Eye On Housing
***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis from Chief Economist David Crowe.
The Federal Reserve’s monetary policy committee did not increase short-term interest rates at the conclusion of its October meeting, but most analysts expect an increase in the coming months. However, recent macroeconomic data have been mixed, which may delay until next year the expected rate boost, which would be the first since 2006.
For example, the initial estimate of GDP growth for the third quarter came in at a weak 1.5% seasonally adjusted annual rate. And while employment growth improved in October (271,000 jobs gained), the bounce back came after soft job readings for September and August. Those looking for good news on the labor front can point to a 5% unemployment rate. On the other hand, unfilled jobs have been trending up and the labor force participation rate was 62.4% in October, down 50 basis points from the 2014 average.
Similarly, housing data continue to describe mixed trends. Census construction spending data for September, which detail the dollar value of completed projects, indicated ongoing elevated building of multifamily developments, up 27% year over year. Multifamily spending continues to ride strong absorption rates for the rental market and low volume of condo construction. Single-family construction spending posted a healthy, but smaller, 13% annual gain.
A measure of pending existing home sales from the National Association of Realtors declined for the second consecutive month in September. As most newly built home sales are due to move-up buyers, this is a trend worth watching. Nonetheless, new home mortgage interest rates remain low and consumer confidence data show rising numbers of households planning to buy a home in the near future.
The NAHB/First American tracking of local home construction conditions, the Leading Markets Index, rose to .93 in the third quarter of 2015, .01 point higher than the previous quarter, and .04 point higher than its level from one year ago (.89). The index uses single-family housing permits, employment and home prices to measure proximity to a normal economic and housing market. A value of 1.0 means the market is back to normal. Of the 364 MSAs included in the LMI, 56% saw their scores increase over the quarter and 69% recorded year-over-year growth.
If 25% of first-time buyers have dropped out of the market with 30 years fixed interest rates under 4%, what will happen to the market’s most important segment if rates increase by 100 basic points? The industry has had many months to attempt to deal with this problem, has done nothing and it now may just be too late.