Post-Election Economic Outlook
NAHB Chief Economist Robert Dietz recently provided the following economic overview in his bi-weekly newsletter Eye on the Economy.
The dramatic election victory for President-Elect Donald Trump and congressional Republicans reshapes the outlook for the housing sector and the overall economy. For example, equity/stock markets loved the result, expecting an improved regulatory environment and significant — if not, total — extension of the 2017 tax reform policies.
However, the bond market has deep concerns, with investors dumping bonds and pushing the 10-year Treasury rate from 3.6% in mid-September to near 4.3% at the end of last week. Bond investors are concerned about possible inflationary impacts from a larger federal government deficit and a move to tariffs.
And while the incoming Trump administration has been clear that deportation will be used to deal with illegal immigration, the scope and scale of this policy is unclear. It remains a significant wildcard for the economic outlook, with potential impacts on housing demand, labor supply and border issues. Greater clarity on all of these policy issues will be gained as Trump names key officials to staff his new administration in the coming weeks.
In the meantime, the rise in long-term interest rates has had a direct impact on the mortgage market. Counter to most forecasts, including NAHB’s, the average interest rate for a 30-year mortgage has increased from below 6.1% in mid-September to almost 6.8% last week. While this represents a significant hit to housing affordability, macro conditions remain solid. U.S. GDP expanded at a 2.8% annualized growth rate in the third quarter, albeit lower than the 3% rate from the second quarter.
The labor market is showing signs of strain. After some of the most significant job market data revisions in more than a decade, October job growth totaled a meager 12,000 in part because of major hurricanes and labor strikes. The unemployment rate was steady, at a low 4.1% reading. Home builders and remodelers lost 5,300 jobs in October as residential construction activity slowed, particularly in the apartment development sector. Over the last year, residential construction has added just 44,500 jobs. The total number of open, unfilled construction jobs declined to just 288,000 in September — another sign of weakening demand for construction labor.
We will get a reading of single-family builder confidence in just under a week, which will help get a sense of how builders are viewing market conditions over the next six months. Apartment developers continue to report mixed sentiment regarding the market. The latest NAHB Multifamily Production Index decreased four points from the previous quarter to a weak reading of 40, indicating more apartment builders are facing poor market conditions. However, the third quarter reading was two points higher than a year ago, suggesting the multifamily construction market could potentially stabilize later in 2025.
But the multifamily outlook, along with other housing and economic indicators, contains more uncertainty until the election results are finalized and what policies Trump intends to pursue at the start of his second administration.