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Housing Constriction - September 18, 2018


Previously, we highlighted how the trucking industry is coming to terms with the fact that an overly tight labor market can lead to problems. Recent data out of the housing sector shows that home builders and realtors are coming around to similar conclusions.

On the surface, nothing appears dire. Today’s NAHB Housing Market Index, came in at 67, the same as July. According to an article from Housingwire “although homebuilders still fear increasing material costs, homebuilder confidence remained unchanged”. NAHB Chairman Randy Noel chalked the positivity up to relief in costs as lumber prices have declined from record levels, and firm demand, “especially as Millennials and other newcomers enter the market.”

However, it’s not all hunky-dory as NAHB Chief Economist Robert Dietz noted, “housing affordability is becoming a challenge”. Ironically, behind the numbers, the growing economy that is helping demand, may itself be causing issues. According to recently published analysis of the July Housing Market Index data by Paul Emrath, labor shortages are to blame for both weakening home affordability and unresponsive production. As highlighted in a brief article in Realtor magazine,

“Builders are being forced to raise home prices and are having a more difficult time meeting project deadlines because of the ongoing labor shortage in the construction industry.”

And while inflation overall is on the rise, “the cost of labor has consistently outpaced overall inflation”. As Emrath reports on the Eye On Housing Blog,

“In [July] 2018 ... overall inflation was 2.9 percent, but labor costs increased by 5.2 percent—and subcontractor costs by 7.2 percent—over the same period. This is particularly significant, given that three-fourths of construction cost typically represents work performed by subcontractors.”

Worker shortages are so bad that 26 percent of survey respondents had lost or cancelled sales, and 40 percent of respondents were forced to turn down projects, according to the July HMI Special Questions.

And while builder’s confidence remains relatively high, the consumer may be having second thoughts. The Mortgage Bankers Associations mortgage application numbers are down, and the seasonally-adjusted Purchase Index is down 7% YoY. An article in National Mortgage News from September 5 highlights that while “The job market remains quite strong... home prices, while decelerating, continue to rise faster than household income.” With unemployment staying below 4 percent, recent tariffs hitting over 500 different materials that are used in home construction, and Florence causing billions of dollars in property damage, it’s not likely affordability will improve anytime soon.