Employment Picture Is Bright
The latest employment statistics reflect the underlying strength of the U.S. economy. Virtually all of them are very positive, despite transitory fluctuations that might give the impression of a softening economy.
The table below displays the current status in several key areas.
Construction Spending Also Strong
Spending in private construction projects fell in June, by four-tenths of a percent (0.4%), to a rate of $1.02 trillion dollars. Despite this decline, spending is running 6.5% higher than the same month last year.
Also, the rate of spending has been rising over the last few months, ranging from a low of a 3% increase posted in March to June’s above-mentioned 6.5%. Faster growth in private construction is driven by the non-residential sector, which has been improving markedly since last November. Residential construction has been growing, but the growth rate has been slipping steadily. This is illustrated in the chart below, which plots the annual growth rates for residential and nonresidential construction spending. The black dashed line represents the same growth in total private spending shown by the red line in the chart above. Total growth obviously lies between the rates of residential and nonresidential sectors, since the total is just the average of the two lines.
Homeowner Remodeling Gains Again
There are over 121 million households in the U.S. Approximately 78 million are homeowners; the remaining 43 million are renters. But those 78 million homeowners continue to invest in the maintenance and improvement of their homes.
In June, the latest available data, they spent at the annualized rate of $221 billion for home remodeling — up a robust 9.2% from last year, when they were spending at a rate of $194.2 billion. This translates into an average of $2,833 spent per household.
However, the chart above reveals that the latest figure of $221 billion might be an anomaly. Even ignoring the latest data, it appears that spending this year is running more than 5% faster than last year.
Moreover, the Joint Center for Housing Studies at Harvard University projects that homeowners will increase spending on improvements and repairs at a rate of 7% over the next year. The Center’s indicator of remodeling activity, which tracks homeowners’ spending on home improvement, is projected to reach a peak growth rate of 7.4% this quarter, but will slow to around 7% in the following three quarters. The detailed report can be found here: http://www.jchs.harvard.edu/blog/robust-outlook-for-residential-remodeling-through-mid-year-2019/.
Mortgage Rates Still Rising…And Are Likely To Continue
The 30-year fixed mortgage rate rose a further six basis points last week to 4.60%, getting back to levels last seen two months ago. Rising mortgage rates may put a wrench in the housing market growth engine. New home construction is obviously impacted by rising interest rates because the vast majority of consumers who purchase a new home do so with the aid of borrowed funds.
But that’s not the case for home-remodeling projects, which are mostly financed by personal savings. That is, home remodeling is a little more immune to mortgage rate trends.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $500,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers.
We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
