Believe those who are seeking the truth. Doubt those who find it. Andre Gide

Thursday, September 6, 2012

Not enough workers to meet demand for new homes

Wow, how's that for a headline?!

But it appears to be true, as Diana Olick reports here.
The shortage is across the spectrum, but especially in need are framers, concrete workers, plumbers, roofers and painters. The shortage is also felt most in areas where housing is coming back strongest, and permitting is easiest, like Texas and much of the West. 
Ms. Olick also links up to a column she wrote earlier US Homebuilders Begin to See Credit Thaw
Much of the demand is coming from potential buyers who have been shut out of the lower-priced, distressed market by avid, all-cash investors. The big public builders, almost across the board, reported huge jumps in new orders in the first half of this year. Smaller builders are still hampered by lack of credit to build and therefore meet the demand. Construction loans nearly ground to a halt after the latest housing crash.
I wonder whether these smaller credit-constrained  homebuilders are quantitatively important in holding back aggregate construction expenditure? 
In any case, it certainly looks like things are looking brighter for the homebuilders. Toll Brothers, for example, is up around 100% over the past year. Have we turned the corner here? 

Update: 07 Sept 2012: Help Wanted: Auto Makers Revving up Engineering Jobs
As the auto industry rebounds in the U.S. it is creating a strong demand for engineers. In fact, one recruiter said the auto industry is seeking more than a thousand engineers.

The demand is so great, applicants often have multiple job offers and not just for jobs in the auto industry. 
“The demand is as strong as I have ever seen it,” said Andrew Watt, CEO of the recruiting firm iTalent. “There is a huge shortage and anyone you can find with auto engineer experience of any kind will get an interview and probably get a job right now.”


  1. This post makes it appear that part of the unemployment rate that some had thought was structural (perhaps due to its duration) was actually cyclical. This led workers to shift industries which, in turn, created a structural problem.

    Interesting post either way. I am looking forward to seeing what people have to say about it.

    1. Ben,

      In fact, it is well-known that sectors differ in how sensitive they are to "cyclical" shocks. If a "cyclical" shock is sufficiently severe and long-lasting, workers may at some point decide to switch occupations, location, etc., leading to "structural" adjustments. This is one reason why trying to decompose unemployment along "cyclical/structural" lines may not be very useful.

  2. It seems that unsold inventory is roughly back to historical norms, largely due to the pick-up in household formation coupled with the sustained drop in housing starts that has only been inching up slowly over the last several months. However, I would be concerned about the sustainability of the recent uptrend in household formation. Once the pent-up demand in housing is exhausted by those emerging from the throes of the 08/09 recession, it strikes me as unlikely that household formation can continue to support the housing market, particularly given (1) sustained high youth unemployment, (2) relatively low birth/immigration rates which lead to low population growth, (3) an aging demographic, (4) and changing tastes and cultural norms such as "voluntary" multi-generational households. It may be that real (i.e. as opposed to nominal) increases in the value of real estate remain below historical norms for quite some time, after perhaps some additional adjustment upwards reflecting an alleviation of risk.

    It also strikes me as odd that many hedge funds have entered the real estate business, either as mass buyers of distressed properties or as outright developers. This smacks of speculation that could lead to a rapid unwind, a mini-bubble perhaps.

    I found this interesting (again, from one of your colleagues, David - you Fed guys seem to produce some ok stuff ;) :

    1. Thanks for pointing me to Tim's article. Seems like his conclusion is that the downturn in household formation is temporary. But your points are well-taken.

  3. Thank you David. Yes, I see that he concludes that the decline in household formation is cyclical rather than structural/demographic, though I still have trouble with the notion that this will remain the case in the coming decade.

    A little off-topic, but in the context of a much broader question, will increased household formation raise housing prices such that the wealth effect once again contributes meaningfully to consumer spending/economic growth, he alludes to being unconvinced:

    "While such increases in household formation will certainly aid the housing market, it is an open question how increased formation will affect the relative demands for rental or single-family owner-occupied housing. The sharp decline in home ownership rates for the younger cohort shows little sign of recovering, suggesting that when young adults start forming more households, it may have a stronger impact on the demand for rental properties than owner-occupied housing over the near term."

    Should the foregoing scenario Tim outlines unfold, it will be a relatively small group of landlords that benefits at the hands of "landless" renters, who will be confronted with escalating rents, which will compromise their disposable income, ceteris paribus. Renters, of course, do not benefit from the wealth effect.

    Perhaps this is an exaggeration, but unabated, this scenario seems to represent a slow slide back into a form of feudalism.

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