While more people are in work, wage increases of 2.5% (year-over-year) remain outpaced by rising home costs; and there is improvement needed for workers in residential construction.
The figures show that the economy is nearing full employment with more than 200,000 jobs created over the last three months of 2017. The unemployment rate held steady at a 17-year low of 4.1%.
Despite figures coming up short of the 190,000 analysts were expecting in December, the 148,000 total added to the upwardly-revised 252,000 in November.
First American chief economist Mark Fleming says the strong labor market and overall growth of the US economy will pile further pressure on the housing market’s nemesis - inventory – especially as more millennials make the decision to become (or at least try to become) homeowners,
“Existing homeowners, the largest source of supply for the housing market, are increasingly unwilling to sell,” Fleming says. “Whether unable to find something affordable to buy because of the shortage of inventory, or rising mortgage rates, means that even borrowing the same amount of money costs more each month, the incentive to move for existing homeowners is declining.”
Finding construction workers challenging for builders
While tight supply is exacerbated by several factors, including limited lots and rising material costs; homebuilders are also hampered by the availability of workforce.
Making work in the construction sector more attractive by increasing wages is one way to tackle the shortage.
“Residential construction wage inflation matches the aggregate for all industries. Wages may need to increase faster to attract more workers, adding marginal upward pressure to new home prices,” suggests Lending Tree’s chief economist Tendayi Kapfidze.
First American’s Mark Fleming agrees that construction workers are a key to increasing supply but says productivity needs improvement.
“One simple way to measure the productivity of construction labor is to look at the amount of housing units started relative to the amount of construction labor. In other words, housing starts per worker,” says Fleming. “Prior to the recession, the industry was starting more than two homes for every construction worker, but that level of productivity declined dramatically as the housing crisis hit and the recession followed.”
He adds that the productivity of homebuilders has improved since the recession but has stalled at around 1.7 starts per worker.
“Finding ways to increase the productivity of construction workers is critically important to alleviating the labor shortage challenge and the gap between household formation and home building,” says Fleming. “The home building job site of “tomorrow” needs to look very different than “today’s” if we hope to solve the long-run shortage of housing supply.”
Two US mortgage lenders have given their views on the latest labor figures and highlighted continued areas of weakness.