The economy is quite strong. Job gains for 91 consecutive months have brought the unemployment rate to its lowest level since 2000. The latest unemployment rate of 3.8% in May corresponds to 155 million Americans with jobs and only 6.1 million without one and still searching. A very rare event is occurring in the economy as well: The total number of job openings exceeds the number of unemployed today. Theoretically, the unemployment rate could be zero, if those unemployed had the required skillsets and were willing to move to the job openings. At the depths of the recession eight years ago, there were more than 15 million people unemployed and only two million job openings.
The tight job market is forcing employers to aggressively compete over the sparse number of those still without a job or by trying to recruit workers away from other firms. he average hourly wage rate reached $22.59, which is an increase of 2.8%, the strongest gain in nearly a decade. The retail trade sector is offering one of the bigger wage bumps by way of a 4.4% gain to an average hourly pay of $15.93. For business owners with a “Help Wanted” sign in the window, keep this in mind: The wages of construction workers are also outpacing the average pay growth with a 3.6% gain to reach $27.50 per hour.
In addition to the wage growth, the total net worth of the country has been successively hitting new highs with each passing quarter. Right before the Great Recession, the total net worth of all households combined was $66 trillion. It then plunged to $55 trillion as home values and the stock market corrected. Today, net worth is likely to have surpassed $100 trillion (it was $98.7 trillion at the end of 2017) as both home prices and the stock market are essentially setting new highs.
Despite this terrific economic backdrop, home sales, strangely, are not improving. Existing home sales are down so far this year, albeit only by 1%. New homes are modestly higher from last year, though well below historical norms.
The combined new and existing home sales today are about the same as those that occurred at the turn of the new century. In 2000, there were 5.2 million existing home sales and 900,000 newly-constructed home sales. The sales pace of recent months counted 5.5 million existing homes and 650,000 new homes. Considering that there are 40 million more people living in the country, with 17 million more with jobs now compared to back in 2000, the current home sales activity is truly not impressive. Moreover, mortgage rates were 8% back then compared to today’s 4.6%.
What is going on? A glance out the window indicates an exceptionally fast-moving housing market. A home that hits the market found a buyer willing to sign a contract in 26 days, according to our survey of Realtors.com. Around 50 to 60 days would be more normal. Moreover, multiple bidding is quite common.
We’re in a bizarre world of a heated housing market where home sales are not rising. And one reason has to be the lack of supply. That is why more home building is critical. Whether it is the construction of affordable homes to meet first-time buyer needs, large-size homes to permit some existing homeowners to trade up, or developing an age-restricted retirement community, empty new homes will satisfy the rising housing demand. Just trying to get existing homeowners to list without building new homes means forcing people to play a risky game of musical chairs with no new place to sit once a sale is made. In some markets with extremely tight inventory, this sitting at home for an extended period is already occurring and no doubt partly from the fear of being unable to find the next home once the owners sell. The median length of stay in the home by recent sellers was ten years. In most years, it was bouncing between six to eight years.
Building homes will create jobs, boost the local economy, raise tax revenue, make home prices moderate, and raise homeownership rate. Let’s make it happen.