***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis from Chief Economist David Crowe.
The NAHB/Wells Fargo Housing Market Index increased one point in September to 62, the highest level in 10 years. Two of the three components increased: The present sales indicator rose one point to 67, and the traffic indicator increased two points to 47. The measure of future sales declined two points to 68, albeit from a two-month sustained level of 70 not seen since late 2005. Regional three-month moving averages were up one point in the Midwest (to 59), the South and West (to 64). The Northeast fell one point to 46 but from a yearly high of 47.
Builders continue to express confidence that the slow single-family housing recovery will continue but report issues about the ability to access lots. Additionally, concerns about hiring qualified construction workers and regulatory burdens also present potential cost challenges.
Data from the Bureau of Labor Statistics continue to show a rising trend for unfilled construction positions. According to the Job Openings and Labor Turnover Survey, the number of open construction sector jobs (on a seasonally adjusted basis) remained constant at 137,000 for July. The open rate has been trending upward since 2012, with the current three-month moving average of 2.1% near the cycle high set during May (2.4%).
Access to building lots depends in part on the availability of developer credit. And while recent data suggest ongoing easing for AD&C lending, the volume of loans remains significantly lower than levels from a few years ago. FDIC data indicate that the volume of residential AD&C loans outstanding expanded 4.7% during the second quarter of 2015, marking the ninth consecutive quarter of growth and up 16.4% on a year-over-year basis. However, lending remains down 72.5% from peak levels.
August offered good news with respect to building material prices. According to BLS data from the Producer Price Index, softwood lumber prices partially reversed the 2.4% increase in July, declining 2.2% in August. Prices have hovered in this range since early 2014. Similarly, OSB price dropped 0.8% after a 1.0% increase in July. Overall, soft overseas demand has kept domestic supply at home placing downward pressure on prices. Gypsum prices dropped another 0.9% in August, bringing the decline from a February peak to 6.5%. Gypsum prices are now slightly below the housing boom peak, although history suggests price increases could come as the new year approaches.
Housing demand continues to improve as the labor market expands, albeit modestly at times. The Bureau of Labor Statistics (BLS) reported that payroll employment expanded by 173,000 in August, with upward revisions to prior months’ data adding an additional 44,000 jobs on record. The unemployment rate fell to 5.1% from 5.3%. Job creation will help support both rental and for-sale housing demand, although the economy is approaching a decision point for monetary policymakers. Current readings are sufficiently ambiguous that monetary policy hawks will see in it what they need to go forward with a September rate hike, while doves will see it as evidence to hold off.