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Construction Surge and Its Implications

  • 4 min read

Real estate and in real estate there is a very significant push for construction and you’ll see here that the construction labor market is sizzling, the building is booming, and the construction sector added 97,000 jobs just in June – the biggest month-over-month increase in a decade. This is a big deal.

Construction Labor Market Sizzles with 97,000 Jobs Added in June

What does this mean for the housing market? Well, there are two things. Firstly, it means that new home construction is desirable and that there’s still a market for people wanting to buy houses. The construction industry wouldn’t be building all these houses if people didn’t want to buy them. That tells you right there that there’s still a demand, and there’s not enough supply on the resale market – used home market.

 

The Fed’s Dilemma: Interest Rates and Inflationary Pressures

But there’s another hidden indicator within this. It means that the FED will still need to keep lifting interest rates. That will reduce consumption. The fact that new homes are so in demand that they have to hire 97,000 employees means that inflation is not over and the economy is catching fire more. What the government does to try to keep inflation from running out of control is raising interest rates. That’s their tool – it’s like a gas pedal. When things are slow, they lower interest rates to speed things up. When things get a little bit too overheated, they raise rates to slow the economy down.

 

Housing Market Insights: New Home Construction in high-demand

Buildings is still booming, and this means that the Federal Reserve will have to increase interest rates to reduce consumption. They want to reduce consumption, whether that’s good or bad remains to be seen, but that’s what they’re doing. So, what is that resulting in? Just from that one thing alone, mortgage rates surged to 7.2 percent after strong economic data.

The Implications for Homebuyers

What is this going to do for the housing market? Let’s take a look at our old friend, the mortgage calculator. So, let’s say if you could go back in time to let’s say 2017 and you could find a pretty decent house for $340,000. We’ll do no money down, and at the time, let’s say the rate was 2.9 percent. It’s 2.9; your payment on that house would be $1,400 a month.

If you look at that same exact house today, five years later from 2017 until now, it’s likely that house is probably gonna cost you $580,000. But more importantly, your interest rate, let’s say in January of 2025, so that’s not even two years, that’s like a year and a half, that house is $600,000, and let’s say the interest rate then will be 8.1, which is a pretty good guess. That house now is going to be $4,400 – the same exact house. So, it went from $1,400 to $4,400 – that’s $3,000 a month housing budget, which is $36,000 a year more out of pocket. This means the buyer of the house has to make $50,000 a year more gross income to have that be take-home pay. This house effectively now costs $50,000 a year more for the same exact house, presumably if things go the way that they’re going for the next year or so – a year and a half. So, there’s a lot of presumptions in that projection, but that’s what the trends show. That’s what the numbers show.

Google Searches and Home Buying Activity

Redfin, a big analyst in the real estate industry, says the average U.S. home is now selling above the asking price again. Remember when back in 2021 22 people were making multiple bids, bidding over asking, properties going through the roof, and then it died down, and everybody thought, “Okay, that’s over; housing prices are going to crash.” Well, guess what? The average U.S. home is now selling above its asking price again. This is right now, this is July 26th. Lack of sale and lack of homes for sale is the main reason. New listings are down 25 percent and total homes are down 12 percent.

The current real estate boom, driven by robust construction and limited supply, is shaping the housing market’s dynamics. The surge in new home construction demonstrates a strong demand for housing, but it also raises concerns about inflation and the Fed’s potential interest rate adjustments. As the market continues to evolve, prospective buyers and policymakers must closely monitor these developments to make informed decisions.

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