Apparently I Don't Have a Crystal Ball

May 2022 Q&A

I know you don’t have a crystal ball, but where do you expect mortgage rates to be by the end of the year for a 30-year fixed rate? 

As I write this, the average national rate on a 30-year fixed rate mortgage is 5.42%. By the end of the year, given six or seven quarter point equivalent rate increases to come, I expect that rate to be in the low-sixes (implies yield curve flattening). I expect, however, that mortgage rates will begin dipping again in 2023 at some point.

What are the leading reasons why unemployed people, or those not in the labor force, aren’t seeking jobs given how plentiful they are? Fear of covid?

If I had to pick one reason? Retirement.

I’m sure some people have stayed out of the labor force due to fear of covid. According to the BLS, 586,000 people were not in the labor force because they were “prevented from looking for work due to the pandemic” in April, down from 874,000 in March.

Two things to note here. First, “prevented from looking for work due to the pandemic” doesn’t necessarily mean they’re staying out of the labor force because they’re afraid of covid. They may have caretaker responsibilities, or the pandemic may have wreaked havoc on their profession. Second, 586,000 is just 0.6% of people not in the labor force. So this definitely isn’t a big explanatory factor.

Here's a better reason: a lot of people just don't want to work, and the American Dream has become early retirement. Well, that's the popular conception. Some would disagree.

Here's what Millennial Zack has to say:

. . . while it might be true that people don’t want to work (I certainly don’t), the data show that they are. The prime age (25-54) employment to population ratio rose to 79.9% in March, about half a percentage point below February 2020 levels but higher than at any point from 2008 to July 2019, while the prime age labor force participation rate is back at 2019 levels.

So why are there so few workers? In classic millennial fashion, I’m going to blame this on just about every generation but my own. Let’s start with Baby Boomers. The employment-to-population ratio for 55+ is at 37.7%, well below the prevailing level of the past decade. We can mostly chalk this one up to retirements (I don’t think Boomers are smoking pot and playing video games in their parents’ basements -- or at least not in large numbers).

We can also heap a little blame on Gen Z, albeit less than I’d like. The labor force participation rate for the 20-24 age range is modestly below 2018-2019 levels but above 2014-2017 levels, so they’re participating in the labor market at a decent rate.

Even in the aggregate, the employment-to-population ratio is above 2009-2016 levels and right on par with 2017. The worker shortages are (if you ask me) a function of low immigration rates (due to both pandemic and policy, though more ideas like this would help), the long-term decline in fertility rates, and covid-induced early retirements. The notion that people don’t want to work anymore is a convenient and popular explanation, but one that I don’t really buy.

What is the outlook for multifamily construction over the next five years?