***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis from Chief Economist David Crowe.
A positive labor market report for November signals that the market can expect an increase in short-term interest rates from the Federal Reserve soon. The Bureau of Labor Statistics estimated net job growth of 211,000 in November, plus an additional 35,000 in job gains from revisions of the prior two months. The unemployment rate held steady at 5%.
While NAHB expects the Federal Reserve to begin tightening monetary policy in December, it is important to keep in mind that mortgage interest rates tend to be more responsive to longer-term rates, particularly the 10-year Treasury rate, than to changes in short-term rates. And with typical effective interest rates for new home sales hovering near 4%, the more important challenge for prospective home buyers remains accumulating the necessary downpayment. Thus, NAHB expects single-family construction to continue to expand in 2016 as rates rise.
GDP growth received a better-than-expected reading for the third quarter, with the second estimate from the Bureau of Economic Analysis coming in at 2.1%, up 0.6 percentage points from the advance estimate. The fourth quarter will likely be weaker than the third, but NAHB is expecting faster economic growth in 2016.
And a notable supply-side headwind for home builders continues to show signs of improvement. While credit remains tight, the volume of residential AD&C loan lending increased 3.9% during the third quarter, posting a 16.5% year-over-year gain. Improved lending conditions should promote faster single-family construction, as well as increased deliveries of building lots.