Market Forecast: Construction Spending, Mortgage Applications, and the ADP Employment Report
Posted On April 02, 2018
Mortgage rates have trended slightly downward in recent weeks, reacting to uncertainty surrounding global trade and plunging technology sector stocks. This week, the US construction spending report comes out on Monday and the weekly mortgage application survey comes out on Wednesday. The ADP employment report is also scheduled for release on Wednesday.
US construction spending measures total spending on all construction projects including residential, non-residential, and public projects. Residential construction specifically influences housing, but all construction activity triggers economic momentum with the creation of jobs and the purchase of materials. In January, construction spending was virtually unchanged month-over-month and up 3.2% year-over-year to an annual rate of $1.26 trillion. Pantheon Macro chief economist Ian Shepherdson explained, construction spending was likely hurt by cold winter weather, “so we expect a clear rebound in February.”
The Mortgage Bankers Association (MBA) weekly mortgage application survey tracks changes in the submissions of new purchase and refinance mortgage applications each week. For the week ending 3/23, new purchase applications improved 3.0% and refinance applications were up 7.0% for a composite increase of 4.8%. Although mortgage rates are rising, Redfin chief economist Nela Richardson said, “Mortgage rates are still really cheap compared to the historical average. Over the last 50 years or so mortgage rates have averaged around 8 percent on the 30-year fixed rate mortgage, and have been much higher, topping 18 percent in the 1980s. Rates now are still below 5 percent.”
The ADP employment report is based on data from over 400,000 businesses employing approximately 23 million employees nationwide. The report is limited to private-sector businesses but is still used to review employment trends and the health of the labor market. In February, the ADP employment report exceeded expectations with the addition of 235,000 jobs. The labor market is nearing full employment, the unemployment rate is at a 17-year-low, and the biggest difficulty reported by businesses is the inability to find skilled workers to fill available positions.
Most housing market professionals expect limited housing inventory to impact the market more than rising mortgage rates this year. Despite upcoming federal interest rate hikes, average mortgage rates are historically low. The National Association of Realtors believes the supply-demand imbalance to create a competitive market, favoring the strongest buyers. Buyers who plan ahead and get preapproved before shopping, are likely to be more favorable to sellers.