November 14, 2011
Nation's Building News

The Official Online Weekly Newspaper of NAHB

Eye on the Economy: Economy and Housing Gain Some Traction But Still Could Slip

Some positive news in recent weeks suggests the economy and housing demand may be gaining some traction after a year of just limping along.

In the advance estimate for the third quarter, gross domestic product accelerated to 2.5% — up from 0.4% and 1.3% in the first and second quarters, respectively.

The Federal Open Market Committee attributed the acceleration to “the reversal of temporary factors” restraining growth earlier in the year. However, there are many other factors that could still derail the recovery.

The labor market remains weak, with the addition of 80,000 jobs in October. While revisions added more than 100,000 jobs to August-September estimates, this year’s monthly job creation averaged a sluggish 125,000 through October. This falls below the pace needed to keep pace with growth in the size of the labor force, leaving unemployment stubbornly high at 9.0%.

On the housing front, the NAHB/First American Improving Market Index showed continued expansion in November, with 30 metro areas on the list; the third-quarter homeownership rate ticked up to 66.1%, the first increase since 2008; and private residential construction spending rose in September.

However, pending home sales continued to drift down, suggesting little improvement for existing home sales over the next few months; and NAHB’s remodeling market index faltered again in the third quarter, after reaching a four-year high in the first quarter.

Also raising concern, several gypsum producers announced plans to increase prices in early 2012, some by as much as 35%. NAHB estimates this would add up to $600 to the cost of building a median-priced house.

The ongoing housing crisis is likely to have a long-term impact on demographics. Household formations have been delayed, and new NAHB research shows that marriages and having children are also being delayed, leading to a marked decline in fertility rates among women in their 20s and 30s.

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Eye on the Economy is a bi-weekly digest of the latest economic and housing policy news, analysis and studies as posted on NAHB’s free Eye on Housing blog. The preceding is a reissue of his Nov. 10 edition. To subscribe to Eye on the Economy, click here.

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