Ban on Noncompete? Home Value and Inflation Update

The Federal Trade Commission (FTC) proposed a new rule that would ban employers from imposing noncompete agreements on their workers. Approximately 30M American workers are subject to noncompete clauses that prevent workers from taking new jobs at rival companies are starting a business in the same field for an average of 6 months to 2 years. Recent studies have shown that it’s not only high-paid earners in the tech and medical fields who are subject to these clauses but 1 in 5 workers without college education are also subject to non-compete agreements. Currently California and Oklahoma ban noncompetes and both Maryland and Oregon have prohibited the use for lower-wage employees. The FTC estimates the ban on noncompete agreements could increase wages by close to $300B a year by allowing workers to pursue better opportunities.

Mortgage Rates improved this week as the price of Mortgage Backed Securities (MBS) responded favorably to the BLS Jobs report which slowed a decline in wage growth. A decline in wage growth shows a slowing of inflation and inflation is the arch-nemesis of mortgage rates. Rates are up approximately 3.125% from this time last year.

Home Values – in the month of November home values declined by 0.2% nationwide but on a year over year basis they remain up 8.6%. Core Logic is forecasting a 2.8% increase in values over the next 12 months. In this Core Logic Report they also noted cities that are at a very high risk for price declines. Salem and Bellingham from the Pacific Northwest were both mentioned as very likely to see declines.

Inflation – Germany released their inflation reading for December which came in lower than expectations. Inflation in Europe is moderating similar to the US. As the economy is globally connected this is a good sign for mortgage rates. The IMF expects 2023 to be a ‘tougher’ year than last year with 1/3 of the world’s economies in recession. Oil prices are down to $80 a barrel but in 2022 China purchased the least amount of oil since 1990. Now that they are reopening their economy expect oil prices to rise to $120-125$ per barrel which would be inflationary.

Mortgage Applications to purchase homes declined 12% and are down 42% year over year. Refinances fell 16% and are down 87% year over year. Last week was a holiday week, however and so these numbers should be taken with a grain of salt.

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