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Lenders, economists need more jobs reports like November's to see housing return

Strong job growth and increasing wages are among the biggest macroeconomic pieces essential to a full housing recovery. While last Friday’s jobs report was mostly positive — 321,000 jobs added in November and a 9-cent increase in the average hourly wage — there have been mixed reactions to the report from lenders and economists.  

“Christmas has come early for commercial and residential real estate,” said economist Chris Muoio in a statement after the report.

One of the best parts of the report was the 0.4 percent growth of the U.S. average wage to $24.66, which was double what was predicted. Annual wage gain remains low, however, at 2.1 percent.

Without robust wage growth, potential borrowers may not be able to save up for downpayments, which may keep many first-time buyers on the sidelines for months to come.

“[We need] several more months to establish a firm trend. Improving wage growth would be an elixir for the housing market, which has seen price appreciation stall as affordability has diminished,” Muoio continued.

Another benefit of wage growth would be helping borrowers qualify for loans. Angel Oak Home Loans Senior Vice President Whitney Fite said that increasing wages could take pressure off debt-to-income ratios, a key measure of ability to repay in underwriting.

“The jobs report is a big indicator on the potential for the first-time homebuyer to reenter the marketplace; they've been widely absent the last few years, and you won’t see a healthy recovery without first-time buyers in the market,” Fite told Scotsman Guide News.

Coinciding with the November jobs report are efforts by some in the mortgage industry to expand credit. The government-sponsored enterprises (GSEs) recently announced 3 percent downpayment programs, with Fannie Mae's program available immediately.

In addition, lenders like Angel Oak are beginning to offer mortgages to borrowers shut out of the market due to either low credit scores or a recent foreclosure or short sale.

“Product availability that fits outside of today’s credit box, it’s not widespread, but we’ve seen an incredible uptick on a monthly basis showing there’s a demand for it,” Fite said.

The jobs report, however, was not all rosy, and some caution that one report does not indicate a trend.

“One single positive jobs report is certainly not enough data to be a stand-alone trigger — if you get positive job growth report after report, that could indicate an actionable trend,” Pivotal Capital Co-President Brad Rust told Scotsman Guide News.

On the downside, the unemployment rate for white males grew from 5.1 percent to 5.4 percent, for blacks from 10.9 percent to 11.1 percent, and overall the number of unemployed persons grew by 119,000. The average workweek was essentially unchanged at 34.6 hours, indicating there’s a glut of workers stuck in part-time jobs.

Pivotal Capital is a hard-money lender in Southern California. Rust and Pivotal Co-President Joe Gigliello said that the investors they work with are moving away from foreclosures and short sales, and toward buying and rehabbing dilapidated properties.

Renovating those types of homes is neither cheap nor fast, and that means the homes end up being expensive, between $750,000 and $1 million, and located closer to urban centers — perhaps not the types of properties affordable for first-time buyers who are experiencing 2.1 percent wage growth. Rust and Gigliello reported that they have not seen a downturn in demand in 2014 for their hard money products.

“The key metric is what type of return [investors] are going to get on a deal,” Gigliello said. “Lower-price homes have thinner margins. Higher-end homes take more capital and more equity, but have higher margins as well.

“Any positive jobs growth news is always good news, and housing always follows jobs. We think there’s a number of people who are either no longer looking for work or may have taken part-time jobs and are not earning prerecession dollars. But good news is always good news, but we take it with a grain of salt.”


Questions? Contact Neal McNamara at (425) 984-6017 or

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