The economy in May remained on a soaring streak, with a lift in jobs and the lowest unemployment in years. The expansion is a help for the housing market, but is it enough to relieve supply woes?
According to Lawrence Yun, chief economist of the National Association of REALTORS® (NAR), there is an imbalance between inventory and jobs—conditions that fuel unaffordability, despite earnings increasing 2.7 percent year-over-year.
“Housing demand will be supported by the continuing job gains, even as mortgage rates rise,” Yun said in a statement. “The latest monthly job addition of 223,000 brings the total net new job creations over the past 24 months to 4.4 million. Over the comparable two-year period, however, 2.4 million new housing units were built. In a strong economy such as now, over 3 million homes should have been built.
“With the unemployment rate falling to 3.8 percent—the lowest in 18 years—wages are picking up, but more home construction is needed to better satisfy the rising demand,” said Yun. “Otherwise, the housing shortage will push up home prices out-of-reach, even for households with good stable jobs.”
Encouragingly, construction created 25,000 jobs in May; one factor in the housing shortage has been a scarcity of skilled workers. In April, existing inventory was 6.3 percent lower year-over-year, NAR reported, and existing home prices, over the same time, were up 5.3 percent.
Along with the boost in demand for housing, there is discussion that the employment figures could prompt the Federal Reserve to raise rates four times this year, instead of the projected three. A bump to the central rate could impact mortgage rates, which have been steadily ticking up. The policymaker raised the rate in March, and is meeting next in June.
“[The] pick-up in wage growth will increase the likelihood of the Federal Reserve raising interest rates three more times during 2018,” said Brian Schaitkin, senior economist at The Conference Board, an economic measurer, in a statement. “Given the strong economic environment and increased signs of upward pressure on prices, faster wage growth represents an additional signal to the bank that the economy is bumping up against capacity constraints.”