Home builder confidence and employment signaled a slow recovery
We just had a small spike in the number of new home starts, Larry Roberts just had a excellent post on the historical size of this increase. In addition, with banks very successfully stopping cloud inventory from going on the market, builders are wasting no time to build more housing units. This is not a thriving recovery, it’s recovery where patient that has been given CRP and now has a stable pulse. The mix is different in this construction cycle as multifamily units are being constructed in a larger portion. So many multifamily units have hit the market that it has stopped or slow the rental increases. However, builder confidence has dropped in the beginning of the selling season and the usual new hiring of construction workers has not occurred.
By: Mark Lieberman, Five Star Institute Economist
Builder confidence slipped in March to 44, the lowest level since October, the National Association of Home Builders (NAHB) reported Monday. Economists had expected the Housing Market Index, the measure of confidence, to improve to 47 from February’s reading of 46.
It was the second straight monthly decline in the index and the third straight month the index failed to increase (it was flat from December to January).
Tighter inventories had been expected to improve confidence, but builder attitudes have also been weighed down by prices of new single-family homes.
The median price of a new single family home, according to the Census Bureau and HUD, has fallen for three of the last four months and in January (the latest monthly report) dropped $23,400, the steepest month-over-month decline since October 2010. The median price of a new home in January was up just 2.1 percent year-over-year, the slowest annual change since prices showed a 3.2 percent decline from June 2011 to June 2012.
The media has been spinning this recovery has the largest housing recovery in many years. Larry, just pointed that housing starts have barley climbed above last recession low. Now, there is this home builder confidence report that is still declining in a industry that is supposedly having a rebound.
An factor that is worth mention in greater detail is cloud inventory. The suppression of existing housing inventory from coming on the market has given home builder an opportunity to sell more homes to buyers that want to take of the low mortgage rates. Lender letting delinquent borrowers an opportunity at several modifications and judicial have been just slow to process. If banks decide to push more inventory on the market, builders could be stuck with new inventory that will have to compete with cheaper existing home prices.
It’s important to correctly gauge the home building industry, because historically it helps to lead the country out of recession. During a recession mortgage rates drops, the price of materials decrease, and builders cut prices to move newly constructed inventory. This usually leads to greater demand and home building industry hires more workers. But in this weak recovery hiring is still muted.
Published: Friday, 8 Mar 2013 | 10:17 AM ET
After lagging housing starts for several months, construction jobs surged in February to the highest level in six years. Builders are clearly acting on the big jump in new home orders, but those jobs numbers could actually be higher, were they not hamstrung by a severe lack of workers. During the housing crash construction workers left the business in droves, and many are not coming back.
“One of the reasons is because they are not paying well yet,” said Lisa Marquis Jackson, an analyst with John Burns Real Estate Consulting. “The wages were cut so much in the downturn, so until those prices get back to where they are attractive, the labor is not going to be attracted back to the industry.
Housing starts are up 24 percent from a year ago, but residential construction employment is up only 3.1 percent, according to the U.S. Commerce and Labor Departments. Former construction workers headed to higher paying jobs, such as the trucking industry. Some in the Southwest headed north to the newly thriving energy sector, said Marquis Jackson. Others headed to highway construction jobs in Texas.
In Las Vegas, where Pardee Homes is building 150 percent more homes this year than they did last year, finding workers is increasingly difficult.
“We lost quite a bit of labor to the oil fields and to places like Wyoming and North Dakota, where you would not expect it to go,” noted Klif Andrews, Pardee’s Las Vegas president.
Andrews said he is paying workers five to ten percent more now, and that has pushed his home prices higher. “We’ve raised median home prices up over 15 percent, so we’ve been able to stay a little bit ahead of it, but cost increases, it’s not just labor, it’s also materials,” he added.
The year over year sales increases look impressive but the actual number of housing starts is still historically low. Which makes me to believe that are these workers being hired using short contract times? That might be factor construction workers are not running back to the housing industry. Do you quit an OK paying job for a higher paying but unstable housing sector job? Home builder confidence is dropping so I doubt hiring is being do with long term horizons.
Finally, it’s just hard to staff up rapidly for builders and builders suppliers. Most companies have scaled back to minimum and they remaining staff is just simply doing more with less staff. Suppliers in general are very reluctant to hire long term staff. I believe these companies believe we are living in a very mortgage rate sensitive environment. Any additional shock to mortgage rates and this increase in demand will is disappear.
In a housing market where some homes are getting 10 offers, I would expect home builders to staff up. They are hiring, but it’s nothing like the previous run up in prices. Factor the hiring with the lower builder confidence and it’s not a real bullish sign for this construction industry.