The new outlook for housing this month from Freddie Mac puts it succinctly: New home construction is the juice for economic recovery.
Questions regarding the housing recovery’s sustainability remain. But the formula is simple: new home construction is creating a demand for jobs, which will help further bring down the unemployment rate.
A correction from an “unsustainably high level of production” in the volatile apartment construction sector was largely responsible for a 16.5 percent dip in nationwide housing starts announced Thursday, said the National Association of Home Builders.
However, permits for new construction was higher in April, with a particularly strong gain in multi-family issuance.
“The big decline in April housing production was mostly on the multifamily side, which recorded a similarly dramatic increase in the previous month,” said NAHB Chief Economist David Crowe. “Meanwhile, overall permits for new construction surpassed the million-unit mark and the number of yet-to-be-used permits rose in April, which is a good indicator that the dip in building activity was likely a temporary pause due partly to unseasonably poor weather conditions.”
Freddie Mac agrees with the NAHB’s assessment.
“As new home construction ramps up, the unemployment rate will fall,” said Freddie Mac in its May market outlook. “With housing turning the corner cautious optimism has been on the rise. Home builders are anticipating improvements in the market over the next six months.”
Following the collapse in new home construction, the excess inventory of new homes for sale dropped, and the median time-on-market returned to historical norms. As of March, median time-on-market for new homes was five months, which is in line with historical averages.
Here are other highlights from Freddie’s market outlook:
- Expect GDP growth in 2013 to be about 2 to 2.5 percent, below its 3 to 3.5 percent potential.
- As of April 2013, the percent of the population participating in the labor market was at 63 percent, lower than any time since 1980.
- The relationship between the unemployment rate for construction workers and job openings has not shifted, as it apparently has for all other workers.
- Forecasting housing starts will increase by about 200,000 units in 2014 compared to 2013, which suggests the unemployment rate for construction workers should fall by around 1.5 percentage points, and add 100,000 to 200,000 additional jobs in construction alone.
- As of March, median time-on-market for new homes was 5 months, which is in line with historical averages, and down sharply from the Great Recession high of over 14 months.