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Urban Institute: Some cities might be close to a housing bubble

As home prices continue to rise across the U.S., the dreaded “housing bubble” question begins to rise.

The Urban Institute released a report from its researchers Bing Bai and Edward Golding, who served as the head of Federal Housing Administration under President Barack Obama, that addresses just that.

The Urban Institute explained that in order to determine if the U.S. is in a housing bubble, knowing the reason for the price growth is critical.

“The critical question, however, is whether the recent appreciation is driven by fundamentals, such as growth in household income, or by pure speculation,” the report stated.

In order to determine the reason for the price growth, Urban Institute utilized its housing affordability index, which measures if the median household can afford a standard mortgage of a median-priced home.

The results? Overall, housing in the U.S. remains very much in the affordable range. In fact, the median household can afford a house that is $70,000 more expensive than the median home price today. In 2006, the median household could only afford a mortgage that was $22,000 more expensive than the median home price.

But this is nothing new. In fact, First American Financial Corp. releases its Real House Price Index every month, which examines affordability by comparing home prices against interest rates and income to determine the “real” value of a home.

The latest index found that in August, the real home prices actually decreased 0.4% from the previous month, and that real home prices are now 38.4% below their housing boom peak in July 2006.

“As mortgage rates rise on the back of the last months’ FOMC decision to reduce its portfolio of bonds and supply remains constrained, affordability will continue to decline for those seeking to achieve the goal of homeownership,” First American Chief Economist Mark Fleming said. “Yet, while affordability is lower than a year ago, it remains high by historic standards. Only three states and the District of Columbia are less affordable today than they were in January 2000.”

The areas that could possible cause concern include Hawaii, which is up 8.1% from January 2000, California which increased 5.7%, and Hawaii, where home prices are up 3.6%. The District of Columbia is up 3.6% from that same time period. 

The interactive map below shows several cities, mainly in California, also rose higher than their 2000 levels. A score of 100 marks the benchmark level in January 2000, with anything over 100 being cities or states that surpassed that level.

The Urban Institute saw similar results when it measured the top 37 largest metropolitan statistical areas to find which, if any, could be areas of concern for a real estate bubble using data from CoreLogic, the U.S. Census Bureau, the U.S. Bureau of Labor Statistics and Freddie Mac. Urban Institute’s researchers looked at the area’s real increase in home prices since their lowest point and the institute’s affordability measure.

The company added the rankings together and re-ranked the MSAs most likely to be in a bubble, calling it the “bubble watch” rank. The top 10 MSAs are ranked high on both home price growth and lack of affordability measures. But further down the list, the rank could be driven by one measure or the other.

Six metros stood out above the rest: the San Francisco area and the San Jose area tied for the top ranking in the institute’s bubble watch. The Miami area and Oakland, California areas tied for third place, and the Portland and Seattle areas tied for fifth place.

Click here for the full list of metros.

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Black Knight: Home prices hit yet another new peak in August

Home prices hit yet another new peak in August as they increased annual for the 64th consecutive month, according to the latest Home Price Index from Black Knight.

U.S. home prices hit a new peak in August with $282,000, however the appreciation continues to slow. Home prices appreciated 0.24% from the previous month, falling to less than half of July’s home price growth rate.

To better understand the rising home prices combined with the slower rate of appreciation, check out Black Knight’s infographic below.

Click to Enlarge

BK HPI

(Source: Black Knight)

This marks the fifth consecutive month of slowing growth rates, however the annual rate of appreciation held steady at 6.24%.

However, in some areas home prices are still surging forward. New York home prices rose 1.58% month-over-month, leading all other states in monthly appreciation for the second consecutive month. New York metros made up nine of the top 10 best performing metros.

New York home prices are up 32.89% from its national trough in January 2012, and has a current HPI value of $385,000.

The Black Knight HPI utilizes repeat sales data from the its public records data set, as well as its loan-level mortgage performance data, to produce home prices for both disclosure and non-disclosure states.

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New home sales 10-year high baffles economists

After hitting a new low in August, new home sales surged in September to their fastest pace in the past decade, according to the latest report released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development.

Sales of new single-family houses in September surged to a seasonally adjusted annual rate of 667,000 sales, the report showed. This is up a full 18.9% from 561,000 new home sales in August and up 17% from 570,000 sales in September 2016. The increase marked the fastest pace of home sales in 10 years.

This sudden increase came much to the shock of economists, who said September would likely see a slight drop in home sales.

“Expectations were for a modest decline in sales as the current sales component of the NAHB’s Housing Market Index slipped in September and purchase applications were down in the MBA’s mortgage applications survey for August,” Nationwide Chief Economist David Berson said, explaining applications tend to be an indicator of sales activity.

However unexpected the news, experts were thrilled, saying this is the news they’ve been waiting to here.

“Now this is the kind of new home sales activity we need and expect to be seeing, especially after what was a pretty weak and disappointing summer selling season made worse by a string of Hurricane disruptions,” Zillow Chief Economist Svenja Gudell said. “And upward revisions to initially reported summer numbers, however modest, only sweeten the news.”

The chart below shows that not only was the increase significant compared to previous months, put it also hit the highest number of sales since at least September 2012.

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New home sales

(Source: U.S. Census Bureau, HUD)

One expert explained the sudden surge could be due to the rebuilding activity in the hurricane disaster areas.

“Newly built homes were purchased at a furious pace last month, potentially driven by accelerated activity in the south following hurricanes Harvey and Irma,” Quicken Loans Vice President Bill Banfield said. “This unexpected surge can help with home inventory which, just a month prior, was at a 20-year low.”

“As owners in existing homes move on to newly built ones, it frees up availability of smaller starter homes for those looking to become homeowners for the first time,” Banfield said.

But another expert suggested the increase was due to the low number of sales from the previous three months.

“September’s new home sales jumped strongly, stemming what could have been a three-month skid,” Trulia Chief Economist Ralph McLaughlin said. “What’s also promising is that sales are up strongly in the South, suggesting the streak of hurricanes that hit there have had little impact on demand for new homes.”

The report also showed that the difference of even just one month can change everything. The median sales price of new homes sold in September increased to $319,700, up from $300,200 in August. The average sales price came in at $385,200 for the month.

But despite this increase from the previous month, one expert explained the gap between new and existing home sale prices continues to narrow.

“The price gap between new and existing homes has narrowed since earlier this year, making new construction a more viable and competitive option for buyers,” Redfin Chief Economist Nela Richardson said. “This combined with a larger stock of new construction inventory makes new home construction a key driver in today’s market.”

“Redfin data finds new homes represent a growing share of the market over the past five years, rising from one in 13 homes for sale in September 2012 to one in eight homes in September 2017,” Richardson said.

Housing inventory fell to 279,000 new homes for sale, down from 284,000 new homes in August. This represents a supply of 5 moths at the current sales rate.

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Home prices pick up speed in August

After slowing down slightly in July, home price increases began to pick up speed once more in July, according to the latest House Price Index from the Federal Housing Finance Agency.

Home prices increased 0.7% from July to August, up from the upwardly revised increase of 0.4% in July. The index also increased 6.6% from August 2016.

The chart below shows home prices continue to rise unchecked, far surpassing the previous peak.

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HPI

(Source: FHFA)

The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. Because of this, the selection excludes high-end homes bought with jumbo loans or cash sales.

Across the nation, the rise in home prices from July to August ranged from a drop of 0.1% in the New England division to an increase of 1.4% in the Pacific division. Annually, all divisions posted an increase, ranging from 5% in the Middle Atlantic division to an increase of 9.3% in the Pacific division.

Here is a list of which states are in each of those divisions:

New England: Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut

Pacific: Hawaii, Alaska, Washington, Oregon, California

Middle Atlantic: New York, New Jersey, Pennsylvania

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New home construction suddenly slows in September

Overall, housing starts decreased in September, however, single-family housing completions showed double digit growth, according to the latest report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

Privately owned housing starts dropped in September to a seasonally adjusted annual rate of 1.13 million. This is down 4.7% from August’s 1.18 million starts, but remains up 6.1% from 1.06 million last year. This monthly decrease was led by a drop in the single-family home sector, where starts dropped 4.6% from August’s 869,000 starts to 829,000 starts in September.

“September housing starts brought the second streak of three monthly declines in 2017, driven by a fall in both single-family and multifamily starts,” Trulia Chief Economist Ralph McLaughlin said. “While notoriously volatile, this trend is something we will continue to keep an eye on throughout the remainder of the year.”

The chart below compares the total number of permits, starts and completions in new residential construction.

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starts

(Source: U.S. Census Bureau, HUD)

After the slight dip in housing starts in August, September’s decrease in building permits suggests this overall drop may continue throughout the next few months. However, single-family permits are up.

“Given the relatively small number of homes for sale, it’s surprising that single-family starts haven’t trended more sharply higher this year,” Nationwide Chief Economist David Berson said. “Still, despite September’s decline, single-family starts were almost 6% above year-ago levels for the month and for the first nine months of the year they are up by more than 9% over the same period in 2016.”

“It is likely that single-family starts will rise again over the remainder of 2017, as homebuilders respond to still-strong housing demand – as evidenced by yesterday’s rise in the NAHB Housing Market Index for October,” Berson said.

Privately owned housing units authorized by building permits decreased to 1.22 million in September. This is down 4.5% from 1.272 million in August and 4.3% from 1.27 million in September 2016. But single-family authorizations increased, rising 2.4% to 819,000, up from 800,000 authorizations in August.

One expert explained this increase in single-family permits could show the new construction market is beginning to once again gradually increase.

“Given that seeing reliable trends takes three months for permits and six months for starts, it’s still likely the trends for new homes starts are continuing to slow, while permits are increasing, indicating new home construction may be resuming its gradual, though uneven rise that we’ve seen for the past five years,” said Robert Frick, Navy Federal Credit Union corporate economist. “The new home market in general is under pressure from higher labor and lumber costs, and not enough lots zoned and available for construction.”

“Homebuyers are facing relatively few houses on the market that are selling fast and rising about 6% per year in price,” Frick said. “That’s hampering Millennials from buying their first home and is contributing to the record low number of Americans moving. And the number of new homes on the market each month is still a solid 25% lower than what is needed to restore a reasonable balance between supply and demand.”

Housing completions surged in September, making up for a drop last month. Privately owned housing completions increased to a seasonally adjusted annual rate of 1.11 million in September, up 1.1% from August’s revised estimate of 1.1 million and 10.3% from last year’s 1 million. Single-family completions also increased, posting a 4.6% rise from August’s rate of 747,000 completions to 781,000 completions in September.

One expert explained that while some of this month’s drop can be blamed on the recent hurricanes, there was still a significant decrease in the Western U.S. that can’t be explained by the hurricanes.

“The one-month fall in new home construction, especially in the South region in light of Hurricane recovery, is understandable,” said Lawrence Yun, National Association of Realtors chief economist. “What is frustrating and hard to comprehend is the sharp drop in total permits in the West region.”

“Home prices have been rising too fast in the West, and several metro areas are in dire need of new home construction,” Yun said. “If housing shortages continue, along with the commensurate affordability challenges, then expect new job creation to begin shifting away from the West to other parts of the country.”

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Quicken Loans: Home prices increase, but still not at homeowner expectations

Home prices continued to rise in September, however not fast enough to keep up with homeowners’ expectations, according to Quicken Loans National Home Price Perception Index.

Homeowners are overestimating their home values, and appraisers’ valuations are 1.14% lower than homeowner expectations in September. But while they are still overestimating their home values, the gap is diminishing. In August, homeowners estimated their homes were 1.35% higher than appraised values.

But according to First American Chief Economist Mark Fleming, it is not uncommon for homeowners to be out of alignment with appraised home values. He explained homeowners tend to add value to aspects of their home that an un biased appraiser won’t such as decor or landscaping choices. And while this is especially true in a declining market environment as consumers struggle to accept their home is not worth as much as it used to be, even homeowners in a market with rising home prices tend to get ahead of themselves and overvalue their homes. 

The chart below shows that, although the gap between opinions got off to a rough start in 2017, it since has been trending back toward equilibrium. September marked the fourth consecutive month where the gap narrowed.

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HPPI

(Source: Quicken Loans)

Quicken Loans’ Home Value Index, a measure of home values based solely on appraisal data, showed home prices increased 0.44% from August to September, and 3.38% from September 2016.

But quicker home price growth in some parts of the country caused some homeowners to be unable to keep up with the rising home price growth, Quicken Loans explained to HousingWire. In Dallas, for example, the average appraised value came in 2.87% higher than homeowner opinions. The chart below shows the gap amid different metros across the U.S.

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HPPI

(Source: Quicken Loans)

“An appraisal can vastly impact the mortgage process,” said Bill Banfield, Quicken Loans executive vice president of capital markets. “This number alone can impact how much a buyer needs to bring to closing, or the current equity a homeowner has when refinancing.”

“If homeowners are aware of local home values and how they are changing, it will assist with a smoother mortgage process,” Banfield said.

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Fannie Mae: Boomers won’t own their home free and clear before retirement

While outright homeownership increased among Baby Boomers after the last recession, they still lag previous generations, and may never catch up, according to the Fannie Mae Economic and Strategic Research Group’s latest Housing Insight Series.

At one end of the spectrum, older generations such as Baby Boomers criticize Millennials for waiting longer than their generation to buy a home, however even Boomers are failing to keep up with the pace set by the generation before them.

Baby Boomers are much less likely to own their home outright, that is – without a mortgage, than the generations before them, and probably won’t be able to catch up before reaching retirement age.

“The leading edge of the large Baby Boom generation has reached retirement age with a greater likelihood of carrying housing debt, raising concerns about their retirement financial security,” Fannie Mae’s report stated. “The oldest Boomers, who were aged 65 to 69 in 2015, were 10 percentage points less likely to own their homes outright than were pre-Boomer homeowners of the same age in 2000.”

Outright homeownership picked up after the Great Recession, and the younger end of the generation is more likely to be close to previous generations with their rate of outright homeownership.

The chart below, which uses data from U.S. Census Bureau and the 2000 Census and American Community Survey, shows 26% of Baby Boomers aged 50 to 54 in 2015 owned their home outright, compared to 22% of homeowners of the same age in 2000.

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Boomers

(Source: Fannie Mae, U.S. Census Bureau, 2000 Census and American Community Survey)

But despite this uptick, even the youngest Baby Boomers will likely not be able to pull up their outright homeownership rates to the level of previous generations.

From Fannie Mae’s report:

The relatively high incidence of housing debt among Boomer homeowners has the potential to strain their retirement finances. Given that income typically declines in retirement, monthly mortgage payments could stretch the household budgets of Boomers who exit the labor force without first extinguishing their housing debts. Indeed, among Boomer homeowners aged 65 to 69 in 2015, those with mortgages were over three times more likely to experience a housing cost burden than were those who owned their homes outright.

The chart below shows the youngest Boomers will come the closest at 58%, compared to 59.8% among previous generations. The oldest Baby Boomers will come in significantly lower with a share of 49.4% reaching free and clear homeownership by retirement age.

Click to Enlarge

Boomers

(Source: Fannie Mae, U.S. Census Bureau, 2000 Census and American Community Survey)

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Zillow introduces 3D technology app to real estate agents

Zillow announced Thursday it plans to launch 3D Homes for houses listed for sale or for rent, allowing homebuyers to take an immersive tour.

While many real estate agents spend time on weekends conducting open houses, Zillow’s data shows Millennials, who currently make up 70% of first-time homebuyers, say 3D media is just as important as an open house, according to the 2017 Zillow Group Housing Report.

Zillow’s data also showed about 44% of homebuyers and 47% of renters search for their home from a distance, and, according to the company, would benefit from 3D virtual tours of the home.

“Rich media, like these new 3D Homes, will help buyers and renters more easily visualize themselves living in the home, no matter how far away they happened to be,” said Jeremy Wacksman, Zillow Group chief marketing officer. “Photos have always been vital to the home search process and now 3D tours can give buyers and renters a realistic understanding of what it would be like to live in the home.”

Zillow also unveiled its new app that allows homeowners and real estate agents to capture the 3D images from their iPhone. While 3D tours currently exist, the process is much more expensive, and is usually only utilized in higher-end listings.

Currently, real estate agents need to buy special equipment in order to take 3D photos and tours. Zillow’s new app, the Zillow Group home Capture App, however, will be available for free from their app.

“We’re democratizing access to this technology, and making it free for agents and sellers,” Wacksman said. “We’ve created a 3D experience that is simple and cost-effective so agents and sellers can adopt it easily.”

“By integrating directly with the iPhone, a device many people are already using, agents can just pull out their phone, and capture a panoramic photo,” he said. “By removing the hardware barrier, more real estate pros can add 3D Homes to their listings, giving them a new way to market all of their listings, and improving the search experience for buyers and renters.”

The app is still in the early test phase with a select group of Realtors and photographers in Scottsdale, Arizona, but will soon roll out through the Phoenix area in early 2018. The rest of the U.S. will have access to the app later in 2018.

But will real estate agents take the time to use the app when demand is so high, and the average days on market for most homes is just over one month?

“Pictures are the most important factor in listing a home for sale in both a sellers’ and buyers’ market,” Granite Point Realty President Lisa Bloskas said. However, Bloskas, who has over 20 years in the real estate industry, including founding Dallas-based GPR, went on to explain that experienced agents and brokers use professional photography. “Photography is a key factor in how a home is presented online – correct lighting, how you frame a shot, the angle, glare from windows, etc.”

Zillow’s app works by capturing 360 degree panoramic photos of all the rooms in the home, which users then upload through the app. Zillow then stiches the photos together into a tour in just a few hours and adds it the listing on Zillow. Photos are all shot directly from an iPhone through the app.

As the picture below demonstrates, from Zillow’s website, it functions similar to Google maps’ street view, only from the inside of the home. Click here to see it in action.

Click to Enlarge

3D Homes

(Source: Zillow)

But Bloskas explained this new app is not a game changer, and many agents will opt out Zillow’s 3D Homes.  

“The price for a 3D virtual tour is around $100 when done professionally,” she said. “This cost is so minimal. I don’t see agents taking the time to use the app when the cost for the additional virtual tour is so inexpensive and is done while photographers are doing the still shots.”

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Executive Conversation: Kirk Randlett on the importance of accurate property tax data

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Executive Conversations is a HousingWire web series that profiles powerful people in the financial industry, highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with Kirk Randlett, senior leader of Tax Service Operations at CoreLogic, to discuss how lenders can deliver a seamless closing experience for consumers.

Q. What are some of the new expectations that consumers have in the mortgage loan closing process?

RandlettA. A few years ago, in the aftermath of the mortgage crisis, consumers were conditioned to believe that obtaining a mortgage was a difficult process. But lately they’re being bombarded with ads and messages saying that it’s very easy, very fast and very simple. And then comes the closing, with all the confusing calculations and piles of paper, and, frequently, last minute unpleasant surprises when it comes to closing costs. Some regulatory changes have helped to prevent some of these surprises. But lenders and LOs need to do a better job explaining the process and preparing the borrower for all of the costs they will see. This is particularly true for state, county and other jurisdictional taxes and can make up a substantial part of actual closing costs.

Q. How are lenders meeting this demand for improved accuracy when it comes to property tax data?

A. Estimating property tax amounts throughout the United States is a challenging task due to the complexity and differences in taxing authorities across the country. That challenge is even more complicated in areas like California, where legislation caps tax increases for existing residents, and then changes the tax rates for the new buyer after the sale. Lenders today are accessing property tax data in disparate ways. One lender may have the loan officer calculate the amounts, or they use the current owner’s tax base information. Another lender may make multiple calls to the various state and county jurisdictions.

These manual, one-off approaches contribute to longer turn times and inconsistent methods of determining the correct amounts. Also, the calculations may fail to take into consideration the borrower’s status as military, disabled, or some other exemption. Inaccuracy in reporting property tax data can lead to delays, such as reissuance of documents, or in the actual closing process where it can potentially impact the closing process resulting in an unhappy consumer.

Q. How does CoreLogic deliver superior data accuracy without sacrificing speed and efficiency?

A. CoreLogic has built one of the most comprehensive and up-to-date tax information databases that covers most residential parcels in the U.S. By combining this database with our proprietary estimation engine and a new technology platform, CoreLogic can deliver a comprehensive view of real property taxes for the specific address, even for new construction loans. Users can instantly access this information at loan application and provide a response with the taxing authorities’ information, the new estimated tax amounts, as well as the current actual tax.

Q. What specific benefits do lenders gain from using CoreLogic’s Property Tax Estimator (PTE)?  

A. Lenders benefit in several ways. A consistent, valid property tax value is used from pre-qualification through servicing. Their staff obtains property tax information in a fraction of the time via web portal or direct loan origination system integration. PTE provides multiple reliable data points, including actual and estimated tax values, to help lenders demonstrate reasonable efforts to procure the best available data. PTE offers a value advantage through improved time savings, productivity and data quality. And, PTE makes a positive impact to the consumer experience.

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Hurricanes pull down job growth in September

Job creation will dwindle in August due to the impacts of hurricanes Harvey and Irma, according to the ADP and Moody’s Analytics National Employment Report.

The report predicts an increase of just 135,000 jobs in September. This is down significantly from last month’s predicted increase of 237,000 jobs, and even up from the disappointing U.S. Bureau of Labor Statisticsemployment increase of 156,000 in August.

“In September, small businesses experienced a dip in hiring,” said Ahu Yildirmaz, ADP Research Institute vice president and cohead. “This is in part due to Hurricane’s Harvey and Irma which significantly impacted smaller retailers. In addition, the continued slow down we have seen in small business hiring could be due to a lack of competitive compensation to attract skilled talent.”

But whether or not the BLS numbers will follow the report is yet to be seen. As the numbers above show, ADP didn’t exactly hit the mark for the job increase in August.

The chart below shows that while ADP may not always hit the nail on the head, it serves as a general measure for the trend of the jobs market.

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ADP report

(Source: ADP, Moody’s Analytics)

Or does it? As it turns out, ADP discloses at the very bottom of its report the revisions for the previous month. And these revisions are by a fairly significant amount. Here are the last few months of revisions:

The August total of jobs added was revised down from 235,000 to 228,000.

The July total of jobs added was revised up from 178,000 to 201,000.

The June total of jobs added was revised up from 158,000 to 191,000.

The May total of jobs added was revised down from 253,000 to 230,000.

With numbers that change so drastically, can ADP’s report be a true indicator of the job growth we should expect to see in any given month?

Once again, construction is expected to see a boom in employment in September. The goods-producing sector is set to increase by 48,000 jobs overall, with changes in the following areas:

Natural resources and mining: Increase 1,000

Construction: Increase 29,000

Manufacturing: Increase 18,000

The service-providing sector is set to increase by only 88,000 jobs, with changes in these areas:

Trade, transportation and utilities: Decrease 18,000

Information: Decrease 11,000

Financial activities: Increase 4,000

Professional and business: Increase 51,000

Education and health: Increase 29,000

Leisure and hospitality: Increase 20,000

Other services: Increase 13,000

“Hurricanes Harvey and Irma hurt the job market in September,” Moody’s Analytics Chief Economist Mark Zandi said. “Looking through the storms the job market remains sturdy and strong.”

But one expert fears the job report could come in much lower than even the predicted 135,000.

“The ADP payroll survey revealed a modest 135,000 increase in private employment in September, which was above the consensus forecast at 125,000,” Capital Economics Chief Economist Paul Ashworth said. “But despite coming in better than the markets expected, that leaves us a little concerned because the ADP’s methodology means that the hurricanes shouldn’t have had much of an impact.”

Ashworth explained that ADP’s survey counts all employees on a business’s payroll, whereas the BLS numbers only look at who was paid.

“The upshot is that Hurricanes Harvey, which hit in late August, and Irma, which hit during the NFP survey week, should have had a relatively smaller impact on the ADP,” he said. “If the ADP measure was up only 135,000, then there could be downside risks to our estimate that non-farm payrolls increased by 100,000.”