In "Home Builders Don't Have Enough Workers to Meet New Demand," CNBC reports that housing markets with strong demand are reporting severe shortages of labor. These strong markets include the Western U.S. and Texas. This shortage is not only increasing the price of labor and putting pressure on margins, but also it is increasing the time it takes to build a house. CNBC quotes Ted Wilson of Residential Strategies as estimating the median labor wage hike at 4% with a maximum of 10%. The crash of the housing bubble forced many construction workers to move on to other jobs and put many production builder companies and subcontractors out of business.
These data points add yet more confirmation that the current inventory of housing is not sufficient to meet current demand in many U.S. housing markets. It also helps confirm Toll Brothers's (TOL) report of pent-up demand in the housing market. The flip side of the labor shortage is the implication that the contractors who were once unemployed are now employed. As far as economic well-being is concerned, it is good news to hear those folks found jobs.
This story will be worth watching going forward. I am guessing the construction workers who found new jobs are making less than they previously made. If they have enough confidence to leave those jobs and return to the housing industry, it could be another signal of confidence in a recovery. We also need to watch what happens to house prices in markets with labor shortages. The CNBC article quotes a builder in Dallas who complains that he cannot raise prices much because he is afraid of scaring off buyers. Toll Brothers reported a similar concern in its last earnings report. Finally, I will be watching to see whether these labor shortages start appearing in other markets.
In the meantime, housing related stocks have yet to cool down as I have been anticipating the last few weeks. Thanks to the market's strong rally on September 6, KB Home (KBH) has pushed to six month highs. The SPDR S&P Homebuilders ETF (XHB) pushed to a fresh four-year high, levels that were last seen at the HIGHS in 2008 (in April and September of that year).
KBH remains the "cheap" way to play a housing recovery as it still has a long way to go even after breaking its former downtrend.
XHB has erased all its post-recession losses.
Be careful out there!
Additional disclosure: I am also short KBH calls.