The patches of severe weather in February or March that seemed like annoyances start looming up as more than that in the weeks ahead.
In broad terms, a lot of homes get permitted and started each year in those early Spring months, so days lost to bad weather's interference roll construction schedules forward. Put a few of those delayed schedules together in a few concentrated areas of the country, and the chronic labor capacity predicament--worse in some places, like Dallas and Denver, than others, gets exposed in all its pain-inflicting glory.
Yesterday, the National Association of Home Builders brought out data showing that more builders are reporting tougher conditions when it comes to accessing the skilled labor they need than practically this same time next year.
NAHB economist Paul Emrath noted that builder responses to questions the association added to its July 2017 NAHB/Wells Fargo Housing Market Index (HMI) survey show a year-on-year increase in reported "shortages." Emrath writes:
Shortages (either serious or some) were at least fairly widespread for each of the 15 occupations, ranging from a low of 43 percent for building maintenance managers to a high of around 75 percent for the three categories of carpenters (rough, finished and framing).
Shortages, of course, mean either one or a combination of three negative consequences for builders: delivery delays, cost overruns, or construction quality problems.
The increased report of labor capacity problems may tie to a few factors.
- More starts this year than last
- More entry-level communities in "farther-out" rings of a market, adding windshield time for trades, materials, supervisors, etc.
- Timing of the survey (July this year vs. June last).
- More job openings in other sectors offering laborers a better deal Immigration-related reduction of labor pool
One or all of these variables may exert pressure on labor capacity at any given time and place. None are immediately solvable, so it's unlikely we'll see great improvement in what builders report, especially as they content with cost pressure on both the land and materials fronts as well.
It may or may not be positive news that automation and technology's negative impact on one workforce--people who drive cars and trucks for a living--may turn some of those workers toward construction trades as an alternative livelihood. Have a look at this Wall Street Journal story here.
Monthly Payments and Affordability
CoreLogic's economics analyst Andrew LePage looks here at how interest rates--more so than home price increases--can, and very likely will, exert pressure on home buyers' monthly payment scenarios as the Federal Reserve continues its monetary tightening, and interest rates inevitably head up.
LePage notes:
Forecasts from IHS Markit call for mortgage rates, inflation, and income to rise gradually over the next year, and the CoreLogic Home Price Index forecast suggests the median sale price will rise 3.3 percent in real terms. Based on these projections, the inflation-adjusted typical mortgage payment would rise from $848 this June to $983 by June 2018, a 15.9 percent year-over-year gain. Real disposable income is projected to rise about 3.6 percent over the same period, meaning next year’s homebuyers would see a larger chunk of their household budget devoted to their mortgage payments.
This, of course, is a consequential difference, but it's worth noting that this interest rate change is occuring roughly simultaneously with a mix-shift in price points for new home builders, from higher priced offerings to mid- and lower-price points with more volume in the lower tiers.
This may counterbalance the impact of higher interest rates on monthly payments, especially at the most price sensitive part of the spectrum, first-time and entry-level buyers. It will be worth staying tuned to what happens with the monthly payment story for entry into homeownership, as it has worked as a powerful lever in the early stages of housing's recovery.
Good, Good, Good, Good Migration
Redfin analyst Alina Ptaszynski explores here a slight uptick in data showing Redfin users' search for real estate outside their current market of residence. Redfin look as such data as a strong proxy for migration patterns, exiting a current market and bound for a destination market, based on search behavior.
Ptaszynski spotlights four key take-away observations as she notes that the total number of out-of-market searches spiked to 21% from 20%, in the second vs. the first quarter of 2017:
- There continued to be significant migration within the state of California, as buyers looked to leave the Bay Area and Los Angeles, heading to Sacramento and San Diego.
- Several Rust Belt metros saw residents looking for homes in Chicago.
- Metros in the South and the Sunbelt attracted migrants from expensive coastal cities.
- Chicago, Boston and Seattle again had the highest share of residents looking to stay in their current metros.
While most of this data confirms what has already been tracked as a migratory phenomenon, it may have a few fresh insights around the re-emerging attractiveness of parts of the Chicago market.
