Housing market may see ‘more churn’ after strong job gains 

The surprisingly strong October jobs data released Nov. 6 will likely raise the odds of another short-term interest rate hike when the Federal Reserve meets next month, though labor market momentum may also lead to a little more activity for the ice-cold housing market.

Job gains outpace forecasts: The U.S. economy added 165,000 jobs last month, according to the U.S. Bureau of Labor Statistics, smashing forecaster expectations of 59,000 added jobs in October. The unemployment rate declined a tick to 4.1%.

Despite the surge in new jobs, annual wage growth held at a relatively normal pace of 3.1%, continuing the months-long trend of inflation — which came in at 3.7% in September — outpacing this measure of growth.

But there are warning signs for construction: While the overall jobs report pointed to a stronger labor market, this was not the case for hiring in residential construction. Employment in that sector fell by 16,400 jobs in October, the biggest monthly drop since March 2021, according to the National Association of Home Builders.

Meanwhile, nonresidential construction employment rose by 13,300, a sign that data center construction held strong heading into the midterms. But investors appeared to be concerned about a potential slowdown after voters indicated they were not happy with this sector's construction boom, leading to a sell-off of tech stocks earlier this week.

Investors predicting a December rate hike: With the overall labor market seemingly in good shape, investors widely expect the Fed to focus on lowering inflation at its next meeting. As of Nov. 6, the CME Group's FedWatch tool estimated the likelihood of a short-term interest rate hike in December was around 79.1%, up from 66.9% a day earlier.

Rates still above 7% despite recent drops: After peaking at around 7.4% in mid-October, the 30-year fixed-rate mortgage has trended down over the past few weeks and is now averaging around 7.18%. While more jobs could spur additional fluctuations, the recent decline in rates is coming at what is typically the beginning of the housing market's slowest time of year.

Economy's 'major wildcard' still in play: The October jobs report delivered the type of data that cuts both ways for real estate, said Sam Williamson, senior economist at First American. "More jobs mean more income and more reasons to move, while a stronger economy could prolong the wait for mortgage-rate relief," Williamson said. "Still, a healthier labor market could put a little more churn into a housing market stuck in a low-churn, slow-burn recovery."

Despite the flashy jobs numbers, the results of the midterm elections continue to dominate discussions about what to expect in the year ahead. According to Jake Krimmel, senior economist at Realtor.com, the shift in power in Washington, D.C., probably won't change much for the housing market in the short term.

Instead, "the Iran War and its impact on inflation and mortgage rates remains the major wildcard," Krimmel said.