New Construction Hampered by Labor Shortage
Existing Home Sales have been on a tear, and would be even higher if it were not for inventory shortages. New Homes are also facing headwinds from a shortage – a labor shortage.
Builders claim there is good demand, but they complain they’re handcuffed by a lack of skilled labor to build new homes. The builders’ industry trade group calls the incidence of labor shortages nationwide “surprisingly high.”
“In fact, the 9-trade shortage is now substantially higher than it was at the peak of the 2004-2005 boom, when annual starts were averaging around 2 million, compared to current rates of about one million,” economist Paul Emrath of the National Association of Home Builders wrote in a recent report. Nine-trade refers to the various skills required for homebuilding, such as concrete pouring and carpentry.
“The last time builder-reported labor shortages were as widespread as now was just before 2001 during a prolonged period of strong GDP growth with overall unemployment as low as 4 percent,” he added.
Unemployment in the construction industry fell in June to the lowest level since 2001, according to an analysis by the Associated General Contractors of America. That’s because contractors are having a hard time finding enough qualified workers to meet growing demand, association officials said.
“Expanding job opportunities throughout the economy make it increasingly difficult for contractors to find experienced construction workers,” said Ken Simonson, the association’s chief economist. “This scarcity shows up in record workweeks for craft workers and flattening of employment totals despite higher construction spending.”
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +22 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways.
We had another week of volatility with a big swing in pricing. The spread between our intra-day high and our intra-day low for the week was -95 basis points.
International events were once again the primary factor in trades for the week as there were multiple parliamentary votes that were passed in Greece, Germany and Austria just to name a few. And all of these votes were for approval of the third round of bailouts for Greece. Greece also got a bridge loan and access restored to the ECBs emergency liquidity fund.
Even though international events drove our markets, we still had a lot of domestic data hit:
The “Talking Fed”: Fed Chair Janet Yellen gave her semi-annual monetary testimony before the House Financial Services Committee and the Senate Banking Committee. In her prepared remarks and in her responses to the questions asked of her she stayed right on point and simply reaffirmed the Fed’s economic outlook and policy statement that the minutes from the last FOMC meeting showed. She reminded the markets that the Fed expects to start raising rates this year. While she is still concerned about labor slack (which has been improving) the risks to our fragile economy with a small rate hike are far smaller than the risks to the overall economy by waiting too long before raising rates.
Domestically, we had a huge plate of economic data to digest. On the Housing Front, both the Home Builder’s Index and Housing Starts/Permits were both very strong. Both PPI and CPI showed very small increases in month-over-month inflation, Empire Manufacturing and the Philly Fed survey both were much weaker than expected and Consumer Sentiment pulled back but were still at good levels.
What to Watch Out For This Week:
Date Time (ET) Economic Release Actual Market Expects Prior 22-Jul 7:00 AM MBA Mortgage Index – NA -1.90% 22-Jul 9:00 AM FHFA Housing Price Index – NA 0.30% 22-Jul 10:00 AM Existing Home Sales – 5.40M 5.35M 22-Jul 10:30 AM Crude Inventories – NA -4.346M 23-Jul 8:30 AM Initial Claims – 278K 281K 23-Jul 8:30 AM Continuing Claims – 2218K 2215K 23-Jul 10:00 AM Leading Indicators – 0.20% 0.70% 23-Jul 10:30 AM Natural Gas Inventories – NA 99 bcf 24-Jul 10:00 AM New Home Sales – 550K 546K
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.The above 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.