Believe it or not, interest rates do not drive housing demand. Jobs do. We have had some of the hottest housing markets on record when Unemployment Rates were low but interest rates where high. Simply speaking - if you feel more secure about your job, you are more likely to purchase a home.
Friday's Unemployment Rate dropped from 7.6% to 7.5% but more importantly, the economy added 165,000 non-farm jobs.
Stronger housing means more jobs, not just construction jobs, all jobs. When consumers feel more confident about the value of their homes, they spend more money. Their homes, after all, are likely their single largest investment.
They may not take the money out of their homes, but they just feel more financially comfortable, and that comfort sends them out spending. They also spend more on home improvement.
Residential construction jobs increased by just over 6,000 in April from the previous month, according to the Bureau of Labor Statistics, and residential specialty trade contracting jobs (plumbers, electricians, roofers, etc.) grew by over 7,000.
Retailers are also seeing the effects of housing growth. Homeowners spend an average $7,400 furnishing a newly built home, according to the National Association of Home Builders.
"Spending at furniture and appliance stores is finally coming back, which has meant more hires there since the start of the year," added Swonk.
Home prices were up just over 10 percent nationally in February, according to CoreLogic, which continues to bring thousands of homeowners out from underwater on their mortgages. That has allowed more borrowers to refinance to lower monthly payments, which in turn gives them more spending money. It also gives them more confidence that they will be able to afford more in the coming year.
"Consumers' views regarding the housing market have been increasingly more positive," noted Fannie Mae's chief economist Doug Duncan. "Our April National Housing Survey, to be released next Tuesday, is expected to show that the housing market is gradually approaching its sweet spot, as the share of consumers who believe that it is a good time to buy remains high while the share of those who think it is a good time to sell continues its upward trend witnessed over the past year."
Tuesday, May 7, 2013
Posted by Ed Hughes at 10:21 AM