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Will Labor Shortage Kill Housing Boom?

Chart In Focus
May 20, 2017

We know by the message from lumber prices that the next 12 months should be a positive period for all sorts of housing related data.  New home sales, for example, tends to follow in the footsteps of lumber price movements with a lag time of about 1 year.  So because lumber prices have been trending strongly higher, that should mean higher numbers of new home sales.

This is especially true with all of the “echo-boom” generation getting into their late 20s, and starting to look at buying versus renting.  The peak birth year of the echo boom was 1990, and those kids are now 26-27.  Zillow says that the average age of a first time home buyer is 33 years, so that pig is still moving through the python.

But there are new worries that those homes won’t get built for those kids to buy, because there may not be enough trained labor to build those homes.  Data from the Bureau of Labor Statistics (BLS) shows some tightening in labor rates for the construction industry.  And when the overall unemployment rate is at 4.4% (yes, I know about the problems with those numbers), it is harder to attract workers out of other industries to come and work construction. 

Here is total employment in the construction sector, all types, seasonally adjusted:

Construction employees

It has had a big overall rise, just as total population has in the U.S.  And there are obvious big swings during recessionary periods. 

Looking deeper, here is the unemployment rate for construction workers:

Construction unemployment

There is an obvious seasonal fluctuation, as winter gets in the way of construction work.  Spring 2017 is seeing the jobless rate drop as normal.  But the 12-month moving average shows that the overall rate is already down to the same low level it reached in 2006.  This suggests that there is not a whole lot of slack remaining in the market for construction workers.

Meanwhile, job openings continue to climb.

Construction job openings

The 12-month moving average (MA) is back up to where it peaked in early 2007.  Back then the housing bubble was choking itself off with all of the speculative buying, condo-flipping, and overleveraging with junk mortgages.  Now it seems that the genuine demand for workers to build the houses that the echo-boomers need is exhausting the available supply of trained construction workers. 

This has all sorts of implications for the housing economy, and anecdotal reports show that twenty-somethings are having a hard time finding available stock of housing to buy.  That is likely to mean continued price increases for starter homes, although not necessarily for other parts of the housing market.  Whether it has implications for Congress addressing immigration laws to allow more construction workers to come in from Mexico and Central America is a wholly separate question.

Tom McClellan
Editor, The McClellan Market Report

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