The longest job boom ever is exactly what housing needed

Job and economic expansion is boosting the next wave of first time and move-up homebuyers

From one of our fave writers at HousingWire (If you like stuff like this as much as we do, you should subscribe to their newsletter!)

For 10 years, I have held a core belief that the U.S. housing market would not fully recover in terms of mortgage demand until sometime between 2020 to 2024. 

From the span of 2008 to 2019, we had the weakest new home sales and housing starts cycle ever. But, we also had the most prolonged economic and job expansion ever.

Case in point, last week the U.S. added one more stable jobs report to the streak of 112 straight months of job gains. This is the fertile economic ground to which the most massive demographic patch of 26 to 32-year-olds will come into “home-buying age.” Currently, the median first-time homebuyer age is 33. Back in 1981, it was 29. 

Labor force growth for ages 25 to 54 has been on an upswing since the lows of 2015, so some of these would-be home buyers should have the economic chops necessary to enter into homeownership. The graph below shows this trend:

You’ll notice a similar trend to the purchase application data in the graph below as well.

American homeowners typically follow a well-trodden path to homeownership, albeit these days people get married and buy homes later in life. As younger Americans work longer with no recession to stop this flow, their financial profile to buy a home enhances. Here’s a look at the path of today’s first-time homebuyers:

1. We rent.  After leaving the parental home for college or career, our first home away from home is usually a rental.

2. We date. We start looking to pair up with the family formation, still a vague and distant concept.

3. We mate.  Usually, after a few false starts and broken hearts, we identify a mate that just might be the one.

4. We marry.  Or otherwise commit to a couple-hood and a shared future.

5. We have kids. According to averaged data from the Census Bureau, in three and half years after marriage (if we make it that far), children enter the picture.

6. We buy. The first time median age home buyer is now 33. Once a baby is one the way or needs to start school, the desire to purchase and settle down becomes more pressing.

The longest economic and job expansion ever recorded in history has facilitated an excellent backdrop to go into 2020-2024 with a healthy dose of first-time buyers coming into the marketplace.

Never forget: Now more than ever, dual-income households give the housing market an extra boost.

One positive thing about the longest job expansion ever is that a tighter labor market is suitable for everyone. This means wage growth, while not extremely hot, is stable year over year.

Wage growth also looks better when you account for the prime age factor into the equation in some of the wage data (see below).

Not only do we have a large demographic patch coming up, but we also have a solid 10 year base of current homeowners who bought homes with the capacity to own the debt. If this group needs to move up, which still happens every year, they’re in a lovely spot financially to do so, especially Americans who bought homes from 2010-2016.

Don’t forget home buying is a process, not something you buy on Instagram, well, not yet at least.

Having the longest job and economic expansion after the Great Recession has been a stable force for creating the next wave of first time and move-up homebuyers. The current housing trends have fewer dangerous bridges to cross for all these young Americans ages 26-32, unlike what we had in the previous economic expansion.

I don’t believe that this big demographic patch will create another housing boom but will instead provide a stable source of replacement buyers for the existing home market. The only issue we need to be concerned about is affordability… But more on that soon.

If you have questions about how this information might impact a move or investment purchase or sale that you have been considering, contact us, we’re here to talk it out!

Colorado’s Economy Will Grow Next Year, Just More Slowly

Colorado will continue to add jobs in 2020, but at the slowest pace in almost a decade.

“No reason to panic,” said Richard Wobbekind, an economist at the University of Colorado Boulder and co-author of an annual economic forecast the university released Monday. Colorado, he said, will still be the envy of much of the nation in terms of job and GDP growth.

The CU forecast predicts 40,100 new Colorado jobs in 2020, which should keep the state in the top 10 nationally. But that’s well off the pace of just a couple of years ago — in 2018 for instance, Colorado added 64,900 jobs. 

The state labor market would grow faster if only there were the workers available to fill jobs. The unemployment rate in Colorado tied the record low in November at 2.6 percent. Wobbekind said the state’s employers are importing labor from other states, and pulling workers off the sidelines with high wages, but that can only go so far.

Despite the constrained labor market, Gross Domestic Product growth in Colorado will continue to outpace the nation through 2020.

“And the reason for that is we’re getting more productivity from the labor force,” Wobbekind said. Productivity is rising in part because employers have squeezed more from the workers they have. 

“Colorado is still outperforming,” said CU Boulder’s Brian Lewandowski, a co-author of the economic forecast. Looking across almost all industries in Colorado, “it’s pretty much across the board a net positive for the state.”

Lewandowski said only the information sector, which includes newspapers and broadcasters, is expected to see a decline in jobs in the next year. Another sector that could have a tough year is oil and gas. Lewandowski said the sector is full of risk.

“There’s uncertainty about oil commodity prices, there’s uncertainty in Colorado about regulation of the oil and gas sector,” particularly around new regulations like Senate Bill 19-181.

But the good news far outweighs the bad. Agriculture, after years of difficult times, had a good 2019, due to higher than expected beef and corn prices.

“And we think that’s going to continue on into 2020 as well,” said Wobbekind.

Economists also expect the construction industry to expand. Colorado’s population is forecast to rise by 49,000 in 2020, supporting the need for more residential construction. Meanwhile, large public works projects on I-70 and at Denver International Airport will continue for years to come.

Probably the best news for Colorado’s economy is that professional and business services, the state's largest industry sector (think executives, lawyers, and engineers), is forecast to add 11,700 jobs. This is the highest-educated and best-paid sector. Growth in these jobs has a compound effect, the high wages spent on retail, real estate and restaurants add new jobs in all those sectors.

Looking nationally and globally, the economic storm clouds get darker. A trade war with China and other nations continues. The presidential election is less than a year away. And political uncertainty, as impeachment proceedings move through Congress, has businesses skittish. Surveys of Colorado businesses reveal increasing skepticism in the national and local economies.

And many are looking for any warning signs of a slowdown they can find in what is already the longest economic expansion in U.S. history. These expansions don’t last forever.

“All of the uncertainty that we have in the economy right now is contributing to this view that this is not only long in the cycle, but sort of the end of the cycle,” Wobbekind said.

Keep reading at CPR News.

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