Rapid growth in spending and economic output is sure to force businesses to increase hiring at some point, and we expect payroll employment to pick up by the fourth quarter. Indeed, surveys of small businesses have been showing more positive hiring plans for several months, business use of temporary help services has been on the rise and the August employment report showed a pickup in self-employment that helped to offset the deterioration in payroll jobs. These developments typically precede broad-based improvement in labor market conditions.
The Fed holding rates steady despite labor market weakness ...
The Federal Reserve almost certainly will hold short-term rates steady at its FOMC meeting tomorrow (keeping the federal funds rate target at 1%) even though the labor market has been weakening since the last rate cut on June 25. The Fed actually has been applauding the strong productivity growth, along with the obvious pickup in spending and economic output, and the Fed fully expects the job market to firm up before long. The current monetary policy stance is quite stimulative, of course, a point the Fed keeps stressing in public statements.
The next change in monetary policy most likely will be toward higher rather than lower rates. But the Fed will not start to tighten until there’s convincing evidence of labor market improvement and some increase in core inflation in the upper end of the central bank’s implicit 1.5% to 2.5% target range. We don’t expect the first rate hike to occur before the June 2004 FOMC meeting, and the upward march toward monetary policy “neutrality” presumably will proceed quite cautiously beyond that point.
House prices continue to rise while the refi boom stalls the buildup of housing equity ...
OFHEO’s national House Price Index showed a 5.6% advance for the second quarter (year-over-year), as all the census divisions, all the states and all major metro areas posted price increases. As anticipated, rates of house price appreciation have been decelerating in many areas from the peak rates in the first half of 2001, but there seems to be little danger of outright price declines as the national economic expansion gains momentum and mortgage rates remain historically low.
The healthy rate of home price appreciation, along with the strong pace of single-family housing production (new units and remodeling), pushed the market value of household real estate to a record $14.1 trillion at mid-2003. However, the record-breaking refinancing boom in the second quarter of the year spurred an even larger increase in mortgage debt, halting the climb in housing equity (at least temporarily). Even so, equity in housing was a near-record $7.6 trillion at mid-year, and mortgage debt was still less than half the market value of homes.
Mortgage rates are still the key to the single-family housing outlook ...
The increases in mortgage interest rates since mid-June have already taken a lot of strength out of the refi boom, based on weekly data on mortgage applications from the Mortgage Bankers Association. But the impacts on home buying apparently have been quite limited to date. It’s reasonable to expect home buying and single-family housing production to move ahead at a strong pace that’s only modestly below the extremely rapid rate of recent months, and house prices as well as housing equity should post healthy gains over the balance of this year and in 2004.
The path of mortgage interest rates is critical to these forecasts, of course, and NAHB’s interest rate outlook shows only slight increases from current levels until the latter part of next year. Recent rate developments in the Treasury market have been encouraging, showing some retreat in long-term yields from the highs of early September. This should presage some decline in the long-term mortgage rate from its early-September level (6.44%).
Residential remodeling moves ahead, paced by spending on owner-occupied homes ...
NAHB’s Remodeling Market Index (RMI) for the second quarter of 2003, based on a survey of about 550 professional remodelers, showed strong readings for both current market conditions and expectations for the future. Remodeling of owner-occupied homes received high scores on all fronts, including forward-looking measures regarding calls for bids, amount of work committed in coming months, job backlogs and appointments for proposals.
The components of the RMI dealing with rental units have been showing much less strength than the owner-occupied components for both current market conditions and the outlook for remodeling jobs. Many landlords apparently have been limiting remodeling outlays in an environment of rising vacancies and widespread rent concessions.
Production of new multifamily structures hangs in there despite rising rental vacancy rates ...
Multifamily starts and permits have been essentially flat for about seven years, generally hovering in the 325,00-350,000 unit range (annual rate), and the value of new multifamily construction put-in-place has settled into an elevated range around $33 billion per year. This has occurred despite persistent and substantial increases in rental vacancy rates since late 2000 and reports of widespread rent concessions in market-rate rental housing, a phenomenon that apparently has sapped the strength of the market for federally subsidized rental units in some areas.
NAHB’s Multifamily Market Index for the second quarter confirms the weakness in current rental market conditions, particularly for Class A apartments. However, multifamily producers and apartment managers foresee stronger rental market conditions six months down the line, based largely on expectations for higher home mortgage rates and a stronger job market. Furthermore, the condo (for-sale) component of the market for new multifamily units continues to perform relatively well, and more than 10% of survey respondents say they are planning to convert rental to condo units down the line.
NAHB Chief Economist David Seiders analyzes the economy from the point of view of the housing market every other week in the free e-newsletter, “Eye on the Economy.” The preceding is a reissue of his Sept. 10 e-newsletter. To subcribe to “Eye on the Economy,” click here.
Want more economic information? Find it in our publications.
Find more in-depth information in our three economics publications, Home Builders Forecast, Housing Market Statistics and Housing Economics. All are availaible by subscription.
- Home Builders Forecast includes analysis of single-family and multifamily residential activities, residential remodeling and the full range of nonresidential construction as well as the macroeconomic factors such as GDP, employment and interest rates that drive construction. If your business depends on reliable estimates of housing starts, construction spending and remodeling activity, Home Builders Forecast is designed to meet your needs.
- Housing Market Statistics contains an overview of important developments and trends that serves as an executive summary of the current industry situation. It also contains annotated charts depicting movements in key indicators and tables providing monthly, quarterly and annual data for more than 250 variables.
- Housing Economics provides a rigorous monthly overview of the economy, along with monthly data for more than 100 local markets and in-depth analyses of the niches and nuances of home building markets. Available online or in print, it is written in terms that builders, manufacturers and housing finance professionals can understand and apply to their own businesses.
To learn more or to order any of these three NAHB economic publications, visit the Economics Publications Information section of the NAHB Web site or call 800-223-2665.
We Want to Hear From You
Let us know what you think about NBN Online. Please click here to fill out the NBN Online Readers' Survey. Thank you.
[ Go to Top ]