The monthly report from Freddie Mac's Office of the Chief Economist, Economic and Housing Outlook, released earlier this week put much of its focus on an improved jobs outlook. Real estate and construction not only played a large role in generating this good news but appears poised to benefit significantly from it.

Freddie's report quotes Bureau of Labor Statistics (U.S. Department of Labor) data claiming a 274,000 gain in non-farm employment for April and an upward revision of February and March figures by 93,000 jobs. In the April employment figures, construction employment was responsible for 47,000 jobs, 17 percent of the total increases. This continues the growth in construction that has seen job gains in 24 of the last 25 months, primarily due to the strong housing sector of the industry. Construction now accounts for 7.2 million jobs, 8 percent above the previous record set in April, 2003.

The Census Bureau has reported that the value of construction put in place for March set its 14th consecutive record, again with residential building being the main driver. The value of residential construction was up 13 percent over the same period a year earlier.

The Freddie report credits the strength of construction and housing activity in general to the continuing low level of mortgage rates and paints a bright picture for the near future. The report revised earlier estimates for housing starts this year to 1.95 million units from 1.93 million in April and total home sales at 7.07 million from the 6.93 million forecast just one month ago. Inventories of homes available for sale remain low with an estimated 4.1 months supply of existing homes and 4.4 months supply of new homes currently on the market. Estimates of country-wide home price appreciation were also bumped up from 6.8 percent to 7.9 percent this year, although those price increases are, as usual, disproportionately skewed by activity on both coasts. Total mortgage originations are now projected at $2.3 trillion down about 10 percent from 2004 figures, but much of the decline in activity will come from the refinancing sector.

And Freddie expects the improved outcomes above because of more good news. The Office of the Chief Economist has reduced its forecast for mortgage rates at year end by about 30 basis points across the board. The report now foresees the 30-year fixed finishing up 2005 at around 6.1 percent. The caveat, however, is that the volatility of the bond market is an unknown and could push rates up to as much as 6.4 percent.