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Job Growth Impact on Housing Supply

 

Can we expect to see more home starts, as local economies experience more job growth? SP Group reviews the latest obstacles facing homebuilders and identifies the top 25 areas with the largest percent change in unemployment.

In a February 15, 2017 article published online by theMReport.com, Ted C. Jones, Chief Economist and SVP for Stewart Title Guaranty Company offered his opinions regarding current economic trends are likely to influence the near-term future of the housing industry.  Jones identified three factors that represent challenges to homebuilders today:

  1. the limited supply of finished single family lots;

  2. the constraints associated with the loss of available skilled construction labor that resulted from the implosion of the housing bubble; and

  3. what he described as “massive” increases in the cost of construction materials. 

 

Notwithstanding these challenges, Jones noted, “We’re more constrained on the finance side”, but did not elaborate further on those constraints.  Given the continuation of historically low interest rates, despite the minuscule vacillation of rates we have seen in the recent months, a further elaboration of the “constraints on the finance side” would be welcome. 

 

Jones further asserted that “…the health of the real estate market is a pure function of one thing – job growth.”  As part of SP Group’s ongoing monitoring of housing market dynamics, we have examined the Metropolitan Area Employment and Unemployment Survey published by the Bureau of Labor Statistics on February 1, 2017.  The report provides metropolitan area unemployment statistics (not seasonally adjusted) as of December, 2016.

 

The report highlighted the fact that El Centro, Calif., had the largest over-the-year unemployment rate decrease in December (-2.7 percentage points), followed by New Bedford, Mass. (-2.6 points). Forty-three other areas had rate declines of at least 1.0 percentage point.   Of the 51 metropolitan areas with a 2010 Census population of 1 million or more, the largest rate unemployment rate decrease occurred in Boston-Cambridge-Nashua, Mass.-N.H. (-1.5 percentage points). The largest over-the-year rate increase was in Cleveland-Elyria, Ohio (+1.2 percentage points).

 

Using the BLS’ December 2016 civilian labor force and unemployment by state and metropolitan area data, we have calculated the percentage change for each metropolitan area and ranked them.  The table below illustrates the findings for the twenty-five metropolitan areas with the largest percent change in unemployment. 

 
The improvement in employment in Massachusetts across seven metropolitan areas is striking.  The improvements in Oregon and South Carolina are also noteworthy.  Based on Jones’ hypothesis, these housing markets should produce improved statistics in months ahead.

 

In the end, the three challenges identified by Ted Jones, may be mitigated in part because more people are working and may be able to purchase homes that cost more because of the constrained supply of land, the shortage of labor and the significantly increased cost of materials. The final test will be the degree to which wages grow to accommodate these additional costs.  We will monitor their performance and provide an update in mid-2017.

 

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