Solid Job Growth
Although the number of new jobs added in December — 148,000 — was below the previous 12 months’ average, it is still a remarkably strong number. For all of 2017, a total of 2.06 million jobs were created, all but 43,000 of them in the private sector.
Over the last year, the biggest contributor to job growth has been Professional Services, which added 527,000 jobs. This category includes professions such as interior design and architecture, as well as accounting and legal services, among others. Second in importance is Health and Education Services, growing by 438,000 over the past 12 months, followed by Hotel and Restaurant Services, which added 264,000 jobs.
Construction is the fourth-largest contributor, adding 210,000 jobs. And manufacturing continues to see gains, increasing by 196,000 last year.
Note that although government employment rose by 42,000 in 2017, the increase is driven by 77,000 new workers at the local levels. Employment at both State and Federal governments actually declined.
But retail is an area that actually saw its number of workers decline in 2017. In fact, retail employment is only minimally higher than what it was at the turn of the century, 17 years ago. Obviously, Internet trade has put a dent in traditional brick-and-mortar retailing, with many physical outlets closing or being scaled down in size.
Remodeling Market Is Also Growing
Both indicators of the health of the remodeling market — jobs and spending — remain positive and growing. The total number of employees at remodeling firms, the red line in the chart below, has been on an upswing over the last 12 months, despite the drop following the burst of activity last February. Since November 2016, remodeling firms have added 7,700 workers.
Similarly, consumers continue to spend on remodeling their homes. The amount spent by homeowners for remodeling reached an annual rate of $196.3 billion in November, reflecting nearly 10% growth over the year (+9.8%). We can appreciate in the chart above that the rate of spending has increased more or less steadily over the last year.
Mortgage Rates and the New Tax Law
The average mortgage rate dipped modestly last week, to 3.95%, and it still remains within the 3.9%-to- 4% range maintained since early October.
After several decades of policies geared toward encouraging homeownership through the tax code, the Federal government reversed direction last month. It’s not a full 180-degree turn, but it will have a perceptible impact.
Two separate provisions of the new tax law impact housing. One limits property tax deductions on a primary home to a maximum of $10,000. Since the national median real estate taxes are under $2,500, we can conclude that the vast majority of Americans will not be impacted by this provision. As it has been well-publicized, however, residents of “high tax” states such as New York and California will be severely affected, as will homeowners in other areas of the country whose houses have high appraised value, and who are naturally paying higher real estate taxes.
The second provision likely to have an impact restricts the mortgage deduction to new loans that are under $750,000. Previously, the maximum allowed was on loans of up to $1 million.
Thus, the new tax law will impact consumers directly and the housing market indirectly. Some consumers will face higher taxes, depending on the amount by which their real estate taxes exceeds the $10,000 maximum. The legislation will also put pressure on home prices — particularly in states with high property taxes, where home prices should begin to level off.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
