The most recent employment report showed the unemployment rate dropped to 7.8% and job growth posted at a higher-than-expected 114,000 new jobs in September. Is this the start of a new trend?

It might be.

Data compiled by Bill McBride at Calculatedriskblog show a strong correlation between housing construction and job growth. It appears the two variables are correlated, but with a lag of about 12 to 18 months. As home construction goes employment eventually follows.

If past proves to be prologue, we could see significant improvement in employment in 2013.

The question, though, is past really prologue? Possibly not. The unemployment rate has already been maintaining an inverse pace with single-family construction for much of the past 18 months.

But this time it really is different: In 2010 and 2011, we were ascending out of deep recession and housing was suffering with excessive inventory. During that time, job growth was being driven by other economic sectors. Now, with housing construction recovering strongly, this sector will contribute more to job growth going forward.

More housing construction will lead to more jobs and more household formation. Therefore, we think 2013 will be a good year for housing and overall economic growth. Stronger economic growth, in turn, will lead to rising home prices and possibly rising mortgage lending rates. That's something all fence-sitters should keep in mind if they think better deals reside over the horizon.

Courtesy of Jessica Regan.

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