Jobs report gets a golf clap from housing
More jobs than expected were created in January, and income was up, too. The January employment report implies that this year’s homebuying season will be fairly strong, especially for move-up buyers.
Nonfarm payrolls grew by a net 227,000 jobs, according to the Labor Department. The unemployment rate went up from 4.7 percent to 4.8 percent.
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To me, the most important employment data concerns wages. Average hourly earnings for employees in private industry rose to $26 an hour. That’s a 2.5 percent increase in 12 months, which is pretty solid. Unfortunately, that’s not the entire story. There’s also average weekly earnings, which take into account the number of hours worked. Average weekly earnings rose just 1.9 percent in the last 12 months. It went from $877.80 in January 2016 to $894.40 last month.
If average weekly earnings were above 2 percent, I’d be more bullish on this year’s homebuying season. It will be brisk, but affordable houses will still be hard to find for many first-time buyers. Home prices are rising faster than paychecks, and interest rates are going up, too.
Lawrence Yun, chief economist for the National Association of Realtors, has the same concern.
“The low unemployment rate is putting some movement to wages, which rose 2.5 percent,” he says. “It is hoped that home values do not outpace income growth this and upcoming years to keep housing reasonably affordable.”
And here’s Jonathan Smoke, chief economist for Realtor.com: “If we continue to see job growth like this in the months ahead, wage growth should accelerate,” he says in a blog post. “That would mean that inflationary pressures would be rising and mortgage rates would resume their ascent. For now, the strong job numbers means that consumers should remain confident and they have a chance to buy homes before mortgage rates get much higher.”
Prices vs wages
According to the Realtors, median home resale prices rose 5.2 percent in the 12 months ending last September. That’s a lot faster than the 1.9 percent increase in weekly wages in the 12 months ending in January.
Yun notes another ray of sunshine in this jobs report: an increase in 36,000 construction jobs in January.
“With 170,000 construction jobs added over the last 12 months, builders are increasing capacity, which should translate into continued home building,” he says. “This is necessary to help increase the low housing inventory in much of the country.”
The problem is that too many expensive houses are being built, and not enough houses that are affordable to people with moderate or low incomes. This is a difficult issue to solve, because it’s mostly up to local governments to address. They need to change zoning and land-use ordinances, but most cities and towns aren’t interested in welcoming moderate- or low-income residents.
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