Federal Reserve Cheers Job Market as Housing Forecasts See Rosy 2015

The Federal Reserve is optimistic about economic conditions, and many in the central bank are predicting more Americans will find full-time work in 2015.

The Federal Reserve is optimistic about economic conditions, and many in the central bank are predicting more Americans will find full-time work in 2015.

John Robertson and Ellie Terry of the Federal Reserve Bank of Atlanta note that Americans who were unemployed a year ago are more likely to find a full-time job than before, with the probability of finding full-time work increasing from 32% in November 2013 to 36% in November 2014. The economists note that the improving rate of finding full-time work is lowering unemployment, although they admit that the unemployed are still more likely to find only part-time work because of still mildly depressed economic conditions.

Additionally, data indicates that workers employed part-time for economic reasons are more likely to find full-time work now than they were a year ago, while their chances of becoming unemployed have fallen sharply to pre-recession norms.

In support of the Fed’s narrative, the Department of Labor reported last week that the 4-week moving average of weekly initial unemployment claims fell to 280,000, a fall of 2.9% from the prior week. While slightly higher than the lowest point in 2014, it remains at post-recession lows and is the lowest point since 2006.

Strong Housing Predicted

Further improvements in the job market are a significant part of the virtuous cycle that will help housing prices continue to rise. In 2014, housing prices rose 4.9% through September, according to the Case-Shiller Composite 20 index of house prices. While a clear deceleration from housing gains in 2013, this marks the third year of positive price growth in the index. This long-term rise in housing prices suggests that the bottom was in 2009.

Most economists also believe that real estate will continue to appreciate in 2015, although forecasts vary for how much prices will rise. The National Association of Realtors believes home prices will grow by 4% in 2015, while CoreLogic expects 5.2%. The most bearish prediction, from Chapman University economists, sees home prices rising by 2.4% in 2015. Chapman also predicts a slower rate of GDP growth for the United States, after estimated 2.2% growth in 2014.

Improvements in the housing market could also indicate a rise in interest rates from the Federal Reserve, which has kept rates at historical lows since 2008. Chapman University economists also predict a rise in interest rates near the end of 2015, although some economists believe the rise in interest rates will come much later, as low energy costs keep inflation risks muted.

Rising home prices are tapering real estate investments, after many institutional investors purchased property at the bottom of the market in 2009 and 2010. Cash-only home sales have slowed, and recent data from Freddie Mac indicates that fewer investors are purchasing real estate as the ratio of owner-occupied to investor purchases rises. Many economists believe fewer investors will purchase real estate in 2015.

Stronger economic conditions are also causing loan delinquencies to fall. Freddie Mac reported that November’s serious delinquency rate was 1.91%, the lowest point since late 2008. This rate peaked at over 4% in early 2010, and has been falling since.