Rising Wages Set the Stage for Economic Acceleration, Expanding Commercial Real Estate Demand

 

Follow us:Follow us on Twitter | Follow us on Linked In | Like Us on Facebook | Find Us on Google Plus
Research Brief
February 2018
EMPLOYMENT
Developing Trends
January was the 88th consecutive month of job gains, the longest on record with 200,000 jobs created. Unemployment remained at 4.1 percent, the lowest since 1999.
Retail spending poised to increase during 2018. Rising wages and income tax cuts will combine to raise consumer spending this year and maintain tight retail vacancy. Declining during 2017, vacancy reached 5.1 percent in the fourth quarter, the lowest rate on record, and rents expanded 4.1 percent.
Solid employment gains encourage housing demand. Employment additions of 2 million jobs per year plus escalating wages set the stage for further releasing of pent-up households. Many will opt to rent given the high costs of single-family ownership, maintaining apartment vacancy below 5 percent.
Recent Research Briefs
Employment
11/2017
>>
Housing
2/2018
>>
Rising Wages Set the Stage for Economic Acceleration,
Expanding Commercial Real Estate Demand
Labor market at turning point as wage growth hits recovery high. Meaningful wage growth has been a missing ingredient in the expansion for the past eight years. Yet now, with unemployment holding steady at 4.1 percent, employers are finally feeling the pressure to increase wage hikes to attract and maintain their human capital. Further evidence of tight labor conditions can be found in job openings at or near record levels of 6 million positions over the past 12 months.

Rising wages pulling workers back into the labor force. Despite the low unemployment rate, some slack remains in the employment market and quickening wage growth appears to be drawing back workers who dropped out of the labor pool during the recession. Monthly job gains continue to average close to 175,000, surpassing the 100,000 per month needed

to accommodate the expanding population and pointing to labor force gains. The workforce participation rate could increase by 50 basis points, which would add almost 2.5 million potential employees to the job market. Given the possibility for additional labor force expansion, the economy has room to accelerate further as wage growth and inflation remain below levels witnessed in previous expansions.

Federal Reserve will closely monitor the economy for signs of overheating. A quickening pace of economic growth could prompt additional monetary policy tightening this year. Current policy has the fed funds rate rising three times in 2018, but if indications point to wage or inflation expansion getting out of hand, a more aggressive raising of short-term rates could result.

200,000 Job Gain
January 2017
4.1% Unemployment Rate in
January 2017
* Inflation through December
** Average hourly earnings through January
Sources: Marcus & Millichap Research Services; BLS
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2018 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

Tax Law Changes Could Usher in New Challenges For Housing Market, Reinforce Renter Demand

 

Follow us: 
Research Brief
January 2018
HOUSING
Developing Trends
First-time homebuyers accounted for 32 percent of purchases in December. The rate has bounced around the high-20 percent to the low-30 percent span since mid-2010 and will likely stay in this range through 2018, remaining well below the 41 percent long-term average.
The median existing single-family home price increased 5.8 percent over the last year to $248,100 in December, while the median new home price reached $331,400 after rising 2.5 percent annually. High land and materials costs, as well as a labor shortage, keep building concentrated in higher-end homes, and the spread between existing home prices and new home prices remains at one of its widest points.
In 2018, apartment completions will ease from the 380,000 units delivered in 2017 to 335,000 apartments. About half of all additions are concentrated in 10 markets, and vacancy will remain tight throughout much of the country this year.
Recent Research Briefs
Employment
11/2017
>>
Housing
08/2017
>>
Tax Law Changes Could Usher in New Challenges
For Housing Market, Reinforce Renter Demand
Existing single-family home sales increased a modest 1 percent over 2017 as limited for-sale inventory kept the market from gaining traction. While many of the factors contributing to a restriction in sales velocity remain the same, changes to the tax code remove some of the incentives to homeownership, and anticipated interest rate increases this spring will bring additional challenges to the future of the housing market.

The increase in the standard deduction to $12,000 for singles and $24,000 for couples means fewer homeowners will realize a benefit from itemizing deductions on their taxes. The threshold home price at which itemizing offers the ability to lower a married couple’s tax liability has increased from about $200,000 to above $400,000, which is well above the median home price in most

metros. Concerns about affordability and low savings rates will continue to drive demand for apartments as first-time homebuyers are largely affected.

Stronger economic growth could counter some challenges. Tax savings will flow through to individual tax payers, increasing take-home pay. While some will use this discretionary income to boost consumption, others may increase savings to purchase homes. Sales of new homes could help offset purchasing in the existing single-family home market. Last year, sales of new homes gained more traction, ending the year up 14.1 percent from 2016. However, the number of these homes that have yet to start construction continues to rise, reaching 32.6 percent of new-home sales in December. A construction backlog will benefit the rental market as those purchasing new homes extend stays in apartments.

$248,100 Median price of existing single-family home in December 2018 3.2 Months of supply at current sales pace in December 2018
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; Real Page, Inc.; National Association of Realtors; National Association of Home Builders; New York Fed Consumer Credit Panel/Equifax
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2018 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

Employment Bounces Back From Hurricanes’ Impact; Labor Shortages Temper Employment Growth

 

Follow us: 
Research Brief
November 2017
EMPLOYMENT
Developing Trends
Shaking off the effects of hurricanes Harvey and Irma, the economy added 261,000 jobs in October. The leisure/hospitality sector accounted for the majority of the bounce back by adding 106,000 positions in October after posting a decline of 102,000 in the previous month.
The unemployment rate for college-educated individuals has reached the lowest level since 2006 at 2.0 percent. College placement offices have reported increased on-campus recruitment as firms aggressively attempt to fill current job openings.
Tight labor market conditions have moderated employment growth with the year-to-date pace off by just over 200,000 positions. Employment additions for the year are on pace to add 2 million jobs, which would mark six years in row of growth above that benchmark.
Recent Research Briefs
Housing
08/2017
>>
Employment
10/2017
>>
Employment Bounces Back From Hurricanes’ Impact; Labor Shortages Temper Employment Growth
Job creation rebounded, adding 261,000 positions in October after hurricane-related effects in Texas and Florida caused a significant slowdown in the September data. September initially showed negative 33,000 jobs but that has now been revised upward to 18,000. The bounce back in employment had been expected as historically employment has recovered strongly in the months following major hurricanes.

Unemployment declined to 4.1 percent in October, the lowest level since 1999. The low employment rate highlights the challenge facing employers as companies struggle to find qualified labor to fill job openings. Employment growth has moderated in 2017 as the average monthly job gains have slowed from 187,000 in 2016 to 170,000 so far this year. The decline does not signal a slowdown in the

economy, but the limited availability of workers will restrict the job market’s ability to expand.

Economic estimates indicate the nation needs to create 100,000 jobs per month to match population growth and any number higher will further draw down the unemployment rate. Employers have begun tackling the tight labor conditions through increased employee training to bridge the skills gap within their current workforce and by raising wages in an attempt to attract those who stepped out of the labor force. A major retailer recently announced the raising of its entry-level wages by 10 percent in a bid to lure workers for both permanent and seasonal holiday employment. Overall, employers must be highly proactive given the tight labor market conditions in order to attract workers for job openings and retain current employees.

261,000 Job Gain October 2017 4.1% Unemployment Rate in October 2017
* Through October
Sources: Marcus & Millichap Research Services; BLS
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Harvey and Irma Join Forces to Break 83 Month Job Creation Streak

 

Follow us: 
Research Brief
October 2017
EMPLOYMENT
Developing Trends
The U.S. economy lost 33,000 jobs in September on the heels of two hurricanes making landfall. The phenomena will likely be short lived as following both Hurricane Andrew and Hurricane Katrina the U.S. economy added an average of 130,000 Positions after dropping significantly the immediate months after each storm. These gains occurred even though the U.S. economy was significantly weaker during each of those times.
Average earnings growth continues to rise, but at a nominal pace of 2.9 percent. During growth cycles, its not uncommon for wage growth to reach above 3.5 percent. The current slow but steady economic engine has averaged just 2.3 percent over the last five years.
Total U.S. job openings stands at 6 million, 15 percent higher than the 2001 peak. This is the highest level on record.
Recent Research Briefs
Housing
08/2017
>>
Employment
07/2017
>>
Harvey and Irma Join Forces to Break
83 Month Job Creation Streak
Major hurricanes typically cause an employment setback. When Hurricane Andrew hit Florida in August 1992, the national job creation slowed the following month and Katrina cost the economy a 66 percent drop in job creation before rebounding the following November. This year, having two major hurricanes strike the U.S. within weeks of each other created a setback, particularly for leisure and hospitality jobs. As Houston and Florida rebuild, construction jobs will be added and displaced positions will be recovered, creating a modestly positive employment outlook for the months ahead.

The unemployment rate fell to 4.2 percent, but this also likely reflects a hurricane induced anomaly. Still, this very low figure implies that there are just 6.8 million people looking for work in the U.S.. As of last count,

there were 6 million jobs available. As the job seeker job availability ratio approaches 1:1, it simply reiterates the labor shortages and skills gap the U.S. labor force faces. However, despite the tight labor market, wage growth has yet to accelerate in a meaningful way. This reflects the nominal movement in wages among the unskilled labor segments. Professional and business services annual wage growth is 3.3 percent this September, 40 basis points higher than the overall wage growth average. Wages for these jobs have generated more substantive growth as the availability of this skilled workforce continues to minimize. The unemployment rate for those with a college education dropped 20 basis points year over year to a very tight 2.3 percent this September, with 1.3 million higher-educated workers seeking employment.
33,000 Job Loss September 2017 4.2% Unemployment Rate in September 2017
* Through July
Sources: Marcus & Millichap Research Services; BLS
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real-estate industry. The Research Brief is published by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250