Market Recap: Construction Spending Up, Mortgage Apps Mixed, ADP Employment Gains
Mortgage rates were little changed this week, following last week’s Federal Open Market Committee (FOMC) rate hike. US construction spending improved slightly. Residential construction spending was down month-over-month but up year-over-year. Mortgage application submissions showed little week-over-week change. The ADP employment report exceeded expectations.
US construction spending tracks total spending on all private and public construction projects. Residential construction specifically impacts housing but all construction spending triggers economic momentum with the creation of jobs and purchase of materials. In August, construction spending increased 0.1% month-over-month. Gains were driven by public spending, up 2% month-over-month, while private spending fell 0.5%. Residential construction declined 0.7% month-over-month but was up 4.1% from one year ago. Month-to-month construction data can be volatile, but overall spending for the first eight months of 2018 are 5.3% higher than the same period of 2017.
The Mortgage Bankers Association (MBA) weekly mortgage application survey was virtually unchanged for the week ending 9/28. New purchase application submissions increased 0.1% and refinance application submissions decreased 0.1%. MBA economist, Joel Kan, explained, “rates were little changed last week, following the most recent FOMC meeting […] short term rates have been increasing but long term rates have held steady, which should not pose too much of a headwind to home purchase activity, especially given the potential demand from demographic factors.”
The ADP employment report is based on data from approximately 400,000 US businesses employing approximately 23 million employees nationwide. Though the data is limited to the private sector, it is still used to gauge employment trends. In September, the ADP employment report showed substantial gains with the addition of 230,000 jobs, well above Econoday’s expectation of 179,000. Small businesses added 56,000 jobs, medium-sized firms added 99,000 jobs, and large companies added 75,000 jobs. The labor market has been exceptionally strong this year, averaging 207,000 new jobs every month.
Labor market strength typically translates into housing market strength. When consumers are gainfully employed, they are able to finance large purchases like homes. Even after last week’s rate hike, mortgage rates have not moved dramatically. Mortgage rates are likely to move upward, but any increase will be gradual. If you are looking for a new home, making a purchase now could secure a lower interest rate than if you choose to wait until next year. The Federal Reserve is expected to raise the benchmark interest rate once more in 2018 and three times in 2019.
Sources: CNBC, Econoday, MarketWatch, MarketWatch, MarketWatch, Mortgage News Daily