Growing Job Openings Leading to Higher Interest Rates


Financial conditions continue to tighten, as the 10-year Treasury rate increased to above 4.75%. Among the factors leading to higher rates (more debt issuance, higher-for-longer monetary policy expectations, long-term fiscal deficit conditions, and strong current GDP growth forecasts) was a surprise jump in August for the total number of open, unfilled jobs. In August, the number of open jobs for the economy as a whole increased to 9.6 million, a significant increase over the 8.9 million estimated total for July. NAHB estimates indicate that this number must fall back below 8 million for the Federal Reserve to feel more comfortable about labor market conditions and their corresponding impact on inflation. While the Fed intends for higher interest rates to have an impact on the demand-side of the economy, the ultimate solution for the labor shortage will not be found by slowing worker demand, but by recruiting, training and retaining skilled workers. This is where the risk of a monetary policy mistake can be found. Good news for the labor market does not automatically imply bad news for inflation. The construction labor market continued to cool in August. The count of open construction jobs decreased to 350,000. This estimate comes after a data series high of 488,000 in December 2022. The overall trend is one of cooling for open construction sector jobs as the housing market slows and backlog is reduced, with a notable uptick in month-to-month volatility since late last year. The construction job openings rate held at 4.2% in August. The recent trend of these estimates points to the construction labor market having peaked in 2022 and is now entering a stop-start cooling stage as the housing market adjusts to higher interest rates. Despite additional weakening that will occur in the second half of 2023, the housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. Hiring in the construction sector fell back to 4.4% in August after 4.8% in July. The post-virus peak rate of hiring occurred in May 2020 (10.4%) as a post-covid rebound took hold in home building and remodeling. Construction sector layoffs fell back to 2% in August after 2.2% in July. In April 2020, the layoff rate was 10.8%. Since that time, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects and March 2023 due to some market churn. Looking forward, attracting skilled labor will remain a key objective for construction firms in the coming years. While a slowing housing market will take some pressure off tight labor markets, the long-term labor challenge will persist beyond the ongoing macro slowdown. Related ‹ August Gains for Private Residential Construction SpendingTags: economics, employment, JOLTS, labor market

Growing Job Openings Leading to Higher Interest Rates2023-10-03T10:19:45-05:00

August Gains for Private Residential Construction Spending


By Na Zhao on October 2, 2023 • NAHB analysis of Census Construction Spending data shows that private residential construction spending rose 0.6% in August. It is the fourth consecutive increase since May 2023, standing at a seasonally adjusted annual pace of $879.9 billion. However, total private residential construction spending is still 3.1% lower compared to a year ago. The total construction monthly increase is attributed to more spending on single-family and multifamily construction. Spending on single-family construction rose 1.7% in August after an increase of 2.7% in July. Compared to a year ago, spending on single-family construction was 10.6% lower. Multifamily construction spending inched up 0.6% in August and was 24% over the August 2022 estimates, largely due to the strong demand for rental apartments. Private residential improvement spending decreased 1.9% in August and was almost 2% lower compared to a year ago. Keep in mind that construction spending reports the value of property put-in-place. Per the Census definition: The “value of construction put in place” is a measure of the value of construction installed or erected at the site during a given period. The total value-in-place for a given period is the sum of the value of work done on all projects underway during this period, regardless of when work on each individual project was started or when payment was made to the contractors. For some categories, published estimates represent payments made during a period rather than the value of work done during that period. The NAHB construction spending index, which is shown in the graph below (the base is January 2000), illustrates how construction spending on single-family has slowed since early 2022 under the pressure of supply-chain issues and elevated interest rates. Multifamily construction spending has had solid growth in recent months, while improvement spending has slowed since mid-2022. Before the COVID-19 crisis hit the U.S. economy, single-family and multifamily construction spending experienced solid growth from the second half of 2019 to February 2020, followed by a quick post-covid rebound since July 2020. Spending on private nonresidential construction was up 19.7% over a year ago. The annual private nonresidential spending increase was mainly due to higher spending on the class of manufacturing category ($5.53 billion), followed by the commercial category ($5.51 billion). Related ‹ Property Tax Revenue Climbs as Income Tax Receipts Decline Sharply

August Gains for Private Residential Construction Spending2023-10-02T10:25:49-05:00

Number of 5,000+ Square Foot Homes Down in 2022


According to the annual data from the Census Bureau’s Survey of Construction (SOC), a total of 29,000 5,000+ square-foot homes were started in 2022, down from 33,000 in 2021.  In the boom year of 2006, the number of new 5,000+ square foot homes reached a peak of 45,000.   In 2007, the number fell to 37,000.  In 2008, only 20,000 such homes were started, and from 2009 to 2012, the number remained well under 20,000 a year, but has been consistently above 20,000 since then. On a percentage basis, the share of new homes started with 5,000 square feet or more of living space was also down slightly, from 2.90% in 2021 to 2.85% in 2022.  In 2015, the 5,000+ square foot home share reached a peak of 3.92%.  Since then, the share has fluctuated in a band between 2.50% and 3.10%.  The 2022 decline in the share of 5,000+ square foot homes is consistent with the recent downward trend in median and average size of new single-family homes reported elsewhere. Tabulating the major characteristics of 5,000+ square foot homes started in 2022 shows that 80% have a porch, 70% have a finished basement, 68% have 4 bathrooms or more, 66% have a patio, 67% have a 3-or-more car garage, 56% belong to a community association and 54% have 5 bedrooms or more. Related ‹ Lot Values Trail Behind InflationTags: economics, eye on the economy, home building, housing economics, single-family, starts, survey of construction

Number of 5,000+ Square Foot Homes Down in 20222023-09-28T10:23:23-05:00

New Homes Same Size but Higher Priced if Age-Restricted


Of the roughly 1,005,000 single-family and 547,000 multifamily homes started in 2022, 59,000 (28,000 single-family and 31,000 multifamily) were built in age-restricted communities, according to NAHB tabulation of data from the Survey of Construction (SOC, conducted by the U.S. Census Bureau and partially funded by HUD).  A residential community can be legally age-restricted, provided it conforms the one of the set of rules specified in the Housing for Older Persons Act  of 1995. NAHB was first successful in persuading HUD and the Census Bureau to collect and publish data on the age-restricted status of new homes in 2009, during the depths of the housing downturn.  In 2009, builders started only 17,000 homes in age-restricted communities  (9,000 single-family and 8,000 multifamily).  The numbers then increased steadily until reaching 60,000 age-restricted starts, roughly evenly split between single-family and multifamily) in 2018.  In 2022, the 28,000 age-restricted single-family starts were slightly off the peak of 33,000 reached a year earlier, and the 31,000 age-restricted multifamily starts tied the all-time high set in 2018.  Although we don’t yet have data on age-restricted starts for 2023, a recent post shows that starts in general have been running lower than they were a year earlier, due largely to the Federal Reserve’s policy of interest rate hikes to tame inflation. The SOC provides enough data to look at the characteristics of new age-restricted single-family homes to see if they differ from other single-family homes started in 2022.  This exercise shows that the age-restricted homes tend to be about the same size as others, but on somewhat smaller lots and higher-priced.  The median size of an age-restricted home was exactly the same as the median for other single-family homes in 2022: 2,300 square feet.  As usual, however, the median lot size for age-restricted homes, was somewhat smaller—just under one-sixth of an acre vs. one-fifth for homes started outside of age-restricted communities.  There has been a general trend toward smaller lot sizes, as described in a September 8 post.  Another trend that has continued is the one toward higher house prices.  The median price of a new, age-restricted single family home started in 2022 and built for sale was $472,000—$75,000 higher than it was a year earlier and considerably above the $461,000 median price of non-age-restricted homes started in 2022. Other questions in the SOC show that new single-family homes are more likely to be attached (i.e., townhomes), and single story with no basement if the homes are age-restricted.  The age-restricted homes are also more likely to come with patios, but less likely to have decks.  Finally, age-restricted homes are less likely to require a loan and more likely to be purchased for cash, as home buyers who are older have had more of a chance to accumulate the savings and assets (often equity in a previous home) that can be converted to cash. Related ‹ Employment Situation in August: State-Level AnalysisTags: 55+ housing, age restricted, economics, home building, housing, SOC, survey of construction

New Homes Same Size but Higher Priced if Age-Restricted2023-09-25T08:17:51-05:00

Employment Situation in August: State-Level Analysis


Nonfarm payroll employment increased in 33 states and the District of Columbia in August compared to the previous month, while 17 states lost jobs. According to the Bureau of Labor Statistics, nationwide total nonfarm payroll employment increased by 187,000 in August, following a gain of 157,000 jobs in July. On a month-over-month basis, employment data was strong in California, which added 23,100 jobs, followed by New York (+18,100), and North Carolina (+17,500). Seventeen states lost a total of 47,700 jobs with Missouri reporting the steepest job losses at 13,700.  In percentage terms, employment in Montana increased by 0.7% while Hawaii reported a 0.8% decline between July and August. Year-over-year ending in August, 3.1 million jobs have been added, marking a more than full recovery of the labor market. Except for Mississippi and Rhode Island, all the other states and District of Columbia added jobs compared to a year ago. The range of job gains spanned 402,000 jobs in Texas to 1,400 jobs added in Vermont. Mississippi lost 700 jobs while Rhode Island lost 6,900 jobs on a year-over-year basis. In percentage terms, Nevada reported the highest increase by 3.9%, while Rhode Island decreased by 1.4% compared to a year ago. Across the 48 states which reported construction sector jobs data—which includes both residential as well as non-residential construction— 31 states reported an increase in August compared to July, while 14 states lost construction sector jobs. Montana, Oklahoma, and Utah reported no change on a month-over-month basis. California added 4,700 construction jobs, while Tennessee lost 2,400 jobs. Overall, the construction industry added a net 22,000 jobs in August compared to the previous month. In percentage terms, Wyoming increased by 3.5% while Tennessee reported a decline of 1.6% between July and August. Year-over-year, construction sector jobs in the U.S. increased by 212,000, which is a 2.7% increase compared to the August 2022 level. Texas added 21,100 jobs, which was the largest gain of any state, while Missouri lost 2,700 construction sector jobs. In percentage terms, Wyoming had the highest annual growth rate in the construction sector by 13.0%. Over this period, North Dakota reported a decline of 3.8%. Related ‹ Market Share for Modular and Other Non-Site Built Housing in 2022Tags: construction labor, economics, state and local markets, state employment

Employment Situation in August: State-Level Analysis2023-09-22T08:38:18-05:00

Market Share for Modular and Other Non-Site Built Housing in 2022


The total market share of non-site built single-family homes (modular and panelized) was just 2% of single-family homes in 2022, according to completion data from the Census Bureau Survey of Construction data and NAHB analysis. This share has been steadily declining since the early-2000s despite the high-level of interest for non-site built construction. This low market share in fact runs counter to some media commentary on off-site construction, which nonetheless holds potential for market share gains in the years ahead. In 2022, there were 26,000 total single-family units built using modular (12,000) and panelized/pre-cut (14,000) construction methods, out of a total of 1.02 million single-family homes completed. While the market share is small, there exists potential for expansion. This 2% market share for 2022 represents a decline from years prior to the Great Recession. In 1998, 7% of single-family completions were modular (4%) or panelized (3%). This marked the largest share for the 1992-2022 period. One notable regional concentration is found in the Northeast and Midwest. In the Northeast, 7% (3,000 homes) of the region’s 60,000 housing units were completed using non-site build construction methods, the highest share in the country. In the Midwest, 6% (7,000 homes) of the region’s 137,000 housing units were completed using non-site build construction methods. With respect to multifamily construction, approximately 2% of multifamily buildings (properties, not units) were built using panelized methods. Similar to single-family construction, this market share was expected to grow, but the expected gains did not materialize due to various constraints in the industry. In the year 2000 and 2011, 5% of multifamily buildings were constructed with modular (1%) or panelized construction methods (4%). Related ‹ Existing Home Sales Hit 7-Month Low as Prices Keep RisingTags: economics, home building, housing, modular, multifamily, panelized, single-family, SOC, systems built

Market Share for Modular and Other Non-Site Built Housing in 20222023-09-22T08:38:28-05:00

One More Fed Rate Hike in 2023?


By Robert Dietz on September 20, 2023 • The Federal Reserve’s monetary policy committee held the federal funds rate at a top target rate of 5.5% at the conclusion of its September meeting. The Fed will also continue to reduce its balance sheet holdings of Treasuries and mortgage-backed securities as part of quantitative tightening. These actions are intended to slow the economy and bring inflation back to 2%. After an increase in rates in July, the pause for September will likely be temporary. Indeed, the Fed maintained a hawkish bias by noting: “additional policy firming may be appropriate to return inflation to 2 percent over time.” The Fed’s dot-plot projections imply one more 25 basis point increase in 2023 (presumably in November), which would be the last increase for this cycle. Then the Fed will hold this higher rate for longer – with the Fed’s projections suggesting no rate cuts until the second half of 2024. And as a revision, the Fed’s projections suggest only two rate cuts for 2024. And during that time, quantitative tightening will continue, keeping the spread between the 10-year Treasury and the 30-year fixed rate mortgage elevated. It is currently near 300 basis points. The Fed faces competing risks: elevated but trending lower inflation combined with ongoing risks to the banking system and macroeconomic slowing. Chair Powell has previously noted that near-term uncertainty is high due to these risks. Nonetheless, economic data remains better than expected. The Fed stated today: “economic activity has been expanding at a solid pace,” and that “job gains have slowed but remain strong, the unemployment rate has remained low.” Despite this positive assessment from the Fed, there are ongoing challenges for regional banks, as well weakness for commercial real estate. Going from near zero to 5.5% on the federal funds rate is a dramatic policy move with possible unintended consequences. More caution seems prudent. In fact, prior risks for smaller banks will result in tighter credit conditions, which will slow the economy and reduce inflation. Thus, these financial challenges act as additional surrogate rate hikes in terms of tightening credit availability, doing some of the work for the Fed. The 10-year Treasury rate, which determines in part mortgage rates, increased to near 4.4% upon the Fed announcement. Mortgage rates will remain above 7% range, which is currently home builder sentiment. Related ‹ Housing Starts Lower on Rising Mortgage RatesTags: FOMC, home building, housing, interest rates, multifamily, single-family

One More Fed Rate Hike in 2023?2023-09-20T18:21:07-05:00

Inflation Accelerates for Second Straight Month


Consumer prices in August saw the largest monthly gain since June 2022, primarily driven by a surge in gasoline costs. Core service inflation excluding housing was little changed in August, suggesting that the path toward disinflation ahead still has some fluctuations. Meanwhile, shelter costs continued to remain at a high level and was the second-largest contributor to the increase in inflation. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.6% in August on a seasonally adjusted basis, following an increase of 0.2% in July. The price index for a broad set of energy sources rose by 5.6% in August as all the major energy component indexes increased.  Excluding the volatile food and energy components, the “core” CPI rose by 0.3% in August, following an increase of 0.2% in July. Meanwhile, the food index increased by 0.2% in August with the food at home index rising 0.2%. In August, the indexes for gasoline (+10.6%) and shelter (+0.3%) were the largest contributors to the increase in the headline CPI. Meanwhile, the indexes for lodging away from home (-3.0%), used car and trucks (-1.2%) as well as recreation (-0.2%) declined in August. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.3% in August, following an increase of 0.4% in July. The indexes for owners’ equivalent rent (OER) increased by 0.4% and rent of primary residence (RPR) increased by 0.5% over the month. Monthly increases in OER have averaged 0.5% over the last eight months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.7% in August, following a 3.2% increase in July. The “core” CPI increased by 4.3% over the past twelve months, following a 4.7% increase in July. This was the slowest annual gain since October 2021. The food index rose by 4.3% while the energy index fell by 3.6% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.2% in August. Related ‹ Mortgage Activity Low as Rates Remain Above Seven PercentTags: cpi, fed, inflation, shelter

Inflation Accelerates for Second Straight Month2023-09-13T13:17:49-05:00

Mortgage Activity Low as Rates Remain Above Seven Percent


By Jesse Wade on September 13, 2023 • Per the Mortgage Bankers Association’s (MBA) survey through the week ending September 8th, total mortgage activity decreased 0.8% from the previous week and the average 30-year fixed-rate mortgage (FRM) rate rose six basis points to 7.27%. The FRM rate has remained above 7% since the start of August. The Market Composite Index, a measure of mortgage loan application volume, fell by 0.8% on a seasonally adjusted (SA) basis from one week earlier. Purchasing activity increased 1.3%, while refinancing activity decreased 5.4% week-over-week. Interest rates remained above seven percent for the sixth consecutive week. The combination of higher rates and low existing for-sale inventory have hampered potential buyers as the purchase index remained historically low. The seasonally adjusted purchase index was 27.5% lower than one year ago while the seasonally adjusted refinancing index was 31.1% lower than one year ago. The refinance share of mortgage activity fell from 30.0% to 29.1% over the week, while the adjustable-rate mortgage (ARM) share of activity rose to 7.5% from 6.7%. The average loan size for purchases was $410,900 at the start of September, down from $413,600 over the month of August. The average loan size for refinancing decreased from $255,900 over the month of August to $255,400. The average loan size for an ARM was up at start of September to $833,000 while the average loan size for a FRM fell to $329,200. Related ‹ Revolving Credit Growth Reaccelerates in JulyTags: finance, interest rates, mba, mortgage applications, mortgage bankers association, mortgage lending, refinancing

Mortgage Activity Low as Rates Remain Above Seven Percent2023-09-13T10:24:55-05:00

Revolving Credit Growth Reaccelerates in July


By David Logan on September 12, 2023 • Consumer credit outstanding growth slowed to 2.5% in July, down from 3.4% in July (SAAR) according to the Federal Reserve’s latest G.19 Consumer Credit report. Revolving credit growth reaccelerated to 9.2% in July, potentially reflecting strong consumer sentiment and job security in a tight—albeit cooling—labor market. In contrast, nonrevolving consumer debt outstanding inched up just 0.2% over the month. Total revolving consumer credit has surged 10.8% over the past 12 months, more than offsetting slow growth in nonrevolving credit outstanding. Total consumer credit outstanding stands at $5.0 trillion (break-adjusted[1] and seasonally adjusted), with $1.3 trillion in revolving debt and $3.7 trillion in non-revolving debt. Seasonally adjusted revolving and nonrevolving debt accounted for 25.5% and 74.5% of total consumer debt, respectively. Revolving consumer credit outstanding as a share of the total increased 0.2 percentage point over the quarter and is 0.5 percentage point higher than it was one year ago.  [1] The results of the 2020 Census and Survey of Finance Companies–delayed by the pandemic–were incorporated in the latest Consumer Credit (G.19) statistical release, resulting in large revisions dating back to June 2021. Rather than retain the large spike in credit that now appears in the raw data, we have used the “break-adjusted” historical time series developed by Moody’s Analytics and will continue to do so moving forward. Click here for more information. Related ‹ Household Real Estate Value Jumps in the Second QuarterTags: consumer credit, credit card debt, employment, Federal Reserve, g.19, nonrevolving debt, revolving debt

Revolving Credit Growth Reaccelerates in July2023-09-12T15:16:12-05:00

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