Labor Costs to Push Up Housing Prices
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.
During the slow down in new construction, wages were cut or laid off workers naturally sought out other jobs. Now that housing starts and housing demand have heated back up, the housing industry is struggling to get those workers back to fill demand. And in order to attract skilled workers back, builders are paying more.
Total employment in construction increased by 48,000 in February. Since September, construction employment has risen by 151,000. The biggest growth in February construction jobs came in residential specialty trade contractors, up 17,000. Those trades, such as plumbers, painters, and electricians, have been boosted not just by an increase in home construction but in home remodeling as well.
For example: 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.
Nationwide, the median price for newly built homes rose 2 percent in January and new home prices now far exceed the median price for existing homes.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -133 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move to their highest levels of 2013. We had our highest mortgage rates on Friday and our lowest rates on Monday.
When an economy grows you eventually see signs of inflation. And inflation is the enemy of long-term bonds such as Mortgage Backed Securities and Treasuries. Inflationary concerns about the future are a major factor in bond prices and therefore interest rates.
We have certainly had many better than expected economic reports over the 60 days. But last week’s data finally was enough to cause bonds to sell off which pushed up mortgage rates. The servicing sector (which is 2/3 of our economy) showed expansion according to the ISM Non-Manufacturing report. But the biggest market mover was Friday’s Unemployment report. The headline Unemployment Rate fell from 7.9% to 7.7%. But bond traders are more interested in the Non-Farm Payroll data. The market was expecting this number to increase by around 165K but instead it shot up to 236K new jobs. This set off a chain reaction where bonds sold off.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|12-Mar||2:00 PM||Treasury Budget||–||-$205.0B||-$237.7B|
|13-Mar||7:00 AM||MBA Mortgage Index||–||NA||14.80%|
|13-Mar||8:30 AM||Retail Sales||–||0.50%||0.10%|
|13-Mar||8:30 AM||Retail Sales ex-auto||–||0.50%||0.20%|
|13-Mar||8:30 AM||Export Prices ex-ag.||–||NA||0.50%|
|13-Mar||8:30 AM||Import Prices ex-oil||–||NA||0.20%|
|13-Mar||10:00 AM||Business Inventories||–||0.30%||0.10%|
|13-Mar||10:30 AM||Crude Inventories||–||NA||3.833M|
|14-Mar||8:30 AM||Initial Claims||–||350K||340K|
|14-Mar||8:30 AM||Continuing Claims||–||3103K||3094K|
|14-Mar||8:30 AM||Core PPI||–||0.20%||0.20%|
|14-Mar||8:30 AM||Current Account Balance||–||-$112.3B||-$107.5B|
|14-Mar||10:30 AM||Natural Gas Inventories||–||NA||-146 bcf|
|15-Mar||8:30 AM||Core CPI||–||0.20%||0.30%|
|15-Mar||8:30 AM||Empire Manufacturing||–||6.5||10|
|15-Mar||9:00 AM||Net Long-Term TIC Flows||–||NA||$64.2B|
|15-Mar||9:15 AM||Industrial Production||–||0.40%||-0.10%|
|15-Mar||9:15 AM||Capacity Utilization||–||79.40%||79.10%|
|15-Mar||9:55 AM||Mich Sentiment||–||77.6||77.6|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.