05 March 2016

Resilient job growth

SPRING IS ALMOST HERE, and housing market activity will start to accelerate as we enter the peak homebuying season in the spring and summer months. The latest jobs report shows the U.S. labor market continues to pick up steam, adding 242,000 jobs month-over-month and beating expectations. Job growth has been resilient since the end of the Great Recession in June 2009, with monthly job growth averaging over 200,000 since 2011.

National trends

Annual growth in average hourly earnings has been slow to rebound

Not all news was good, as wage growth fell month-over-month, dipping 0.1 percent. On an annual basis, wages were up 2.2 percent and have been starting to gradually trend higher. However, wage gains have been slow to accelerate despite the solid job gains and declining unemployment.

National trends

Household formations slump to end 2015

Solid job gains and an acceleration in wages will ultimately drive household formations, which have been moribund for quite a while. Through last summer household growth had been accelerating, but seems to have declined lately. While there are possible measurement issues with the Census Housing Vacancy Survey data, the recent sharp drop-off is troubling.

National trends

Will job growth drive household formations?

Given the jobs numbers, you would expect that household formations would be accelerating. But since 2014, annual job growth has been running more than double household formations. One reason for the slow recovery in household formations is a lack of available inventory, both for sale and for rent.

National trends

Demand growth, low supply push home prices higher

With demand picking up, supply will likely struggle to keep pace. As I mentioned earlier, tight inventories are pushing house prices higher across most of the country. Supply is a major concern for U.S. housing markets, and for reasons I’ll explain soon, supply issues are likely to be with us for several more years.