New labor laws could cripple new construction
Just when New Home Sales, Building Permits and Housing Starts are all trending in the right direction, leave it to the government to detail it.
Homebuilders are balking at a new labor law ruling that puts them on the hook for issues involving millions of subcontractors. Roofers, plumbers, electricians, framers are just some of the 25 categories of subcontractors used to build a home. The National Labor Relations Board (NLRB) could, in some cases, now deem them “joint employees” of the homebuilders.
“The homebuilding industry, which is primarily made up of small businesses who rely greatly on the work of subcontractors would overwhelmingly be harmed by the new standard,” said Tom Woods, chairman of the National Association of Home Builders (NAHB) in a release. “It will cripple small businesses across the country, including the homebuilding industry as it is in its fragile recovery.”
The vast majority of home construction is carried out by subcontractors. While the larger, public homebuilders have more specialty workers on staff, they still contract a significant amount of their work out to subs.
The NLRB’s ruling was based on a case in another industry, so it remains to be seen exactly how it would apply to the builders.
“It obviously depends on the facts of each case, but in the construction industry in particular, these kinds of relationships have been in place for decades, and so even before the test tightened in the 1980s not every contracting relationship in the building industry was considered a joint employer,” said Wilma Liebman, a former chairman of the NLRB.
Builders say they stand ready to fight the ruling as soon as a case arises, which they clearly expect will happen soon. “If it is applied to the homebuilder sector … it is impossible to comply with and use the same business model that has been working successfully for 200 years,” said Jerry Howard, CEO of the NAHB.
What Happened to Rates Last Week?
|Mortgage backed securities (FNMA 3.50 MBS) gained +16 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways as we traded in a very narrow range.
The focus was squarely on Friday’s jobs data (and its potential impact on future Fed rate hike decisions) but there were a lot of big name economic reports released as well.
On the manufacturing front, there was very clear expansion with both Chicago PMI (a regional report) andISM Manufacturing (a national report) had readings above 50 but both were a little below market expectations. Construction Spending was very strong with a reading of 0.7% which was more than double the consensus estimates. Factory Orders grew 0.4% but that was a much slower pace than the previous reading of 1.8%. Non-Farm Productivity was much stronger than expected with a reading of 3.3% vs est of 2.7%. The ISM Services Index (which represents 2/3 of our economy) was very robust with a reading of 59.0 and was stronger than expectation. So you can see, the data shows overall economic growth with some strong areas but also some slow-growth areas.
Jobs, Jobs, Jobs: Friday’s release was a strong report. Not a block-buster but it was a strong report and certainly solidifies any justification that the Fed needed to raise rates. However, their decision on timing also has to consider inflation and global weakness (but its not supposed to). The NFP for August was lighter than expected, but July was revised upward significantly and the market understands that August will be revised 2 more times before the final reading…so its not really a big deal. The 3 month moving average of NFP is 221K which is a great level. Average Hourly Wages both on a month-over-month and year-over-year basis show definitively that there is wage pressure and therefore wage inflation and is generally negative for mortgage rates.
|What to Watch Out For This Week:
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.