Blog posted On September 07, 2018
Construction spending improved in July, led by a surge in residential spending. New purchase mortgage applications increased while refinance applications decreased. The ADP employment report showed the addition of 163,000 jobs in August. Mortgage rates trended slightly upward.
US construction spending tracks total spending on private and public construction projects. In June, construction spending increased 0.1% month-over-month and a significant 5.8% year-over-year. Residential construction spending specifically improved 0.6% month-over-month and 6.6% year-over-year as buyer demand continues to outpace supply. Home improvement spending increased substantially, up 2.1% month-over-month, as some homeowners are choosing to withdraw home equity to reinvest in their homes.
The Mortgage Bankers Association (MBA) weekly mortgage application survey was mixed for the week ending 8/31. New purchase applications increased 1.0% and refinance applications decreased 1.0% for a composite decrease of 0.1%. The data signaled that more first-time home buyers are starting to enter the market, as the average size of purchase loans has dropped to the lowest level since last year. Home price appreciation has started to slow somewhat, MBA chief economist Mike Frantantoni noted, “home prices, while decelerating, continue to rise faster than household income."
The ADP employment report tracks data from approximately 400,000 US businesses employing approximately 23 million US workers. Though the data is limited to private payrolls, it is used to gauge employment trends. In August, companies added 163,000 jobs, down from July’s gain of 217,000 jobs. Medium-sized companies led the growth with the addition of 111,00 jobs, followed by large firms adding 31,000 jobs and small businesses adding 19,000 jobs. Vice president and co-head of the ADP Research Institute, Ahu Yildirmaz commented, “although we saw a small slowdown in job growth the market remains incredibly dynamic.”
The increase in residential construction spending is particularly good for the housing market, but all construction spending triggers economic momentum with the creation of jobs and the purchase of materials. The unemployment rate is at a record low and a strong labor market typically translates into housing momentum. Refinance mortgage activity is expected to pull back as rates rise. The increase in first-time home buyer activity signals more first-time buyers have found ways to overcome the down payment obstacle and enter the housing market.