Labor Market Improvement Follows Housing Strength

The following analysis was recently published in NAHB's bi-weekly e-newsletter Eye On the Economy by Chief Economist Robert Dietz:

While risks persist, recent economic data have shown rapid improvement relative to dramatic declines in mid-spring. And housing data have led the way:

Proving wrong predictions of substantial home price declines, Case-Shiller data indicate a 4.7% year-over-year price gain in April. These gains have been fueled by low interest rates and a renewed focus on the importance of "home" during the ongoing public health crisis. According to Freddie Mac, the average 30-year mortgage interest rate was just below 3.1% at the start of July.

Given this backdrop, housing data continue to improve. The NAHB/Wells Fargo HMI has moved into positive territory, single-family permits were up 12% in May, and the resale market is recovering. According to the National Association of Realtors, pending resales increased 44% in April as the market gained ground off of March lows. Existing sales were being held back by a much-reduced level of listings. As the inventory numbers improve, housing market volume is expanding.

The labor market is following the positive trends in housing. In May, construction hiring surged and job openings increased to 365,000, down only slightly from the 373,000 tally measured a year earlier. Indeed, home builders and remodelers added 83,200 jobs in June, after gaining 224,200 in May. This pickup matched the broader economy, which saw an employment gain of 4.8 million and a decline for the unemployment rate to 11.1%. The true jobless rate is higher than the official rate, but the NAHB forecast sees an unemployment rate near 10% at the end of 2020.

But risks remain. Rising virus-related hospitalizations in some southern and western states indicate ongoing community spread and threaten additional government-imposed economic shutdowns. Moreover, recent housing strength is, in part, due to an unlocking of sidelined housing demand from the early spring.

As this demand is met, some momentum for housing will ease. And double-digit unemployment rates will weigh on rental housing and entry-level housing demand during the second half of the year. However, low interest rates and the changing geography of housing demand (smaller metro and outer suburb demand outperforming large metro areas) suggest housing will continue to lead the economic recovery.

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