The monthly report from Freddie Mac's Office of the Chief Economist,
Economic and Housing Outlook, released earlier this week put much of
its focus on an improved jobs outlook. Real estate
and construction not only played a large role in generating this good
news but appears poised to benefit significantly from it.
Freddie's report quotes Bureau of Labor Statistics (U.S. Department
data claiming a 274,000 gain in non-farm employment for April
and an upward revision of February and March figures by 93,000 jobs. In the
April employment figures, construction employment
was responsible for 47,000 jobs, 17 percent of the total increases. This continues
the growth in construction that has seen job gains in 24 of the last 25 months,
primarily due to the strong housing sector of the industry. Construction now
accounts for 7.2 million jobs, 8 percent above the previous record set in April,
The Census Bureau has reported that the value of construction put in place
for March set its 14th consecutive record, again with residential building
being the main driver. The value of residential construction
was up 13 percent over the same period a year earlier.
The Freddie report credits the strength of construction and housing activity
in general to the continuing low level of mortgage rates and
paints a bright picture for the near future. The report revised earlier estimates
for housing starts this year to 1.95 million units from 1.93 million in April
and total home sales at 7.07 million from the 6.93 million forecast just one
month ago. Inventories of homes available for sale remain low with an estimated
4.1 months supply of existing homes and 4.4 months supply of new homes currently
on the market. Estimates of country-wide home price appreciation
were also bumped up from 6.8 percent to 7.9 percent this year, although those
price increases are, as usual, disproportionately skewed by activity on both
coasts. Total mortgage originations are now projected at $2.3 trillion down
about 10 percent from 2004 figures, but much of the decline in activity will
come from the refinancing sector.
And Freddie expects the improved outcomes above because of more good news.
The Office of the Chief Economist has reduced its forecast for mortgage rates
at year end by about 30 basis points across the board. The report now foresees
the 30-year fixed finishing up 2005 at around 6.1 percent. The caveat,
however, is that the volatility of the bond market is an unknown and could push
rates up to as much as 6.4 percent.