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SANTA ANA, CA—Permits and starts as well as residential-construction jobs are increasing year-over-year, which could signal a turnaround for the housing market, says First American Financial Corp.'s chief economist Mark Fleming. According to Tuesday's Census Bureau report for August, permits and starts increased 8.3% and 1.4% respectively, compared to a year ago, and Fleming says the increased pace of permits, a leading indicator of starts, is promising for further increases in starts in the coming year.
He also notes the pace of single-family housing starts—851,000, a 1.6% rise above the July figure—is particularly important as it represents near-term new supply that the housing market is lacking.
The construction-jobs picture is also beginning to brighten, Fleming notes. An increase of 1,500 residential-construction jobs were reported between July and August, and the number of residential-construction jobs is now 3.8% higher than a year ago. According to Fleming, “Home building is a unique labor market in that it does not lend itself to outsourcing and automation, and therefore, growth in residential construction jobs supports further improvement in the pace of home building.”
Regarding how the increase in residential-construction jobs relates to the slow pace of wage increases in general, which have not kept pace with rising rental rates and home prices, according to many news sources, Fleming tells GlobeSt.com, “Part of what's helping to increase the number of construction jobs is the strong demand from new-home builders and that average hourly wages are on the rise, up 3.2% over a year ago in August, according to the Bureau of Labor Statistics. This compares to 2.8% year-over-year average hourly wage growth for all private employees. But, for prospective homebuyers, it's not just about wage growth needing to keep up with house prices. Purchasing power is influenced by the combination of wage growth and interest-rate changes. According to our Real House Price Index, which looks at wage growth and interest rates, consumer purchasing power is down 4% compared to a year ago.”
Fleming also says that it looks like we are finally seeing improved residential-employment numbers translate into more home building. In August, the pace of housing starts, at 1,180,000 units, was a 0.8% drop from the month before. Based on the less volatile three-month moving average, total residential (single and multifamily) housing starts are higher than last month, and 2,000 units higher compared to a year ago.
Despite this month's improvement, total housing starts are now 70,000 units below the recent peak of almost 1.3 million units in February of this year, which was a 9.5-year high, according to First American. Fleming says the lack of home building is a major reason why the market has been strained by a lack of inventory. “Homebuilders continue to complain they cannot find skilled labor, especially framers, and that buildable lots remain in short supply. In fact, earlier this month, I discussed the potential implications of Hurricanes Harvey and Irma. Damage to the housing stock will, locally, increase that housing supply shortage and further increase demand for construction workers.”
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
