Apollo Chief Economist Torsten Slok has indicated that layoffs from Elon Musk’s Department of Government Efficiency and the trade war initiated by the Trump administration could present a threat to the housing market, which recently experienced a month of reasonable sales amidst an otherwise stagnant market. An increase in unemployment rates could exacerbate this issue.
Recent housing data has presented a mix of positive and negative trends. An unforeseen factor to monitor is the Department of Government Efficiency, headed by Elon Musk, noted as the world’s wealthiest individual.
Slok commented to Fortune that the potential for layoffs resulting from DOGE and the ongoing trade war uncertainty represent downside risks to the housing market, emphasizing that a rising unemployment rate would negatively impact housing.
There have been widespread layoffs within the federal government, linked to cost-cutting measures by Musk and his non-cabinet level body. Individuals who have recently lost jobs are less inclined to purchase homes.
Previously, the post-pandemic housing market was not significantly affected by unemployment. Instead, home sales have been suppressed because of high prices during the pandemic and subsequent increased mortgage rates, coupled with current homeowners reluctant to sell due to their favorable mortgage rates. If existing home sales are already at recessionary levels and unemployment increases, the scenario could become more challenging.
DOGE and the White House press office did not address Fortune’s request for comments.
Layoffs could occur just as some indicators suggest a potential improvement in home sales. According to Slok, recent data demonstrated that job and wage growth has bolstered housing demand. However, other economists advised Fortune that the encouraging home sales figures should be viewed critically in the larger context.
Government data released in February showed a 1.8% increase in the sale of newly constructed homes from the previous month and a 5.1% increase from the same time last year. Moreover, pending home sales rose by 2% from the prior month but declined by 3.6% compared to a year ago.
According to Wells Fargo Senior Economist Charles Dougherty, this suggests an improvement in home buying activity following weak January sales figures. Yet, adverse affordability conditions continue to severely impact the housing sector.
Dougherty noted that the month-over-month rise in pending home sales is a positive sign, suggesting the market isn’t collapsing. However, sales remain sluggish and near record lows. As for new home sales, they outpace existing sales because builders can offer incentives like mortgage rate buydowns that individual sellers cannot. Despite this, new home sales have remained relatively stable over recent months.
Data on existing home sales reflected a 4.2% increase in February from January but showed a 1.2% decline from the previous year.
Cotality’s chief economist Selma Hepp, formerly associated with CoreLogic, supported Dougherty’s views, stating that the overall activity is subdued when compared to historical benchmarks, despite modest improvements.
Sam Williamson, a senior economist at First American Financial, noted that elevated home prices and mortgage rates continue to affect affordability, thereby hindering a full recovery of the housing market. According to the S&P CoreLogic Case-Shiller Index, home prices rose by 4.1% in January, reflecting a slowing appreciation trend yet still an increase.
As of the latest reading from Freddie Mac, the average 30-year fixed mortgage rate was recorded at 6.65%, showing a slight decrease of two basis points. Although this marks some improvement, mortgage rates remain far above the sub-3% levels seen during the pandemic, which significantly affects affordability despite other positive data points.
This story was initially published on Fortune.com.
