong jobs report released on October 4, 2024. These shifts are critical for understanding how the labor market and economic conditions are evolving as we head into the final months of the year. In this month’s newsletter, we explore what these developments mean for the housing market and future interest rate decisions.

Federal Reserve Cuts Rates by 0.5%: Implications for U.S. Housing
In September 2024, the Fed cut interest rates by 0.5%, marking a significant policy shift. This comes after a rapid series of rate hikes that began in 2022, when the Fed raised rates from near zero to 4.75% by the end of the year. Effective rates reached their peak at 5.3% in August 2023 and remained at that level until the end of September 2024, the highest level in over two decades. The Fed increased rates aggressively to tame inflation, which peaked at 9.1% in June 2022, the highest in 40 years. See chart “Federal Funds Rate & Inflation” for details.

The recent rate cut reflects the Fed’s response to slowing economic growth and easing inflation, now below 3%. By lowering rates, the Fed aims to stimulate economic activity, particularly in sectors sensitive to interest rates, such as housing and construction. Mortgage rates, which had surged during the tightening cycle, are expected to ease, potentially boosting homebuyer demand and creating more favorable conditions for new housing developments. However, the persistent housing affordability crisis may limit the full impact of the rate cut, especially in regions where supply remains constrained due to high construction costs and regulatory barriers.

The Fed's decision to lower rates aligns with a broader global trend toward easing monetary policy in 2024. Central banks in other major economies have also made rate cuts this year to support economic growth amid global uncertainties. In June 2024, the Bank of Canada and the European Central Bank both reduced their rates by 0.25%. More recently, in October 2024, both New Zealand and South Korea cut their rates by 0.5% and 0.25%, respectively. On October 17, 2024, the European Central Bank cut its interest again by 0.25%. This is the second step this year

U.S. Unemployment Data: Revisions and Government Job Growth
The September jobs report, released on October 4, 2024, defied economists' expectations, with 254,000 jobs added during the month, far surpassing forecasts of 140,000. This stronger-than-expected hiring has led to upward revisions for July and August, with the new figures showing 144,000 and 159,000 jobs added in those months, respectively. See the chart “U.S. Monthly Payroll Change” for details. Meanwhile, the unemployment rate ticked down to 4.1% from 4.2% in August

These revisions are significant as they come after several months of weaker reports, which had prompted the Fed to make a substantial 0.5% rate cut in late September 2024. The stronger September data eases fears of a weakening labor market and suggests that the Fed may opt for a smaller rate cut of 0.25% at its upcoming November 7 meeting.

These July and August revisions are significant as they come after several months of weaker reports, which had prompted the Fed to make a substantial 0.5% rate cut in late September 2024. Also, in August, job estimates were revised down by 818,000 jobs, highlighting a much weaker labor market than initially reported between March 2023 and March 2024. This downward revision heightened concerns about economic slowdown, but the stronger September data has since eased fears of a weakening labor market. With this recovery, the Fed may opt for a smaller rate cut of 0.25% at its 11/7 meeting, instead of the larger cuts seen earlier.

Sectors driving the job gains in September include healthcare, leisure and hospitality, and government, which collectively accounted for around two-thirds of the new jobs. However, hiring in traditionally white-collar sectors such as finance, professional services, and technology has remained subdued, growing at a slower pace of 0.5% year-over-year.

The September report, combined with the Fed’s cautious stance, points to a "soft landing" for the U.S. economy. This is positive news for the housing market, as it signals the Fed’s ability to manage inflation and economic growth without pushing the economy into a recession. This stability could boost consumer confidence, encouraging more homebuyers to enter the market as borrowing costs decline. 

What Does it Mean for Investors?
For investors, these market conditions offer a significant opportunity. First trust deed lending, secured by real estate collateral, provides a stable and predictable investment in a high-demand rental market. Unlike owning and managing properties directly, first trust deeds allow investors to benefit from rising rental demand while enjoying a secure, fixed return.
Safeguard’s competitive rates, starting at 10%, make first trust deed lending an attractive option for those seeking consistent returns. With over 15 years of experience, Safeguard can guide you through the complex housing landscape. To see available first trust deed lending options, you are welcome to fill out this form, reply to this email, or call us at 877-280-5771.