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Outlook Continues to Improve; Can the Industry Keep Up?

Posted on 22 June 2016 by cradmin

spcs-1Several key indicators show that the construction and remodeling industries will continue to improve for the duration of 2016 and likely beyond. However, with the growing economy, unfilled construction jobs are also on the rise, showing that the nation may not have a large enough labor force to keep up with demand.

Home Prices on the Rise

Early this month, Qualified Remodeler reported that the S&P/Case-Shiller Home Price Indices rose by 5.2 percent year-over-year at the end of March as an average of all nine U.S. Census divisions. In addition, even though 10 major cities reported price increases over the year-end in February, the 10-City and 20-City Composites remain unchanged at 4.7 percent and 5.4 percent, respectively. The National Index also showed a month-over-month increase in March of 0.7 percent.

“Home prices are continuing to rise at a 5 percent annual rate,” said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. “The economy is supporting the price increases with improving labor markets, falling unemployment rates and extremely low mortgage rates.”

Blitzer also noted that one of the factors responsible for rising home prices is the short supply of homes on the market. At less than 2 percent of the number of U.S. households, this is the lowest percentage since the mid-1980s.

“The Pacific Northwest and the West continue to be the strongest regions. Seattle, Oregon and Denver had the largest year-over-year price increases,” Blitzer continued. “The Northeast and upper Midwest were at the other end of the ranking. The cities with the smallest year-over-year prices gains were Washington, D.C.; Chicago; New York City; and Cleveland.”

Interest Rates Remain Unchanged

Just last Wednesday, June 15, the Federal Reserve announced that interest rates would remain unchanged while signalling that rates could still be raised twice before the end of the year. However, six of the 17 policymakers on the board believe that rates will only increase once during 2016.

May saw a sharp slowdown in hiring in the U.S., which has fueled doubts about how strongly the labor market will recover, and Janet Yellen, chair of the Federal Reserve, said the board needs to ensure the market has sufficient momentum to adjust to any rate hikes.

The Federal Reserve forecasts economic growth of 2 percent in 2016 and 2017, which is 0.1 percent lower than the previous forecast.

Single-Family Construction, Builder Confidence Up

Total housing starts were hindered in May by a decrease in multifamily buildings and fell by 0.3 percent, but permits for new construction rose by 0.7 percent. In total, multifamily construction fell by 1.2 percent, and single-family homes increased by 0.3 percent. However, this is an improvement over what had been forecast. April saw a strong surge in starts before the stagnation in May, and single-family construction is now predicted to outpace multifamily.

“Another month of gains in building permits coupled with near record-low mortgage rates provides opportunity for a bounce back,” noted Bill Banfield, vice president of Quicken Loans.

This news came just one day after the National Association of Home Builders/Wells Fargo Housing Market Index rose by two points to 60 on a scale of zero to 100. This index is considered the most reliable indicator of builder confidence available today, and the latest figure marks the first increase in the index since January.

All three elements that comprise the index experienced an increase this month:

  • Sales expectations rose by 1 point.
  • Sales expectations for the next six months increased by 5 points.
  • Buyer traffic rose by 3 points.

“Builders in many markets across the nation are reporting higher traffic and more committed buyers at their job sites,” said Ed Brady, chairman of the NAHB. “However, our members are also relating ongoing concerns regarding the shortage of buildable lots and labor and noting pockets of softness in scattered markets.”

“Rising home sales, an improving economy and the fact that the HMI gauge measuring future sales expectations is running at an eight-month high are all positive factors indicating that the housing market should continue to move forward in the second half of 2016,” said Robert Dietz, chief economist for the NAHB.

Construction Job Openings Remain High

One of the biggest problems the construction and remodeling industries currently face is a high number of unfilled jobs. According to the U.S. Bureau of Labor Statistics and an NAHB analysis, the number of monthly job openings in April is estimated at 200,000, which is a decrease from 215,000 in March. The March estimate is the highest number of job openings experienced by the industry since March 2007.

The overall trend for open construction jobs since the end of the Great Recession has been a steady increase, and hiring by home builders and remodelers remains weak with a decline of 4,400 positions in May and 5,200 in April. However, more than 128,000 jobs have been added collectively by home builders and remodelers over the past 12 months.

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