The U.S. economy added 3.3 million net new jobs in the past 12 months to February. One has to go back to the late 1990s when the job growth rate was this strong. More jobs will enlarge the pool of potential homebuyers and increase the demand for commercial leasing activity.
The latest one month gain of 295,000 net new jobs is implying that the momentum continues to build and another 3 million net new jobs over the next 12 months is a possibility. Rising demand for real estate is near certainty as a result. This backdrop is the key reason as to why NAR is forecasting 7 to 9 percent rise in home sales in 2015.
Jobs related to residential construction and building contractors rose by 16,800 in February and by 167,800 over the past 12 months. Jobs related to commercial construction and building contractors rose by 15,700 in February and by 117,700 over the past 12 months. This growth in construction employment reflects the need to build new homes, new apartments, new office buildings, warehouses, and other commercial building spaces.
Employment in oil extraction and the related support services fell for the second consecutive month. No surprise since oil prices have plunged and some oil wells are no longer profitable. The loss of these hard-hat workers are likely to be a gain for the construction industry, which had been faced with worker shortage. Homebuilding activity, therefore, could be primed to rise much faster in 2015 than the 8 percent gain experienced in 2014.
The unemployment rate has fallen to 5.5 percent, the lowest since early 2008. However, the employment rate (how many people have jobs) is barely rising and remains at close to recessionary levels. The discrepancy in trends between unemployment and employment rates is due to a sizable number of people who are out of the labor force and who hence are counted neither as employed nor unemployed.
One frustrating aspect of the current job market is that wages are stuck and not really rising. The average hourly wage in February was $20.80, which is the same as the prior month and up by only 1.6 percent from one year ago. Home prices have been rising at 5 to 6 percent and apartment rents have been rising at 3 to 4 percent. Workers in short are getting their life squeezed out of them from rising housing costs. But homeowners have fixed mortgage payments and therefore are mostly protected.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.