How Interest Rates and Employment Affect Real Estate

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Dec 14, 2023

How soon will the key interest rate in the US be lowered? This issue worries many people: investors, manufacturers, businessmen, borrowers, bankers, and many others. Analysts are making cautiously optimistic forecasts. Mortgage experts hope the average mortgage rate falls below 6% by the end of 2024. They expect direct and indirect signals and closely monitor government reports and financial analytics to adjust their forecasts. The level of employment and average wages are among those indicators that influence the level of interest rates.

How Strong Is the Labor Market in the US?

The latest Bureau of Labor Statistics data for November 2023 is causing optimism among jobseekers. The number of jobs in the United States is growing steadily. In November 2023, 199,000 additional jobs were created. This allowed the unemployment rate to decrease from 3.9% in October 2023 to 3.7% in November. Moreover, wages also are growing slightly:

  • Up 0.4% from October 2023
  • Up 4% from November 2022

This means increased consumer activity, better chances of finding suitable employment and obtaining a reliable source of income, etc. Unemployed people who finally get a job receive not only confidence but also additional opportunities. In particular, they can apply for short-term loans. In particular, payday loans are covered by salaries, which is why the source of income is extremely important for receiving them. In the USA, this form of lending is gaining popularity. Every day, thousands of people turn to the Payday Depot platform to compare the conditions of different lenders and choose the right ones. So, news of job growth is certainly encouraging for job seekers. However, regarding the interest rate reduction, this is rather a negative signal.

The Impact of Employment and Wage Growth on the Interest Rate

Wage growth has a dual effect on the economy:

  1. On the one hand, it stimulates consumer activity. People have extra money, which they invest in purchases that they had previously put off. This stimulates the economy because the sale of goods increases, as well as their production in the hope of future demand.
  2. On the other hand, rising employment and wages fuel inflation. There is more money, which means it depreciates faster.

An increase in the key interest rate was necessary precisely to reduce inflation and subsequently keep it within normal limits. When the inflation rate drops significantly, the Fed will stop raising it further and subsequently begin to lower it. If the existing interest rate level is not enough to curb inflation, it will be raised further. Therefore, rising wages can lead to the opposite effect:

  • People hope that higher wages will improve their well-being.
  • However, the Fed is forced to raise interest rates to balance this situation.
  • And this indirectly leads to higher prices for products and services.

To What Level Should Inflation Be Reduced?

The Federal Reserve is targeting 2% inflation to ensure the recovery of the US economy. At the end of October 2023, it was 3.24%, which is a downward trend relative to September (3.70%). However, in June and July, it was lower than in October — 2.97% and 3.18%, respectively. Therefore, it is too early to say that the 2% goal is already very close.

To achieve it, many factors must coincide. Wage growth rates and unemployment rates are also on this list. To reach the 2% inflation target, wages should not rise at such a high rate. Only if they grow by no more than 3% annually will an inflation rate of 2% become a reality. And then the Fed will turn its cautious optimism regarding lowering the interest rate into real action.

Employment and wage growth figures in November 2023 were higher than what the Fed expected. However, there is still room for optimism, since the rate of wage growth has decreased slightly. Therefore, the forecast that the key interest rate will be cut next year is still relevant.

How Employment & Interest Rates Affect Homebuyers

Employment and interest rates are two critical factors that significantly influence first-time homebuyers. Employment status and stability are paramount, as they determine the buyer’s ability to secure a mortgage and sustain long-term payments. Employment data plays a pivotal role in shaping the experience of first-time homebuyers. Broadly speaking, strong employment data, characterized by low unemployment rates and growing job markets, can boost the confidence and purchasing power of potential homebuyers. A robust job market often leads to higher incomes and greater job security, which, in turn, makes it easier for first-time buyers to obtain mortgages and commit to long-term investments like home ownership.

Interest rates, on the other hand, directly impact the affordability of a home. Lower interest rates make borrowing more affordable, reducing the monthly mortgage payments. This scenario is particularly favorable for first-time homebuyers, who often have limited budgets and savings. Conversely, higher interest rates can significantly increase the cost of borrowing, thereby reducing the buying power of individuals. This can lead to either buying a less expensive home than preferred or delaying the purchase to save more funds.


In summary, employment provides the foundation for a first-time buyer’s ability to purchase a home, while interest rates dictate how much home they can afford. In a climate of stable employment and low-interest rates, first-time buyers are more likely to enter the housing market. However, high-interest rates or unstable employment conditions can pose significant challenges, often delaying or derailing their home buying plans.

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