Why are local lenders cutting their staff?
“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead. Buzz: Most Southern California bosses are swiftly hiring as the economy heals from pandemic damage, but local lenders have cut employment after mortgage rates bottomed in early January. Source: My trusty spreadsheet’s analysis for state jobs data for Los Angeles, Orange, Riverside and San Bernardino counties.
The Trend
Lenders as tracked by state job counters — that’s making loans of all sorts, but heavily mortgages — had 112,300 workers in the four counties in May. That’s an impressive 98% of the pre-coronavirus employment level.
But staffing was cut 1,100 jobs last month resulting in a four-month total decline of 700. That’s a reversal from 2,700 positions added the previous four months.
Compare these recent trims to an upswing in total employment across the region.
Yes, the 7.28 million workers last month are only 92% of the pre-virus employment level. But Southern California bosses added 69,700 in May for a total 311,400 hires since January. In the previous four months, local payrolls had fallen by 15,300.
The Dissection
Look at other local real estate niches and you won’t see much cooling on the hiring front …
CONSTRUCTION >> 360,900 workers last month — that’s 98% of the pre-virus employment level. These bosses added 100 workers in May for a total of 5,800 in the last four months vs. a gain of 4,400 in the previous period. Builders are playing catch up to strong homebuyer demand.
REAL ESTATE SALES, LEASING >> 134,700 workers — 90% of the pre-virus employment. Added 1,800 in May and 3,100 last four months vs. cuts of 1,300 in previous period. Credit the fastest sales since before the Great Depression and a rental revival.
BUILDING SUPPLY >> 55,200 workers — 112% of the pre-virus employment.
Last four months? Up 800 jobs vs. gain of 700 in previous period. Busy construction crews — and do-it-yourselfers — need stuff.
BUILDING SERVICES >> 103,300 workers — 96% of pre-virus employment. Added 1,400 jobs in May; 3,400 jobs last four months vs. cuts of 1,800 in previous period. Slow but noteworthy return to the office driving this reversal.
How bubbly?
On a scale of zero bubbles
(no bubble here) to five bubbles (five-alarm warning) … TWO BUBBLES!
Lending was clearly a 2020 winner in the pandemic era. The Federal Reserve’s cheap money policies used to keep the economic in gear powered a burst of homebuying and mortgage refinancings.
And that stimulus — and other government incentives — created an environment where rates could go higher.
Not to mention, lending is a notoriously volatile industry where employment is directly tied to loan production. For example, the 34,000 jobs lenders added locally between 2003 and 2006 in the middle of mortgage mania were gone within three years.
So it’s no surprise that this year’s jump in rates — the benchmark 30-year mortgage rates went from early January’s historic 2.65% bottom to roughly 3% — chilled what was a refinancing boom. Other lenders were probably hit by slow auto sales. So trimming staff seems logical.
More importantly, lenders pulling back at a whiff of trouble can be good for the market’s health. You don’t want to see heated competition for a shrinking pile of applications filled with lower-quality loan prospects.