Gallup Good Jobs Rate slipped to 44.7 percent in April

The U.S. Gallup Good Jobs Rate fell to 44.7% in April, down from 45.1% in March, but higher than the 44.4% measured in February. The current GGJ rate is slightly lower than the 44.9% recorded in April 2016.

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Labor productivity rose at 0.6 percent annual rate in 1Q 2017

Nonfarm business sector labor productivity decreased at a 0.6-percent annual rate during the first quarter of 2017, as output increased 1.0 percent and hours worked increased 1.6 percent.

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April planned job cuts down 15 percent from March and 43 percent year-on-year

US-based employers announced workforce reductions totaling 36,602 during the month, down 15 percent from March and 43 percent lower than the 64,141 recorded in April 2016.  Of these cuts, 11,669 were in the retail sector, the highest total among all industries.

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Federal Reserve opts to keep interest rates unchanged in latest meeting

Information received since the Federal Open Market Committee met in March indicates that the labor market has continued to strengthen even as growth in economic activity slowed. In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 3/4 to 1 percent.

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Auto sales fell for fourth straight month in April

Car sales in the US slowed significantly in April, compounding several months of declines that suggest the industry's record sales streak may be behind it. It was the fourth straight month of decline for the industry.

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Gallup's Economic Confidence Index dipped to +5 in April, but positive streak continued

Gallup's U.S. Economic Confidence Index averaged +5 in April, down four points from March's average. Despite the dip, confidence has been in positive territory for six consecutive months -- the longest such streak in the past nine years.

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April service sector index rose 2.3 percentage points to 55.2

The NMI registered 57.5 percent, which is 2.3 percentage points higher than the March reading of 55.2 percent. In April the non-manufacturing sector reflected strong growth after a slowing in the rate from the previous month.

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April manufacturing sector index fell 2.4 percentage points in April to 54.8

The April PMI registered 54.8 percent, a decrease of 2.4 percentage points from the March reading of 57.2 percent. Comments from the panel generally reflect stable to growing business conditions; with new orders, production, employment and inventories of raw materials all growing in April over March.

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Gallup Job Creation Index dips to 36 in April, one point from record high in March

The Gallup Job Creation Index was at +36 in April, one point off the record high of +37 in March. The Midwest led the regions at +42, the first time any region has topped +40 in the nine-year history of the index.

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ADP: Private sector job growth dipped to 177,000 in April

Private-sector employment increased by 177,000 from March to April, on a seasonally adjusted basis. This compares to 255,000 last month and 109,000 year-over-year, and is the lowest level since October 2016.

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The Persistency of Architecture: Many Classic Ideas are Always in Style

On a recent trip to Italy to visit family living overseas, it was hard not to acknowledge the treasure trove of building methods and techniques started by the Greeks and Etruscans, refined by the Romans, and copied ever since throughout the world. Even in the residential subdivisions and urban infill projects of today, a variety of architectural elements and exterior elevations continue to borrow from ideas of the past.

After inventing a cold-method process for creating concrete around 200 B.C., the Romans went on to build roads, temples and palaces, many of which, when excavated, were still partly standing up to 2,000 years later or more.

But it was probably their expertise with arch-based structures which allowed them to expand, strengthen and defend their territory to a much larger empire with the use of bridges, aqueducts and gates. Due to the way in which arches transfer forces to the surrounding foundation, such structures tend to both strong and long-lasting, which is why you’ll still see remnants of arch-based aqueducts throughout Italy today.

These arches soon morphed into vault-type roofing and then domes, which, after being first used in the Roman marketplace, were eventually instrumental in creating many large interior spaces, including halls, temples and Catholic basilicas still standing today. Over time, other influences, especially from the Ottoman Empire, also imprinted their own design cues on the practical arch.

While our large public spaces of today often include obvious design cues from the Greeks and Romans with their rows of high columns and detailed porticos, the influence of the ancient, Renaissance, Baroque and Colonial periods of history continue to be used in many new homes today. 

In the U.S., because the country was colonized by so many different types of Europeans, colonial architecture can also include design cues from Germany, the Netherlands, Spain and France. When the industrial age made mass production and transportation more affordable over rail lines, various elaborate Victorian homes sprung up in even more modest neighborhoods.

For a luxury builder such as Toll Bros. today, which can invest in more exterior details than a entry-level builder, it’s not surprising to see such classic elevation choices in California as the Mediterranean, with its finished columns supporting multiple arches and accompanied by balustrade balconies. Or the Italianate, with a more under-stated, Baroque elevation characterized by several large stone walls in the front, an arched entryway, and a two-story foyer capped by a small dome.  Or even the Tuscan, featuring an earthier look including a wall of natural-looking stone but keeping the arched entry and the domed foyer.

In other locations such as suburban Pennyslvania, however, builders such as Toll pull from a more recent palette for their estate homes on one acre of more.  In this case, buyers might opt for the colonial-esque Williamsburg, with an elevation of small bricks with multiple gabled roofs. Or perhaps the Federal, which offers a similar, conservative look but with toned-down brick colors.Or even the Farmhouse, which evokes more of a Prairie-home look with a wooden cladding exterior, multiple gables and a covered porch.

Not surprisingly, most of these architectural design choices are generally matched to the local climate, but builders haven’t always brought in the outside as much as they do today. This is certainly good to see, as the ancient homes of Pompei and Herculaneum – both victims of the infamous Mt. Vesuvius eruption of AD79 --were often quite large, and almost always included a central, unroofed space including gardens, fountains and cisterns around which the rest of the home was built.

I think what struck me most about seeing these ancient communities was just how well these people were living two millennia ago without modern conveniences such as electricity, indoor plumbing in the home (that was generally reserved for the public bath houses) or central heating. Once the Roman Empire collapsed in the late 400s AD – and other than some clever inventions by royals in Britain and France --- it wasn’t until 1829 that we saw the re-introduction of commercial indoor plumbing, in this case at Boston’s Tremont Hotel.

And, whereas the City of Rome was the first city to boast one million residents as early as 133 B.C., it wasn’t until 1810 that the City of London was able to match those numbers. In those intervening years of the Dark Ages, the Renaissance and the Industrial Revolution, many great ideas about home building and urban planning were lost to history. It’s nice to see them being appreciated again.

The Future Will be Automated: How Will That Impact Housing?

During the year leading up to the last Presidential election, we heard a lot about bringing back jobs to the United States.  But what we didn’t hear much about was the increasingly important role that automation and artificial intelligence (AI) will have on the country’s job base, especially its potential impact on the housing market.

At first glance, the numbers are sobering:  According to former President Obama’s final Economic Report of the President to Congress dated February 2016, up to 83 percent of jobs which pay under $20 per hour would be the first job dominoes to eventually fall to automation.

While most of these types of jobs wouldn’t qualify workers to purchase a median-priced home in most areas, up to 31 percent of jobs paying $20 to $40 per hour will be next, and these are the types of jobs which allow many workers to grab that first rung of the home buying ladder.  However, for those workers earning more than $40 per hour – typically the main draw for move-up housing -- their focus on creativity, innovation and often complex communications will mean that just four percent of their jobs would be easily automated away.

In fact, many economists have argued that it is automation, not outsourcing to other countries, which has led to the loss of most manufacturing jobs over the last few decades, especially in the auto industry.

In the short run, the job market seems to be booming, with private employment growth rising in February 2017 at the fastest rate since April 2014, with nearly 300,000 new positions created.

Yet according to a Pew Research poll conducted in 2014, about half of the technology experts contacted expressed concern that emerging technology will displace more jobs that it will create as soon as 2025. Still, the other half were more optimistic, concluding that human ingenuity will continue innovating new jobs and entire industries, much as it has done since the dawn of the Industrial Revolution.

Even if these changes are rolled out over time, economic inequality may increase to the point that government needs to step in to prevent social unrest.

One potential solution could be a Universal Basic Income, once championed by those on both sides of the political spectrum, and almost signed into law during the time of former President Nixon.  The idea is that by providing citizens with enough income to survive irrespective of need, they can then focus on alternative pursuits, whether that’s in the form of volunteering in the communities, caring for family members or starting new businesses.

However, since that could also mean those receiving this free money simply sit home and do nothing, opponents suggest that a program such as the existing Earned Income Tax Credit is a better solution, since history has demonstrated that when people have a job – even one without a high wage – communities are generally safer and more stable.

To leverage existing infrastructure, another option might be to expand the Supplemental Security Income (SSI) program, which was launched in the 1970s to replace several other programs and currently covers over 5.5 million persons. Waste, fraud and abuse could also be curtailed with a single, simplified process.

Whatever it is called, the idea of a floor-level income is currently being tested in several countries including Finland, Brazil and The Netherlands as well as in the City of Oakland, California by Y Combinator, a start-up incubator which has a vested interest in preventing future social backlashes from the potentially job-taking technology companies it helps to found.

When similar trials were previously conducted in Canada, India and Namibia, social markers including health, education and nutrition improved while poverty levels, crime and emergency hospital visits declined.

So what impact could these technological changes and social programs have on housing? In the short- to medium-turn, focusing on those regions with the most technology-related jobs would be a great defensive move.

According to leasing giant CBRE Group’s annual Scoring Tech Talent report for 2016, these areas include not just the usual suspects such as California’s Bay Area, Seattle and Austin, but also Charlotte, Nashville, Baltimore and Oklahoma City.

In the longer term, another defensive move would be planning for the potential day when families, or groups of individuals, aggregate their basic incomes in order to qualify for both rental and for-sale housing.

In that case, because they will no longer be reliant on jobs in traditional city centers, their ability to live anywhere they choose could greatly expand the geographic reach of today’s homebuilding footprint.

Millennials Jumping Into Market as Boomers Retire and Sell

Last month, I wrote about how improvements in the housing market will be different depending on geographic regions of the U.S. This month, I wanted to review how this gradual improvement will also differ based on demographics and generational shifts.

For all of 2016, the share of first-time buyers rebounded to 35 percent – a three-point improvement over 2015 levels -- as well as a positive rebound for this cohort’s historical 40-percent share of the market. 

Obviously, encouraging first-time buyers to grab that first rung of the housing ladder is important, as they can then roll future equity gains into move-up homes, vacation homes and eventually senior housing, which continued to account for 14 percent of sales.

The typical buyer in 2016 was 44 years old, a figure which has remained flat for three years, but the median household income rose again to $88,500. Two-thirds of these buyers were married couples, followed distantly by single women (17 percent), unmarried couples (8 percent) and single men (7 percent).

So what kind of homes did they buy?

Just 17 percent of new homes sold in 2016 were priced under $200,000, for a drop of two percentage points from 2015. A larger drop of three percentage points was noted for new homes priced from $200,000 to $300,000 (32 to 29 percent), while new homes priced from $300,000 to $500,000 increased their share from 33 to 38 percent, lending additional proof that the ‘sweet spot’ for home builders is in this first- and second-time move-up market. Meanwhile, the share of more discretionary homes priced over $500,000 remained stable at 16 percent between the two years.

Looking at just December of 2016, the distribution of sales for new homes moved even further in the same direction, with those priced from $200,000 to $500,000 accounting for more than two-thirds of the total, while the share of entry-level units priced under $200,000 eroded further to 14 percent.

Meanwhile, the existing home market – which the NAR says accounted for 86 percent of all home sales in 2016 – seems to remain the favored option for entry-level buyers. During December of 2016, more than four of every ten existing home sales were priced from $100,000 to $250,000, with another 13 percent priced under $100,000. While there is certainly a robust move-up market for existing homes – with 32 percent of December’s sales priced from $250,000 to $500,000 – when existing homeowners are looking to trade in their starter home for something larger or in a better area, about one-third focus on the advantages of new construction.

Looking ahead to the longer term, two primary demographic trends will continue to drive housing demand.

The first is an aging population, with the number of adults aged 70 and over rising by over 90 percent over the next two decades. The challenge here is ensuring a reliable supply of affordable, accessible housing which can also provide the types of supportive and social services needed as the huge Baby Boom generation continues to retire at the rate of 10,000 per day.

The second main trend is the increasing share of the minority population among the 86-million strong Millennial generation, which is already at 45 percent – a bit higher than the 40 percent share among Generation X and significantly more than the 28 percent share among Baby Boomers.

While it is certainly true that Millennials have been postponing starting their own families and buying their own homes, the five-point increase in 2016’s share of homes bought by first-time buyers would indicate this is starting to change. In fact, over the next two decades, this cohort will increase the population of those aged 30 to 49 years by 17 percent.

However, what will be different this time are the types of homes demanded by the significantly larger minority populations versus previous generations.

Although just 11 percent of the homes sold in 2016 were to multi-generational households, this is expected to increase due both to average larger family sizes among minority groups as well as multiple income streams to finance these purchases with traditional mortgage products.

For home sellers – who typically had lived in their homes for 10 years in 2016 – builders of new homes have a unique opportunity to capture their interest, especially since the most-cited reasons include a too-small home (18 percent), a desire to move closer to family and friends (15 percent) or a job relocation (14 percent).With a median net gain of over $43,000, that figure certainly makes a robust down payment for the next purchase.

The Housing Market in 2017: Not all Regions are Created Equal

Although all signs continue to point to a positive year ahead for the national housing market, that doesn’t mean the gains and opportunities will be evenly shared.  As in years past, it will likely be the South and West regions out-performing against the Northeast and Midwest.

Looking first at where the jobs are, however, it was in the Midwest and the Northeast where the unemployment rate was the lowest in late 2016, with the highest rate noted in the West and the South.  Yet it was in the South where most of the private sector job growth occurred (42 percent), followed somewhat distantly by the West (29 percent). Although the Midwest and the Northeast may have lower overall unemployment rates, their capture of job growth ranged from just 12 to 15 percent.

Another snapshot of the employment picture is planned job cuts at the end of 2016, with the Northeast and the South together accounting for nearly two-thirds of the total; the fewest planned job cuts would take place in the West and the Midwest.  In other words, it’s possible that unemployment rates in the Northeast and South will inch back up in the months ahead.

In terms of new single-family home sales through the first eleven months of 2016, nearly 60 percent were sold in the bustling South region, followed distantly by the West, the Midwest and the Northeast. Yet it was the Northeast which saw the greatest year-on-year sales increase of 34 percent – double that of the Midwest and roughly three times the rate of the South and West.

In terms of market balance, while the share of unsold homes in the Northeast indicates more excess supply, in the South demand continues to run slightly ahead of supply.  Not surprisingly, builder confidence remained strongest in the West and South in the first month of 2017, yet was also almost as positive in the Midwest, and lowest in the Northeast.

As it did for new homes, the South region also dominated the share of existing home sales through most of 2016, with over 40 percent of the total, or nearly the combined share of both the Midwest and the West.  Yet, it was again the Northeast which noted the largest year-on-year sales increase of five percent – a point higher than in the Midwest and more than double the rate of the South and West. Nonetheless, for pending sales the South continues to outperform both the nation and the other regions, and it also posted the highest rental vacancy rate in the third quarter of 2016.  In the housing-crunched West, vacancy rates were just 4.4 percent.

Looking ahead to the rest of 2017 based on building permits and housing starts in 2016, the South will likely continue to capture 40 to 50 percent of both single- and multi-family construction, with another 25 to 30 percent reported in the West.  Of the remainder, about 15 percent will be built in the Midwest, and 10 to 15 percent in the Northeast.  Similar numbers were also noted for completions throughout 2016.

As a final caveat, however, past is not prologue, especially with a new Presidential administration likely to impact the housing market in various ways.  These changes could include higher mortgage interest rates due to increasing inflation and housing finance reform as well as worsening labor shortages related to more stringent immigration enforcement.  However, we could also see increased demand due to lower income taxes and fewer regulations.

If nothing else, 2017 should be quite interesting.

January column for Builder & Developer now posted online

My column for the January 2017 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "A Look Ahead to 2017:  Higher Interest Rates and Tight Inventory," I discussed what we might expect for the housing market with a new Presidential administration.

An excerpt:

For 2017, the International Monetary Fund (IMF) is projecting global growth of 3.4 percent (2.2 percent for the U.S.) versus 3.1 percent in 2016 (1.6 percent for the U.S.), with this higher growth rate attributed mostly due to greater stabilization for energy and commodity prices as well as continued low interest rates.

However, the same forecast is also mindful of the potential economic fallout from political instability not just here at home, but also across Western and Eastern Europe, the Middle East as well as parts of Asia and South America. So what does that mean for a Trump Administration? It depends a lot on whether or not the new President takes his own campaign promises seriously or literally...

To read the entire column, click here.

To read the entire January 2017 issue in digital format, click here.