American Home Prices Set to Rise, Jobs to Fall

New data suggests home prices in America will keep climbing, despite continued weakness in the labor market causing unemployment to rise.  Builders are increasingly confident about the single-family home market, according to a new study by the National Association of Homebuilders. The NAHB’s Housing Market Index rose by 2 points in June because of more buying activity and a limitation on places to build new homes.

New data suggests home prices in America will keep climbing, despite continued weakness in the labor market causing unemployment to rise.  Builders are increasingly confident about the single-family home market, according to a new study by the National Association of Homebuilders. The NAHB’s Housing Market Index rose by 2 points in June because of more buying activity and a limitation on places to build new homes.

“Builders in many markets across the nation are reporting higher traffic and more committed buyers at their job sites,” said NAHB Chairman Ed Brady on the study, adding that homebuilders worry America is running out of space to build new inventory to satisfy demand. “However, our members are also relating ongoing concerns regarding the shortage of buildable lots,” he said.

The decline in inventory would indicate rising prices are set to continue, after both new home and existing home prices saw mid-single digit gains throughout 2016, even as broader economic growth slowed. Additionally, more joblessness and a decline in available jobs are not deterring those who do have jobs from buying houses, as wages for the employed continue to rise in an increasingly polarized economy of have’s and have-not’s.

NAHB Chief Economist, Robert Dietz, crowed about the future for homebuilders and its message about economic conditions, ignoring persistent problems in the labor market that encouraged the Federal Reserve to hold back on raising interest rates earlier this week.

“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” he said in a statement.

Borrowing Costs

Also helping housing demand is lower mortgage rates, as home loans flirt with all-time low rates because of more accommodative monetary policy from the Fed.

According to a new study by Freddie Mac, mortgage rates for a 30-year fixed rate mortgage fell to 3.54%, down six basis points from a week ago, while 15-year mortgages with a fixed rate were also down six basis points to 2.81%. 

With the recent decline, mortgages are over 10% cheaper than they were a year ago, causing monthly payments on mortgages to be significantly lower. That has somewhat offset an increase in home prices, helping middle class Americans afford increasingly more expensive houses.

Economic uncertainty and central bank policy will keep those rates low, according to Freddie Mac Chief Economist, Sean Becketti. “Wednesday’s Fed decision to once again stand pat on rates, as well as growing anticipation of the U.K.’s upcoming European Union referendum, will make it difficult for Treasury yields and–more importantly–mortgage rates to substantially rise in the upcoming weeks,” Becketti said. He did not explain the relationship between a potential Brexit and American mortgage rates.

Rising Jobless Claims

Despite a booming housing market full of motivated buyers, some Americans are still struggling to find a job.

Initial jobless claims rose 13,000 to 277,000 last week in a surprise that most analysts had not expected. Jobless claims have been rising in recent weeks as an increasing number of Americans lose their jobs and find it difficult to find new work.

Some economists believe jobless claims will rise further in 2016, while the time it takes the unemployed to find new work will rise significantly, although that is currently at its highest point in history.