Constraints Still Weigh Heavily On The Housing Industry

In several posts over the past few years, I have written about the many constraints binding the housing market. Based on recent news, the situation has yet to improve and has probably worsened. This is a good time for a quick review because the Federal Reserve is preparing to hike interest rates even as the housing industry is far from normalized. Surely one of the reasons the Fed has dragged its feet so far is that the housing industry remains nowhere near normal. Rate hikes could even serve to exacerbate some of the financing constraints that are still slowing down economic activity in the housing industry.

• Not enough workers to make up slabs, pour slabs.
• Not enough framers.
• Not enough masons.

One consequence of this shortage is that a home built now is not as good as one built 10 years ago. This admission was quite surprising, but instructive!

 

The construction industry has lost workers who have yet to return even as labor conditions tighten

Source: US. Bureau of Labor Statistics, All Employees: Construction [CEU2000000001], retrieved from FRED, Federal Reserve Bank of St. Louis, July 21, 2015.
US. Bureau of Labor Statistics, Unemployment Rate: Construction Industry, Private Wage and Salary Workers [LNU04032231], retrieved from FRED, Federal Reserve Bank of St. Louis, July 21, 2015.

I have heard one theory that many of the lost construction workers are making better money in the oil and gas industry. If so, the current plunge in oil prices should push these workers back toward construction. Fed rate hikes could potentially make conditions even worse for the oil patch, particularly where a lot of debt and leverage is pulling oil out the ground. Yet, the oil-producing state of Texas has had no problem ramping construction back to pre-recession highs. Note that Texas still has one of the hottest housing markets in the country.

 

Times are good again for construction in Texas

Source: US. Bureau of Labor Statistics, All Employees: Construction in Texas [TXCONSN], retrieved from FRED, Federal Reserve Bank of St. Louis, July 21, 2015.