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Will Wage Growth Bring Relief to Homebuyers?

homebuyers

homebuyersTotal employment across the United States increased by 213,000 while the unemployment rate rose to 4 percent in June, according to data released by the Bureau of Labor Statistics [1] on Friday. Despite the rise, unemployment still remained below the 4.3 percent rate recorded during the same period last year.

“Job gains were solid, with sizable upward revisions to the prior two months, and annual wage gains held steady,” said Doug Duncan Chief Economist at Fannie Mae [2]. “While the unemployment rate increased for the first time since August, it was accompanied by a two-tenths rise in the labor force participation rate, marking the first advance in four months.”

Data [3]also indicated a rise in wages or hourly earnings by 2.7 percent, a figure that is likely to bring some relief to homebuyers according to Danielle Hale, Chief Economist at Realtor.com [4].

“If the unemployment rate continues to remain low, companies may continue to push salary increases, which could offer some relief for home buyers. There are more than 15 percent fewer entry-level homes under $200,000 on the market this year than last year,” said Hale. “In contrast, there are slightly more $350,000 plus homes on the market than last year. If raises help buyers reach beyond entry-level homes, it could lead to a better match up of home shoppers and available homes.”

However, Tendayi Kapfidze, Chief Economist at LendingTree [5] believed that wage growth remained weak despite this hike. “Despite the low unemployment rates, wages continue to disappoint. The increase in the labor force participation rate may offer a clue as to why,” Kapfidze said. “The large pool of available people to enter the labor force is a drag on wages as it reduces the bargaining power of workers who are already employed.”

Friday’s numbers also indicated some hope for relief in housing supply. The data found that construction employment continued to trend up in June and had increased by 282,000 year over year. However, “a moderation in residential construction payroll gains to 4,400 from 12,600 in May disappointed,” according to Duncan.

“Specifically for the housing market, residential construction employment increased, which is critically important to increase the pace of housing starts and add more housing supply to the market,” said Mark Fleming, Chief Economist, First American [6]. “Based on the increase of residential construction employment this year, it is not surprising that housing starts have been rising.”

Kapfidze agreed, “Over the past year, 282,000 total construction jobs have been added as builders work to add supply given the tight inventory and rising home prices.”