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

 

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

 

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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.
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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

 

 

Millennial Homeownership Edging Higher, Young Adults Still Favor Apartment Lifestyle

 

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Research Brief
August 2017
HOUSING
Developing Trends
Apartment construction appears likely to peak this year as more than 370,000 units are slated for delivery, up from 290,000 apartments in 2016. The majority of new supply is concentrated in luxury, Class A properties, and some markets could experience softening vacancy as these units come online and are stabilized. The construction pipeline is beginning to thin in many metros, and strong housing demand should return balance.
First-time homebuyers slipped from 33 percent of sales in May to 32 percent of sales in June, staying well below the long-term average of 39.3 percent.
With apartment absorption in the second quarter at a 30-year high and vacancy hovering below 4.0 percent, apartment rent growth strengthened. The release of pent-up housing demand to fill the thousands of new units coming online is supporting a healthy pace of rent gains, with the average rising 4.3 percent annually in June.
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Millennial Homeownership Edging Higher,
Young Adults Still Favor Apartment Lifestyle
After falling to a five-decade low in the second quarter of last year, the homeownership rate is up almost a full percentage point to 63.7 percent in June. The increase was driven by a rise in homeownership among millennials, among which the rate advanced 120 basis points year over year to 35.3 percent. Though rising, the rate remains below the peak of 43.6 percent achieved in mid-2004. As the pendulum begins to swing back toward homeownership, limited for-sale inventory and a lack of new-home construction, especially in the entry-level home segment, will continue to plague overall sales activity. Lifestyle changes and low savings rates as many millennials are burdened with high student-loan debt will also contribute to the largest share of those under age 35 remaining renters. These factors will keep demand for apartments healthy and steadily push up effective rents. Existing single-family home listings fell to one of the lowest levels since 1999 during June, and existing home sales have hovered in the same span for the past nine months. Homeowners who have outgrown current residences are restrained by a lack of inventory to trade into, pushing higher-income households into the new-home segment. This has supported an elevated median as new homes priced above $300,000 make up the largest share of sales. Rising construction costs and high land prices are keeping many entry-level home projects from penciling, constraining activity in properties below this threshold. While single-family construction starts are on the rise, the pace of household formation is accelerating more rapidly, and demand will likely outstrip the combined single- and multifamily supply additions by nearly 100,000 units.
$246,480 Median price of existing single-family home in June 2017 4.3 Months of supply at current sales pace in June 2017
* Through 2Q17 Sources: Marcus & Millichap Research Services; U.S. Census Bureau; MPF Research; 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.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

  Household Formation, Loosening Lending Criteria Stimulate Housing Demand

 

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Research Brief
July 2017
HOUSING
Developing Trends
Existing single-family home prices increased 5.8 percent year over year in May to $252,800 and are up nearly $20,000 since the end of 2016. The increase pushed the median to a record high, largely driven by strong buyer competition and limited inventory across the country.
First-time homebuyers accounted for 33 percent of sales in May, up from 30 percent one year ago. Loosening lending criteria is making it easier for first-time borrowers to secure financing, and a healthy pace of job creation is releasing pent-up housing demand.
Following two quarters of sluggish absorption, demand for apartments regained strength in the second quarter of this year. At the end of June, apartment vacancy reached 3.8 percent, falling 60 basis points from the first quarter and remaining flat year over year.
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Household Formation, Loosening Lending Criteria Stimulate Housing Demand
The current pace of existing single-family home sales is at the highest level since the Great Recession. For-sale inventory appears to be the only hindrance to pushing sales activity closer to previous levels. In May, existing supply slipped to 4.2 months at the current sales pace and the number of days nondistressed homes remained on the market dropped to 27 days, its lowest on record. As household formation strengthens and for-sale inventory remains limited, a large share of housing demand is filtering into apartments. In the second quarter, apartment developers completed more than 86,400 units, a 30-year record, but absorption also reached a new peak as over 175,600 rentals were filled. Steady job gains will continue to release pent-up housing demand through the remainder of the year, and hurdles to homeownership will keep many would-be owners in rentals. Later this month, Fannie Mae will raise the debt-to-income (DTI) ratio from 45 percent to 50 percent, easing lending criteria to attract first-time homebuyers and millennials riddled with student loan debt. Whether the change makes a difference in the homeownership rate is unknown, as several lenders have been underwriting higher DTIs as long as borrowers could reasonably show they would not default on loans. Slower demand for mortgages has prompted the change, but downpayment obligations will likely remain a hurdle as many millennials are making large student loan payments, restricting the ability to save. Higher home prices and fierce competition for existing single-family homes, as well as a lack of entry-level home construction, will also continue to weigh on the transfer of households into homeownership and strengthen demand for apartments.
$252,800 Median price of existing single-family home in April 2017 4.2 Months of supply at current sales pace in May 2017
* Forecast
Trailing 24-month average for household growth
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; MPF Research; National Association of Realtors; National Association of Home Builders
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