Apollo Chief Economist Raises Concerns Over Potential Economic Impacts on Housing Market
Apollo’s Chief Economist, Torsten Slok, has highlighted potential threats to the housing market stemming from layoffs associated with Elon Musk’s Department of Government Efficiency and the ongoing trade war initiated by former President Trump’s administration. An increase in unemployment rates could further exacerbate these issues, according to Slok.
Recent housing market data presented mixed outcomes. While sales figures showed some improvements, the introduction of cost-cutting measures by Musk, one of the wealthiest individuals globally, through his Department of Government Efficiency, emerged as a surprising factor to monitor.
Slok explained to Fortune that potential layoffs linked to the Department of Government Efficiency (DOGE) and the uncertainties surrounding the trade war tariffs pose significant risks to the housing market. Should unemployment rates increase, it could negatively impact housing.
Notably, widespread layoffs within federal government sectors have been part of Musk’s strategy to reduce expenses, with potential home buyers unlikely to make significant purchases like homes after losing jobs. This issue adds to existing challenges in the post-pandemic housing market, where sales have stagnated due to skyrocketing home prices and rising mortgage rates. Many individuals refrain from selling their homes to retain favorable mortgage rates.
Amid this challenging backdrop, any rise in unemployment could worsen the situation, especially since home sales have already reached recession-like levels. Despite requests, neither DOGE nor the White House press office responded to Fortune’s inquiries.
During a time when signs of improvement appeared in the housing market, data indicated that robust job and wage growth had boosted home-buying demand, Slok noted. Yet, other economists expressed caution, suggesting that positive sales numbers might not hold when considering broader market dynamics. In February, newly constructed home sales increased by 1.8% month-over-month and 5.1% year-over-year, as indicated by government data released Tuesday. Pending home sales rose 2% compared to the previous month but dropped 3.6% from the previous year, based on data published Thursday.
Wells Fargo Senior Economist Charles Dougherty suggested that these figures indicate increased home-buying activity following January’s weak performance. However, he warned that ongoing affordability challenges continue to heavily impact the housing sector. Dougherty noted the encouraging nature of the month-over-month pending home sales increase but pointed out the persistent downturn, with sales remaining near record lows.
In contrast, new home sales are performing better than existing home sales, as builders can offer incentives like mortgage rate buydowns, which sellers cannot. Nonetheless, new home sales have largely plateaued in recent months, Dougherty mentioned. Existing home sales data released last week revealed a 4.2% increase from January to February but a 1.2% decline year-over-year.
Echoing Dougherty’s sentiment, Selma Hepp, chief economist for Cotality, formerly CoreLogic, noted that activity remains subdued compared to historical trends, despite recent gains.
Meanwhile, persistently high home prices and mortgage rates continue to weigh on affordability and hinder housing market recovery, according to Sam Williamson, senior economist at First American Financial. Home prices rose 4.1% in January, according to the S&P CoreLogic Case-Shiller Index, reported Tuesday. This aligns with the recent trend of slowing appreciation but represents an increase nonetheless.
Freddie Mac’s weekly report indicated that the average 30-year fixed mortgage rate was 6.65% last Thursday, a slight two-basis-point decrease. Although this number shows improvement, mortgage rates remain significantly higher than the pandemic-era lows of under 3%, which many had grown accustomed to. The combination of high home prices and elevated mortgage rates has significantly eroded affordability, and this cannot be reversed by isolated favorable data.
This article was initially featured on Fortune.com.
