NAHB analysis of Census Construction Spending data shows that total private residential construction spending stood at a seasonally adjusted annual rate (SAAR) of $511.4 billion in September, the highest level since December 2018. It inched up 0.6% in September, after increasing 0.8% in August and 1% in July. Private residential construction spending rebounded in the third quarter after decreasing for the first six months of this year, as mortgage interest rates declined.

The monthly gains are largely attributed to the strong growth of spending on single family. Single family construction spending jumped to a $274.6 billion annual pace in September, up 1.3% over the August estimates. It was the highest monthly annual rate since December 2018. Multifamily construction spending dipped 0.7% in September, but was 0.9% higher since a year ago. Spending on home improvements in September was not significantly different from the August estimates.

The NAHB construction spending index, which is shown in the graph below (the base is January 2000), illustrates the strong growth in new multifamily construction from 2010 to 2016 and relatively flat afterwards. Improvement and single-family construction showed weakness over the last year.

Spending on private nonresidential construction declined 5.7 percent over the year to a seasonally adjusted annual rate of $450.3 billion. The annual nonresidential spending decline was mainly due to less spending on the class of commercial ($19.4 billion), followed by educational category ($2.9 billion), and amusement and recreation ($2.5 billion).

The October job gains suggests the job market is still showing solid gains. Total employment increased by 128,000 and the unemployment rate inched up 0.1 percentage points to 3.6%.

Residential construction employment increased by 5,100 in October, after an increase of 5,500 jobs in September (revised). Total construction industry (both residential and nonresidential) employment totaled about 7.5 million in October.

The Bureau of Labor Statistics released the Employment Situation Summary for October. Total nonfarm payroll employment rose by 128,000 in October, following an increase of 180,000 jobs in September.

Job gains in September and August were revised higher. The September increase was revised upward to 180,000, while the August increase was revised upward to 219,000. With the upward revisions, job gains in the previous two months increased by 95,000 totally. Monthly employment growth has averaged 167,000 per month for the first ten months of 2019, compared with the average monthly growth of 223,000 over all of 2018. Over the past twelve months, total nonfarm payroll employment rose by 2.1 million, with the average monthly growth of 174,000.

In October, the unemployment rate inched up 0.1 percentage points to 3.6%. Over the month, the number of unemployed persons was little changed (+86,000) and the number of employed persons increased by 241,000. Meanwhile, the labor force participation rate, the proportion of the population either looking for a job or already with a job, ticked up by 0.1 percentage points to 63.3% in October.

Additionally, monthly employment data released by the BLS Establishment Survey indicates that employment in the overall construction sector increased by 10,000 in October. The number of residential construction jobs rose by 5,100 in October, following an increase of 5,500 jobs in September.

Residential construction employment now stands at 2.9 million in October, broken down as 847,000 builders and 2.1 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction is 4,167 a month. Over the last 12 months, home builders and remodelers added 53,700 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 939,000 positions.

In October, the unemployment rate for construction workers rose to 4.7% on a seasonally adjusted basis, from 3.9% in September. Despite the monthly volatility, the unemployment rate for the construction sector remains historically low.

The most recent data release from the Bureau of Economic Analysis (BEA) showed that personal income rose slightly by 0.3% on a month-over-month basis in September after a 0.5% increase in August. The 0.3% gains in personal income, which is at a seasonally adjusted annual rate (SAAR) of $50.2 billion, were largely limited to personal interest income, farm proprietors’ income, and government social benefits to persons. However, wages and salaries stayed flat, mostly as a result of the United Auto Workers work stoppage, which pulled the wages and salaries estimates down by $1.6 billion (SAAR) in September.

Year over year, personal income increased by 4.9%. Real disposable income, income remaining after adjusting for taxes and inflation, inched up 0. 3% in September after a 0.5% gain in August.

Personal consumption expenditures (PCE), which make up more than two-thirds of the economy, increased 0.2% in September, the same margin as in August. Spending growth slightly softened compared to earlier months of this year.

Personal savings increased to $1,384 billion (SAAR) in September, accounting for 8.3% of disposable income. The savings rate rose with the onset of the Great Recession as households repaired their balance sheets. However, higher savings rates, which imply a slowdown in spending, could hold back the growth of economy.

For the first time since November of last year, information compiled by Freddie Mac shows that mortgage rates increased slightly. As of end of October 2019, the 30-year FRM – Commitment rate, increased by eight basis points to 3.69 percent from 3.61 percent in September. The cycle peak was 4.87 percent in November.

As expected, The Federal Reserve lowered its benchmark interest rate at the October Federal Open Market Committee meeting by a quarter percentage point, to a range of 1.50-1.75 percent for the third time in the past three months. With this move, the Fed has essentially reversed three of four rates hikes in 2018. Outlook expressed by FOMC members noted that the current stance of policy would remain appropriate so long as incoming information on the economy was consistent with the outlook. This is in line with NAHB forecast that this would be the last rate cut for 2019. Additionally, Chair Powell examined risks to the outlook, financial stability risks, inflation expectations, and the Fed’s review of its monetary policy framework.

At the end of October, the 10-year Treasury rate, was at 1.70 percent. It was at 1.67 percent at the end of September. Although slightly up compared to a few weeks ago, the lower rate 10-year Treasury rate has contributed to lower mortgage interest rates in the last few weeks compared to earlier this year. The average 30-Year Fixed market rate, according to Freddie Mac, was at 3.78 percent at the end of October compared to 3.64 percent at the end of September. At the beginning of 2019, the average 30-Year Fixed market rate was 4.51 percent.

Builder and developer confidence in the 55+ housing market strengthened in the third quarter of 2019, as reflected by the single-family 55+ housing market index (55+ HMI) reading of 72, up one point from the previous quarter (Figure 1). This is the highest reading since the inception of the index in 2008.

NAHB produces two 55+HMIs, measuring sentiment in both the single-family and multifamily condominium markets. Each segment of the 55+ HMI is based on a survey that asks builders and developers if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic).

Among the components of the 55+ single-family HMI, present sales rose two points to 78, while expected sales for the next six months dropped one point to 77 and traffic of prospective buyers fell one point to 55.

The strong 55+ single-family HMI reflects gains seen in the overall housing market, which has been largely supported by low interest rates and healthy job growth.

Meanwhile, the multifamily condo 55+ HMI decreased six points to 53 in the third quarter of 2019 (Figure 2). All three index components posted declines from the previous quarter: Present sales fell five points to 56, expected sales for the next six months dropped nine points to 56 and traffic of prospective buyers declined three points to 47.

In addition to the two 55+HMIs for the single-family and condo markets, NAHB produces four indices measuring supply and demand in the 55+ multifamily rental markets. Three of the four indices dropped in the third quarter: present production dropped seven points to 57, future expected production fell nine points to 55, and present demand for existing units fell one point to 72. Meanwhile, future demand in the 55+ multifamily rose one point to 74.

Despite the declines, all multifamily 55+ indices remain above 50, indicating that more respondents say conditions are good than poor.  Some decline in sentiment about the 55+ multifamily market is not surprising, given the post-Great recession record number of apartments currently under construction.

For the full 55+ HMI tables, please visit nahb.org/55hmi.