Construction continues to be the major key driver driver of the economy!
Residential construction employment continues to outpace employment overall
Trulia (TRLA) Chief Economist Jed Kolko noted that, despite a slow quarter for construction activity, residential construction employment continues to outpace employment overall. Year-over-year, residential construction is up 4.5% — ahead of overall national employment growth of 1.7% — an indicator that housing is putting more jobs on the market.
From its previous peak, construction employment is down 38%, while construction activity has dropped 56% from its previous peak.
However, job growth remains slugging for young adults, who are key to household formation, and job growth remains behind normal numbers in the metros that were hit hardest in the housing bust, aka the job market isn’t improving enough to give a strong boost to housing demand.
Only 75% of 25-34 year-olds are employed, remaining well below pre-bubble levels. In fact, this number is closer to the low point during the recession than to the pre-bubble normal of 78%-80%. So why are young adults struggling to find work?
Without jobs, young people are much more likely to live with their parents instead of becoming renters or homebuyers, which will continue to bring down the household formation numbers.
According to Sterne Agee chief economist Lindsey Piegza, most young adults are adjusting to their new surroundings and realizing that you can not simply buy a home with 0% down and no credit.
“Aside from the fact that that demographic that is coming out of college is struggling to find jobs in general, they’re also struggling to find good paying jobs,” Piegza noted.
Piegza added that it will likely be 5-6 years before those recent college grads are buying a house. “It’s really important to recognize that the game has changed now,” she said. Piegza believes that in the short term, this will add pressure on the housing market. However, she noted that in the long run, it will allow for a much more sustainable housing sector because we are putting people who can afford homes into homes instead of those who would be struggling to make payments.
In metros most clobbered by the housing crisis — aka metros with the biggest price declines during the bust and the highest vacancy rates now — job growth only reached 1.5% year-over-year in June, below the national job growth of 1.7% for the same period. Coincidentally enough, job growth is especially important for housing demand in these markets.
Piegza noted that these clobbered markets “have made vast improvements, but there’s still quite a game of catch up.”
According to Fannie Mae Chief Economist Doug Duncan, Friday’s report is consistent with modest economic growth of 1.4% through the first half of the year.
“The housing sector continues to outpace the broader economy, but signs of a temporary slowdown have appeared in recent data—likely induced in part by higher mortgage rates,” said Duncan.
“Despite these data, our July National Housing Survey, to be released next week, is expected to show that consumer expectations for healthy appreciation in home prices remain intact even amid expectations of higher mortgage rates in the future,” he added.