In this blazing-hot housing market of severe home shortages and rapidly rising prices, many buyers around the country have found themselves left shivering in the cold. But while builders would love to swoop in, construct a bunch of homes, and save the day (while making bucketloads of cash), they can’t. They simply don’t have the manpower.
Construction workers have become an increasingly rare and precious commodity in today’s housing market. The national labor shortage is dramatically slowing down builders—many of whom already have their hands full with remodeling homes for baby boomers planning to age in place, and rebuilding thousands of homes ravaged by last year’s hurricanes and wildfires. Combined with overall rising construction costs, it means an influx of new homes to ease the housing shortage and tame runaway prices isn’t coming anytime soon.
Skilled workers such as home framers, electricians, plumbers, masons, carpenters, and HVAC installers are especially in demand, builders say.
But builders are partly to blame for the crisis, which is helping to drive up home prices across the nation. They were some of the first to lay off workers during the financial crisis as development stalled, and many of those workers have since moved on. The crackdown on immigration and the opioid epidemic have siphoned off laborers. Meanwhile, many potential workers simply don’t want to toil outside in the heat and the cold when they could work in a climate-controlled office.
In other words, it’s a perfect storm for both builders and aspiring home buyers.
“We’ve got rising housing demand at the same time that the residential construction industry lacks workers,” says Robert Dietz, chief economist of the National Association of Home Builders. He predicts about 900,000 single-family houses will be built this year—whereas 1.2 million are needed to keep up with demand from those hoping to purchase a home of their own.
How bad is the labor shortage?
To put the problem into perspective, there were 250,000 unfilled construction jobs at the beginning of the year, according to an NAHB analysis. The unemployment rate for the industry, reflecting unfilled positions, was 7.4% in March, according to a government data analysis by the Associated General Contractors of America, a trade group for commercial builders. That’s significantly higher than the national unemployment rate of just 4.1%.
The dearth of construction workers is slowing down all stages of the business, says Jason Scott, owner of North Star Premier Custom Homes in Westlake, OH, and president of the local Home Builders Association.
“It takes me twice as long now to do an estimate as it used to,” he says.
Instead of being able to find workers that day, he now waits eight to 10 weeks. Delays due to overbooked contractors slow the pace of homebuilding, amplifying existing shortages.
The shortage is also inflating costs for buyers and homeowners. Scott has had several subcontractors (siding, roofing, concrete) raise their prices by at least 10% since the new year. He’s paying double what he was 10 years ago for framing.
“I know builders who haven’t factored these [worker pay] increases in, and they’re watching $10,000 to $15,000 come off their bottom line,” Scott says.
With no relief in sight, builders may just have to rely on ingenuity, perhaps by using more prefabricated components.
“We’re going to have to build more with less with the current workforce,” NAHB’s Dietz says. “Builders have to find a way to be more efficient.”
The hangover some never recovered from
The burst of the housing bubble a decade ago was an A-bomb, flattening just about all of the construction work in sight. Residential home construction employment peaked at more than 5 million in 2006, but in postrecovery 2016 it was just 3.8 million, based on the NAHB’s data.
That’s because many workers didn’t have the luxury of waiting out the bad times. With bills still coming in, they were forced to move on to other gigs.
“The recession 10 years ago took a lot of people out of the construction industry,” says Brian Turmail, vice president of public affairs and strategic initiatives for AGCA. “We were the first to lay off and the last to start adding [back].”
The opioid epidemic and immigration policy take a toll on labor force
Some issues that have been in the national spotlight have also had major repercussions for housing business. This includes the opioid crisis.
Construction work is physically tough, and the rate of injury leaves some open to developing an addiction to prescription opioids, an epidemic sweeping the nation. The crisis has also likely kept many potential workers out of the labor pool.
The White House’s harsh stance on illegal immigration is also likely impacting the construction labor supply, housing experts say. About a fourth (24%) of all construction workers are immigrants—and 13% of those are living in the U.S. illegally, according to a Pew Research Center analysis of 2014 U.S. Census Bureau data.
As construction economist Ed Zarenski points out, immigrant laborers not only add to the workforce, but also help increase productivity because they are typically paid less. This may help to keep prices for the final homes down.
Immigration from Mexico, the largest source of U.S. immigrants, has been declining steadily since 2004, according to Pew, thanks to improving conditions south of the border and, more recently, anti-immigrant rhetoric in the U.S. that has made many feel unsafe or unwelcome.
“Some of the slowdown in immigration has affected the labor pool,” NAHB’s Dietz says.
The need to develop the next generation of laborers
So where is the next generation of potential laborers? The short answer: doing other stuff.
“A lot of people who would have gone into construction years ago are now going into computers or the IT field,” says Corey Dean, general manager of Bel Arbor Builders, which puts up about 18 to 20 custom homes annually in the Richmond, VA, area. “[They’re] not outside sweating or freezing.”
Plus, the decline of vocational educations has led to fewer young people today prepared for those skilled trades—and fewer that would be inclined to take the years needed to learn them. Those with bachelor’s degrees typically earn about $17,500 more annually than those who lack them, according to a 2014 report from the Pew Research Center.
So blue-collar workers are retiring, and fewer people are waiting in line to take their place.
“We made these cultural changes the last 30 years for all the right reasons: We wanted kids to go to college, we appreciated the economy was transitioning,” says AGCA’s Turmail. “But like [with] so many things in this country, we over-corrected for one problem and created another problem in its wake.”
Builders step up their outreach
The construction industry has begun to take action to feed its need for workers. That should give the home buyers of tomorrow a sliver of hope.
For example, the Home Builders Association in Colorado Springs, CO, recently partnered with the local school district to start a vocational program in six schools. Called Careers in Construction, it instructs over 350 kids in carpentry, plumbing, HVAC, and electrical trades.
“We’re giving them a choice because not all of us are meant for college,” says George C. Hess III, CEO of Vantage Homes Corp., a Colorado Springs–based builder, and chairman of the Home Builders Institute, an educational trade group.
On a grander scale, Home Depot recently pledged $50 million for HBI to support a Pre-Apprenticeship Certificate Training program. It provides vocational education not just in schools but also on military bases.
“We know the younger generation is where we start to overcome perception and make the trades cool again, if you will, so we can have that pipeline continue over the next several decades,” says Shannon Gerber, executive director of the Home Depot Foundation.
Women, who make up about 9% of the field, are another potential source of untapped workers. Compared with other fields, there’s relatively less inequality in construction (women make 95% what male construction workers make), but the industry is still 200,000 female workers short of the precrisis peak of 1.13 million, according to U.S. Bureau of Labor Statistics and National Association of Women in Construction data.
“The worker shortage is severe,” says NAHB’s Dietz. “The industry is going to have to recruit the next generation of construction workers—or we’ll continue to underbuild houses, there won’t be enough houses, and home prices will continue to rise faster than incomes.”
With all the mayhem and misconceptions flying around, we’re here to set the record straight, by highlighting the top tax myths that might dupe even the financial Einsteins among us—both for this filing year (which is still under the old IRS rules) and next, once the new tax code takes effect.
So whether you want to enter this filing season with clear-eyed confidence or just test what you know, check out this list and ask yourself honestly: How many of these fake tax facts did you believe were true?
Tax myth 1: The mortgage interest deduction is gone
On the contrary: If you bought your home before Dec. 15, 2017, you’re in luck: You are grandfathered in under the old tax laws and can still deduct all of the interest on loans of up to $1 million, says Tom Wheelwright, CPA and CEO of WealthAbility.com. Yes, even when the new tax codes go into effect next year.
And for those who bought a home after Dec. 15, 2017, or plan to in the future, it’s not as bleak as many think. Starting next year, mortgage interest is still deductible; it’s just that the deductible amount is capped at $750,000.
Tax myth 2: Property tax deductions are gone, too
In the past (and for the last time this year), most taxpayers could deduct state, city, and property taxes in their entirety. Under the new tax plan next year, these taxes are still deductible, but there’s a cap—of $10,000 per year, says Mario Costanz of Happy Tax.
In other words, property tax and mortgage interest deductions are far from gone … but one thing to consider is that next year, the standard deduction nearly doubles—to $12,000 for single filers and $24,000 when filing as married. As such, it may not make sense for as many people to itemize their deductions unless it amounts to more than this high new bar. Here’s more info on how to tell whether you should take the itemized vs. standard deduction.
Tax myth 3: If you work at home, you can deduct a home office
Some people mistakenly think that anyone who fires up a laptop at the kitchen island has a “home office.” But to take a home office deduction, that area must not only be used regularly and exclusively for business, it has to be the primary site of the business. So if you turned a spare room into a dedicated work space, you can claim it. But if you occasionally work in the living room, that’s not deductible, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm with offices in Manhattan and Long Island.
Plus, things get even stricter under the new tax codes.
In the past, office employees who occasionally worked from home could claim eligible home office deductions that might include, say, business expenses that were not reimbursed by your employer (here’s more about how to take a home office tax deduction this year). But starting in 2018, only self-employed people can deduct their home office in any way. So if you own your own business, you’re fine; if you’re paid by W-2, you can kiss this deduction goodbye when you file next year.
Tax myth 4: You can deduct all of your home renovations
Sorry, DIYers: Home improvements are generally not tax deductible unless the residence also serves as a rental property. But there are a few exceptions where homeowners can cash in.
The first is if modifications were made for medical purposes that don’t increase your property value, which might include installing railings or support bars, building ramps, widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts. Note: You’ll need a letter from your doctor to prove the modifications are medically necessary to claim these deductions. Plus, those expenses must exceed 10% of your adjusted gross income in 2017, which drops to 7.5% in 2018.
The other time you can deduct renovations is if they were made in order to sell your home. You can deduct those expenses as selling costs, as long as the home improvements were made within 90 days of closing.
Tax myth 5: All home equity interest is deductible
Homeowners can turn to a home equity loan or line of credit (HELOC) for cash to either make home improvements or for more general expenses, like paying for a child’s college tuition or wedding. And in past years, the interest on these loans was tax-deductible.
Not so for next year: While the IRS has not yet issued any formal guidance, it appears that with the new tax law, HELOC interest is only deductible if the loan is used for a “substantial home improvement,” says Professor David Reiss of Brooklyn College. Also keep in mind that next year, your total deductible mortgage and eligible home equity debt must be less than the $750,000 cap.
Tax myth 6: You can always deduct your moving expenses
Up until this year, taxpayers could only deduct a portion of moving expenses when they relocated for a new job that’s at least 50 miles farther from their former home than their old job location. And per the new 2018 tax bill, no moving expenses of any kind are deductible. The only exceptions are for members of the armed forces on active duty.
Homeowners are racking up record amounts of home equity, thanks to fast-rising values in today’s competitive housing market. No surprise, more people are now starting to tap that cash. What are they spending it on? Mostly making their homes even more valuable.
Renovation spending is soaring, and 80 percent of borrowers taking out home equity lines of credit say they would consider using that money to renovate, according to a survey released in December by TD Bank.
“We’re not only seeing more requests for proposals, but more committed projects from home owners,” said Steve Cunningham, a remodeler from Williamsburg, Virginia, in a report from the National Association of Home Builders. “In addition to regular updates and repairs, there’s been an uptick in more ambitious large remodel requests.”
Remodeling spending topped $152 billion in 2017, and renovations for owner-occupied single-family homes will increase 4.9 percent in 2018 over 2017, according to the NAHB. That does not include remodeling done by investors looking to flip or rent properties, both of which are increasing as well.
Suzanne Kreiter | The Boston Globe | Getty Images
A home improvement contractor works on a house in Cambridge, Massachusetts.
“Below-normal rates of home building are creating an aging housing stock,” said Paul Emrath, vice president of survey and housing policy research at the NAHB. “Factors inhibiting stronger growth include the ongoing labor shortage and rising material prices.”
An older housing stock, combined with not enough new homes being built, means more people will choose to renovate.
Homeowners are also using home equity cash for education expenses and to pay down other debt in order to lower monthly payments, but there is a new and increasingly popular use: taking the cash out to make more cash.
“Essentially there is a confidence from some homeowners in the overall market that indicates to them that they can generate a return on their money at a rate greater than the cost of borrowing it,” said Matthew Weaver, vice president of sales at Finance of America Mortgage.
He also said there is now a strong confidence among borrowers that home values will continue to rise, making it less likely that borrowing against their homes even more will not end up putting them underwater on their mortgages in the future.
For some that means investing in the stock market. For others it is buying more real estate. Rental demand is still very high, especially for single-family homes, and a new breed of rental management and investment company is making it much easier to become a landlord.
And of course, “Some are looking to profit from the popularity of cryptocurrencies such as bitcoin,” added Weaver.
Just as a spate of new housing units comes to market in New York City — the newborn sheen and amenities accompanied by premium rents — a study by the website RentHop offers a look at the relationship between a building’s age and the rents charged.
Among newer buildings, it found, rents decreased as a building’s age increased. The drop was particularly obvious in Battery Park City, where the median-age building was constructed in 1998.
Citywide, however, the median age of buildings is about 90 years, and in most older neighborhoods there was a more complicated relationship between the age of a building and the rent.
Location, not surprisingly, often mattered more. And buildings with historic merit were also sometimes more expensive than newer buildings nearby, as were older buildings with elevators.
Focusing on one-bedroom apartments in Manhattan, in buildings with elevators, RentHop produced a list of neighborhoods in which the greatest age-related discounts can be found.
We’re living in expensive times—when a bottle of fresh juice can run you $5, rents and home prices are soaring, and the bills never seem to stop piling up. But aspiring homeowners might soon get a break as it becomes a little easier for those with student, credit card, and car loan debt to qualify for a mortgage.
Fannie Mae plans to increase its allowable debt-to-income ratio from 45% to 50% on July 29. This means that more borrowers on the cusp of getting a loan (e.g., millennial, first-time, and lower- to moderate-income borrowers carrying more debt) could potentially qualify for a mortgage backed by Fannie.
The debt-to-income ratio is calculated by taking a potential borrower’s monthly gross income and dividing it by the borrower’s recurring debts such as monthly car payments. Lenders use this ratio to figure out if borrowers can afford to make their mortgage payments each month.
Fannie made the change after analyzing years of data that looked at the ability of borrowers to make their monthly payments. After this analysis, Fannie can “more accurately predict the risk of default among potential borrowers,” and it determined that increasing the ratio “will enable more qualified borrowers to get a mortgage loan,” said spokesman Pete Bakel in a statement.
“They’re trying to make more loans available,” says mortgage loan originator Don Frommeyer of Marine Bank, in Indianapolis. “When interest rates go up, the debt ratios go up. And that limits the number of people who can buy a house.”
Fannie, which purchases and guarantees mortgages, was already granting ratios of up to 50% with certain conditions—such as if the borrowers had deeper cash reserves, underwent financial counseling, or had higher incomes. The change opens the door to borrowers with more debt who can’t meet those conditions.
Your bank might have its own debt-to-income ratios
However, not everyone will be benefit from the change. Fannie Mae insures mortgages, but it’s still banks, credit unions, and other financial entities that make the loans—and those lenders have their own criteria.
But the increased debt allowance could encourage more lenders to make changes to their debt-to-income ratios. And that could help more buyers on the brink.
“The best thing the consumer can do is ask the lender if they underwrite to Fannie Mae guidelines,” says longtime mortgage broker Jeff Lazerson,based in Laguna Niguel, CA. If they don’t, “you [might] just have to find another lender. Or maybe you push back on that lender” to see if it’ll raise the limits.
Lower debt-to-income ratios won’t help everyone
A higher debt ratio isn’t a silver bullet for loan seekers, though.
“Mortgage borrowers need to keep in mind, it’s the person’s whole application that will determine whether or not they get approved,” says Eric Tyson, co-author of “Mortgages for Dummies.”
“If you don’t have a good credit score, if you don’t have a sufficiently large down payment, it won’t change the outcome of your application.”
Buyers who can’t qualify, even with the higher ratios, should consider other alternatives.
“Most people are looking to buy at the high end of their budget. They want to qualify for as much house as they can get, partly because homes are so expensive to begin with,” says Lazerson, who is also a mortgage columnist.
“They could look for a smaller-sized property [with a] lower sales price. They could find a co-signer, someone who they trust, usually a family member or a close friend,” Lazerson says. “Or [they could] come up with more down payment money.”
If you’re looking to buy or sell a home this year, you probably know the housing market is booming in virtually every corner of the country.
In fact, homeowners who sold in the first quarter of the year realized an average price gain of $44,000 since purchasing their home, a new ATTOM Data Solutions report shows. That equals an average 24% return on purchase price across the country — the highest average price gain for home sellers in nearly 10 years.
“The first quarter of 2017 was the most profitable time to be a home seller in nearly a decade, and yet homeowners are continuing to stay put in their homes longer before selling,” said Daren Blomquist, senior vice president with ATTOM Data Solutions.
The report showed homeowners are staying in their homes just shy of eight years on average. “This counter-intuitive combination is in part the result of the low inventory of move-up homes available for current homeowners, while also perpetuating the scarcity of starter homes available for first-time homebuyers,” Blomquist added.
Of course, there are still some laggards. Baton Rouge, Louisiana, for example, saw average home prices decline by $15,000 from their previous purchase price. The same is true for Huntsville, Alabama, where average home prices declined by $8,100.
Of the 20 metro areas with the highest percent return on the previous purchase price, 10 were located in California and three were in Colorado. Competition among homebuyers, especially in these areas, is fierce, so it’s particularly important to have your finances locked and loaded before you start your search.
By MARTIN CRUTSINGER The Associated Press
WASHINGTON (AP) — The Federal Reserve is all but sure to leave interest rates alone when it ends a policy meeting Wednesday at a time of steady gains for the U.S. economy but also heightened uncertainty surrounding the new Trump administration.
The Fed will likely signal that it wants further time to monitor the progress of the economy and that it still envisions a gradual pace of rate increases ahead.
“I don’t look for the Fed to do anything this week,” said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University. “They are starting to get their ducks in a row for further rate hikes, but it will be too soon to pull the trigger.”
The Fed’s two-day meeting will end with a policy statement that will be studied for any signals of its outlook or intentions. At the moment, most economists foresee no rate increase even at the Fed’s next meeting in March, especially given the unknowns about how President Donald Trump’s ambitious agenda will fare or whether his drive to cancel or rewrite trade deals will slow the economy or unsettle investors.
The statement will not be accompanied by updates to the Fed’s economic forecasts or by a news conference with Chair Janet Yellen, both of which occur four times a year .
Last month, the Fed modestly raised its benchmark short-term rate for the first time since December 2015, when it had raised it after keeping the rate at a record low near zero for seven years. The Fed had driven down its key rate to help rescue the banking system and energize the economy after the 2008 financial crisis and the Great Recession.
When it raised rates last month, the Fed indicated that it expected to do so three more times in 2017. Yet confusion and a lack of details over what exactly Trump’s stimulus program will look like, whether he will succeed in getting it through Congress and what impact it might have on the economy have muddied the outlook.
And while Trump’s tax and spending plans are raising hopes for faster growth, his proposals to impose tariffs on such countries as China and Mexico to correct trade imbalances could slow the economy if U.S. trading partners retaliate and collectively impede the flow of imports and exports.
“The Fed is unlikely to signal intentions to raise rates as early as March given the heightened uncertainty about the timing and scope of fiscal and protectionist policies,” said Sal Guatieri, senior economist at BMO Capital Markets.
Nariman Behravesh, chief economist at IHS Markit, predicts that the economy will grow a modest 2 percent to 2.5 percent this year, before accelerating next year to 2.6 percent to 2.7 percent on the assumption that Trump’s policy proposals will have begun to take full effect by then.
The outlook for both years would mark an improvement over the economy’s lackluster growth of 1.6 percent in 2016, its weakest performance since 2011.
Even though economic growth, as measured by the gross domestic product, was underwhelming last year, the job market appears close to full health. Hiring was consistently solid in 2016, and the unemployment rate ended the year at 4.7 percent, just below the 4.8 percent level the Fed has identified as representing full employment.
And inflation, by the Fed’s preferred measure, rose 1.6 percent in the 12 months that ended in December, moving closer to the Fed’s 2 percent goal.
The information is not guaranteed and a prospective buyer should verify information with the appropriate party. Windermere Stellar and MJ Steen Group assume no liability for any errors in this information.