Fed's Patience Continues as Labor Market Tightens

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May 08, 2019
Housing has generally underperformed thus far in 2019, despite recent declines in mortgage interest rates. This is all the more concerning given that GDP growth for the first quarter (3.2%) exceeded analysts' forecasts, including NAHB's. Lagging housing construction is clearly connected to housing affordability declines stemming from the combination of interest rate effects and years of home price growth outpacing income growth. That said, the Federal Reserve's decision to continue holding the federal funds rate steady at a top rate of 2.5% helps reduce upward pressure on interest rates. The decision is based on the fact that inflation remains anchored below the Fed's target rate of 2%.
Mirroring the GDP data, April labor market data showed an economy with notable positive momentum. For the economy as a whole, 263,000 jobs were added and the unemployment rate approached a 50-year low at 3.6%. However, due to slow housing construction expansion, builders and remodelers added only 600 jobs in April, with the six-month moving average of residential construction job growth falling back to 5,250. Nonetheless, home builders and remodelers have added 92,800 jobs over the last year. And March data indicate the job openings rate continues to rise, with more than 300,000 unfilled positions in the construction industry.
The strong job numbers and ongoing economic expansion would usually point to additional growth in single-family construction. However, as the end of 2018 illustrated, home buyers are reluctant to purchase homes at today's prices given current income levels. Until affordability conditions improve, housing will continue to hamper overall economic growth.
–NAHB Chief Economist Robert Dietz
Earl McLeod, Executive Director
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