***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.
Sales of existing homes weakened at the end of 2015, despite ongoing good news for job creation. According to estimates from the National Association of Realtors (NAR), the seasonally adjusted volume of home resales declined 10.5% from October to November and were 3.8% lower than a year prior. This marked the first year-over-year decline since September 2014. However, much of this decline was attributable to new mortgage disclosure rules from the Consumer Financial Protection Bureau that likely resulted in delays for some sales.
Similarly, the NAR Pending Home Sales Index, a forward-looking indicator for home sales, declined in November. This was the third decline in the last four months; however, the index remains 2.7% higher than a year ago.
In contrast, new home sales posted a small increase in November, rising 4.3% from a downwardly revised October pace to a 490,000 annual pace. On a year-to-date basis, new home sales were 14.5% higher than for the first 11 months of 2014. Builders are also adding to inventory with rising demand. New home inventories rose to 232,000, the highest since January 2010.
Strengthening job creation should continue to promote home building activity in 2016. And the December Bureau of Labor Statistics report offered positive news. The economy produced 292,000 more jobs for the month, plus an additional 50,000 jobs recorded due to upward revisions for prior months. The unemployment rate held steady at 5%.
The residential construction industry – home builders and remodelers – added 23,100 jobs in December after a cycle-high job gain set in November (31,500). These two months followed a period of lackluster employment gains for the sector. The overall construction industry continues to see elevated levels of unfilled jobs, as does the economy as whole.
The combination of lower unemployment, rising unfilled jobs and a declining labor force participation rate suggests wage gains should be expected in 2016. However, if the economy is able to bring in part-time and underemployed workers into the labor force, then those additions may act as a check on wage increases. Nonetheless, builders should be prepared to face higher labor costs in 2016 as labor market conditions tighten.