Housing Market May Be Headed For A Shift
By Omar Mohammed
(The following article was first published in www.newsweek.com. All data cited is the most current at press time for this publication.)
A strong U.S. economy will be a boon for the housing market, Mortgage Bankers Association’s (MBA) chief economist said (recently), as it will buoy demand and as inflation continues to fall, mortgage rates will decline as well making home loans more affordable for buyers.
The U.S. economy accelerated at a faster-than-expected clip in the fourth quarter of 2023 at 3.3 percent, the Commerce Department’s Bureau of Economic Analysis revealed.
Meanwhile, the personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred measurement of inflation’s progress—jumped by 1.7 percent during the quarter. Core PCE, which excludes the often volatile food and energy prices, increased by 2 percent.
These dynamics bode well for the housing market that has been struggling under the weight of record-high mortgage rates, sparked in part by the Fed’s hiking of rates is at the most aggressive clip since the 1980s to fight soaring inflation.
The Fed’s funds rate (at the time of this article’s writing) sits at 5.25 to 5.5 percent—the highest they have been in two decades—and policymakers have signaled that they will slash rates should inflation come down to their 2 percent target.
But an economy that may avoid a recession as inflation moderates without the Fed’s tight monetary policy doing too much damage to the jobs market would help the housing sector.
“Stronger economic growth will benefit the housing market, keeping demand robust,” Mike Fratantoni, MBA’s chief economist, said in a statement shared with Newsweek. “Moreover, today’s report also showed further reductions in inflation, which will enable the Federal Reserve to cut rates later this year—as they have been hinting.”
Mortgage rates ticked up slightly for the week ending January 25, Freddie Mac said at the time of this article’s writing, with the 30-year fixed rate averaging 6.69 percent.
“The 30-year fixed-rate has remained within a very narrow range over the last month, settling in at 6.69 percent this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
Rates look to have stabilized, Khater suggested, encouraging buyers to jump off the fence.
“Despite persistent inventory challenges, we anticipate a busier spring homebuying season than 2023, with home prices continuing to increase at a steady pace,” he said.
A slowdown in rates could have a negative impact on home buyers, some analysts say.
A decline in the cost of home loans would encourage more purchases, and this increase in demand will spark competition at a time when there is a limited supply of homes for sale.
More buyers who can afford mortgages entering the market will push up prices, analysts from Goldman Sachs said this week.
The investment bank’s experts project prices to soar by 5 percent in 2024, a marked revision from their earlier expectation of a 2 percent jump. That trend will continue through next year when prices are forecast to increase by nearly 4 percent, which is also a change from a previously estimated increase of close to 3 percent.
Amid the price increases, Goldman Sachs analysts anticipate that rates will fall to 6.63 percent for the year. This drop in rates from the near 8 percent highs of November 2023, will make house loans more affordable, sparking more demand for properties.
“We have very low inventory of houses for sale, which is generally supportive of prices, along with generally stable demand that is coming from things like household formation,” Roger Ashworth, senior strategist on the structured credit team at Goldman Sachs, said this week.
When this story was first reported, new home sales climbed up by 8 percent in December, according to government data, while prices declined to two-year lows. The fall in prices and a rise in sales was partly due to builders offering inducements to buyers, according to Yelena Maleyev, a senior economist at KPMG.
“Builders have pivoted to building smaller homes and offering more discounts and concessions, such as mortgage rate buydowns, to bring in buyers sidelined by rising mortgage rates,” she said in a note shared with Newsweek.
But the data from the U.S. Census Bureau also showed that inventory of newly built homes fell last month after going up the previous months. There were 453,000 houses available for sale at the end of December, which accounts for 8.2 months’ worth of supply.
This constituted a 3.5 percent decline from the same time a year ago, Maleyev pointed out.
The lack of inventory also comes at a time when the used homes market has struggled. Sales are down in that segment amid a lack of supply of homes as sellers are reluctant to give up their low rates for new home loans hovering in the mid-6 percent.
This lack of supply will be key to how prices shake out and the outlook for the year is not encouraging.
“If mortgage rates fall below 6 [percent] in 2024, more owners will feel comfortable listing their homes for sale, alleviating some of the shortages, but not enough to close the supply gap,” Maleyev said.
Construction Workforce Shortage Tops 500,000
By Zachary Russell
(The following article was first published by www.chainstoreage.com. The Associated Builders and Contractors says its model uses the historical relationship between inflation-adjusted construction spending growth, sourced from the U.S. Census Bureau’s Value of Construction Put in Place Survey, and payroll construction employment, sourced from the U.S. Bureau of Labor Statistics, to convert anticipated increases in construction outlays into demand for labor at a rate of approximately 3,550 jobs per billion dollars of additional spending.)
The construction industry’s labor crunch shows no signs of stopping anytime soon.
The industry will need to attract an estimated 501,000 additional workers on top of the normal pace of hiring in 2024 to meet the demand for labor, according to a proprietary model developed by Associated Builders and Contractors.
Looking ahead to 2025, the industry will need to bring in nearly 454,000 new workers on top of normal hiring to meet construction demand and that’s presuming that construction spending growth slows significantly next year.
“ABC estimates that the U.S. construction industry needs to attract about a half million new workers in 2024 to balance supply and demand,” said Michael Bellaman, ABC president and CEO. “Not addressing the shortage through an all-of-the-above approach to workforce development will slow improvements to our shared built environment, worker productivity, living standards and the places where we heal, learn, play, work and gather.”
The U.S. construction industry unemployment rate averaged 4.6 percent for the second straight year in 2023, matching the second-lowest level on record, while job openings remained historically elevated at an average of 377,000 per month through the first 11 months of 2023. Due to labor shortages, contractors laid off workers at a slower rate than in any year between the start of the data series in 2000 and 2020.
“Broadly, there are two factors shaping the interaction between construction worker supply and demand,” said ABC chief economist Anirban Basu. “There are structural factors, including outsized retirement levels, mega projects in several private and public construction segments and cultural factors that encourage too few young people to enter the skilled construction trades. There are also structural factors, including those related to interest rates, consumer sentiment and general economic performance.”
More than one-in-five construction workers are 55 or older, meaning that retirement will continue to contract the industry’s workforce.
“These are the most experienced workers, and their departures are especially concerning,” Basu noted.
AWC And AF&PA Respond To EPA’s PM NAAQS Rule
The American Wood Council (AWC) President and CEO Jackson Morrill and American Forest & Paper Association (AF&PA) President and CEO Heidi Brock recently responded to the Environmental Protection Agency’s (EPA) announcement of an updated National Ambient Air Quality Standards (NAAQS) for particulate matter (PM2.5), which lowers the standard to 9 µg/m3.
“EPA’s rule delivers a devastating blow to U.S. manufacturing and the economy while doing nothing to address the largest sources of particulate matter, including wildfire smoke. This unworkable air rule undermines President Biden’s promise to grow and reshore manufacturing jobs. We are very concerned that many of the modernization projects in the paper and wood products industry and across U.S. manufacturing will no longer be able to move forward.”
“The new rule defies common sense. This Administration has set the PM2.5 NAAQS at near background levels, ensuring permit gridlock for most manufacturing sectors around the country, while failing to address the 84 percent of overall PM2.5 emissions. Essential projects that would reduce greenhouse gas and other emissions, create high paying jobs and allow us to compete in the global economy are now severely at risk. Our industry has demonstrated a continued commitment to be a good steward and community partner. We need sustainable regulation to make environmental progress and keep vital manufacturing jobs in America.”
“AF&PA and AWC joined leaders from over 70 other U.S. manufacturing and trade groups urging the Administration to maintain the existing standard. We also delivered a joint CEO letter to White House Chief of Staff Jeff Zients signed by 44 of our members from the paper and wood products industry. These letters reflect the importance of this issue not only for our industry but for the economic prosperity of America. The EPA must immediately reconsider the PM NAAQS and set a 3-year effective date. We want to work with the Biden Administration on a practical implementation plan that avoids some of the worst impacts on this unsustainable rule.”
The American Wood Council (AWC) represents 87 percent of the structural wood products industry and the more than 450,000 men and women working family-wage jobs in mills across the country. From dimension lumber to engineered wood products, AWC champions the development of data, technology, and standards to ensure the best use of wood products and recognition of their unique sustainability and carbon-reduction benefits. AWC is among leaders in providing education to the design, code and fire official communities who view AWC as a trusted and credible resource.
Learn more at www.awc.org.
The American Forest & Paper Association (AF&PA) serves to advance U.S. paper and wood products manufacturers through fact-based public policy and marketplace advocacy. The forest products industry is circular by nature. AF&PA member companies make essential products from renewable and recyclable resources, generate renewable bioenergy and are committed to continuous improvement through the industry’s sustainability initiative — Better Practices, Better Planet 2030: Sustainable Products for a Sustainable Future. The forest products industry accounts for approximately 5 percent of the total U.S. manufacturing GDP, manufactures about $350 billion in products annually and employs about 925,000 people. The industry meets a payroll of about $65 billion annually and is among the top 10 manufacturing sector employers in 43 states.
Learn more at www.afandpa.org.
