More Hur­ri­cane Pain: Fewer Homes, Short­age of Con­struc­tion Work­ers

National Mortgage News - - Origination - By brad finkel­stein

the need to re­build and re­pair houses fol­low­ing Hur­ri­canes Har­vey and Irma is likely to put a damper on new con­struc­tion and ag­gra­vate the in­ven­tory short­age.

The same crews that build new homes are also used to ren­o­vate ex­ist­ing ones, said Mark Flem­ing, chief econ­o­mist at First Amer­i­can Fi­nan­cial Corp.

Af­ter any storm, “there is a ma­te­rial slow­down in the pace of new con­struc­tion be­cause all of the con­struc­tion work­ers are busy re­pair­ing the ex­ist­ing homes,” Flem­ing said. “So the hous­ing stock stops grow­ing as much as it had been but that’s re­ally the only longer-term im­pli­ca­tion.”

Even be­fore re­cent the storms, there was a la­bor short­age in the home­build­ing in­dus­try.

“This will only serve to ex­ac­er­bate the ex­ist­ing short­age of sup­ply prob­lem. It’s hard to know at this junc­tion if the mag­ni­tude of that ex­ac­er­ba­tion is sig­nif­i­cant or not,” said Flem­ing.

In Au­gust, the res­i­den­tial con­struc­tion in­dus­try em­ployed 786,400 peo- ple, the sec­ond most since the hous­ing bust, ac­cord­ing to pre­lim­i­nary data from the Bureau of La­bor Sta­tis­tics.

There were 1.4 mil­lion em­ployed in res­i­den­tial build­ing at its peak in Au­gust 2006. Em­ploy­ment bot­tomed out at 528,000 in Fe­bru­ary 2011.

“La­bor short­ages have been the story of the con­struc­tion un­der­per­for­mance for the last three years,” said Redfin Chief Econ­o­mist Nela Richard­son. “A lot of those work­ers will be di­verted to re­build­ing and re­pair, not just the homes, but the in­fra­struc­ture dam­aged dur­ing the storm. So it is a bleak pic­ture from a new con­struc­tion point of view.”

The storms were re­spon­si­ble for Septem­ber’s three point drop in the Na­tional As­so­ci­a­tion of Home Builders/Wells Fargo Hous­ing Mar­ket In­dex.

“The re­cent hur­ri­canes have in­ten­si­fied our mem­bers’ con­cerns about the avail­abil­ity of la­bor and the cost of build­ing ma­te­ri­als,” NAHB Chair­man Granger MacDon­ald, a home­builder and de­vel­oper from Ker­rville, Texas, said in a press re­lease.

From dis­cus­sions with builders and ma­te­rial deal­ers, “our take­away is ab­so­lutely across the board la­bor is the crit­i­cal, crit­i­cal pain point that we’re get­ting a tremen­dous amount of feed­back on,” said Todd To­ma­lak, the vice pres­i­dent of re­search at John Burns Real Es­tate Con­sult­ing.

Dur­ing Hur­ri­cane Ka­t­rina in 2005, the re­build­ing in the Gulf­port-Biloxi, Miss., area took eight years. Across the state, wages went up 12% on av­er­age per each con­struc­tion worker, caus­ing a re­al­lo­ca­tion of the la­bor force from other parts of the coun­try.

The mag­ni­tude of dam­age in coastal Louisiana and Mis­sis­sippi was well above what hap­pened in Hous­ton, but there could be a sim­i­lar ef­fect in Texas and Florida as ma­te­rial costs and la­bor costs rise in those ar­eas, To­ma­lak said.

Storm-driven la­bor short­ages are also af­fect­ing the build­ing sup­ply com­pa­nies, he said. There are even short­ages be­ing re­ported for the work­ers that in­stall elec­tric and nat­u­ral gas equip­ment in a new home, said Jody Kahn, se­nior vice pres­i­dent of re­search at John Burns Real Es­tate Con­sult­ing.

“Ev­ery­thing is backed up be­cause the util­ity crews have gone to the hur­ri­cane zone to help with the re­cov­ery process,” she said.

Build­ing in­spec­tors and in­sur­ance ad­jus­tors are be­ing taken from other parts of the coun­try as well, she added.

For ex­ist­ing-home sales in ar­eas af­fected by a hur­ri­cane, there are also short-term price and trans­ac­tion dis­rup­tions.

“As a buyer, my first ques­tion is ‘the home I was think­ing of buy­ing, has it been dam­aged? And if it’s been dam­aged, does that make me want to walk away from the trans­ac­tion?’” Flem­ing said.

Sales gen­er­ally slump while prices rise im­me­di­ately af­ter a storm. While that seems coun­ter­in­tu­itive, usu­ally these storms re­move “a siz­able por­tion of in­ven­tory and it’s re­ally in­ven­tory, not de­mand, that is driv­ing prices, es­pe­cially now.”

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