In addition, amid the strong job market of the past few years, we have seen a rise in the rate at which young adults are moving out of their family homes and forming households of their own. Even so, millions of young adults are still living with their parents who likely wouldn't have been before the crisis. While their reasons for doing so are probably varied, there is potential for many more individuals to shift back to forming new households.
Caterpillar Excavators Shovel
Although the effects may evolve slowly, the higher rate of household formation will eventually result in higher demand for housing and encourage further increases in homebuilding. Home sales have been rising in recent years, the percentage of homes that are vacant has been falling, and inventories of both new and existing homes for sale have drifted back down to relatively low levels. In fact, at this point, the residential real estate market is quite tight in some areas of the country and by enough that I have heard that the volume of home sales is being restricted by the low inventory of homes on the market.
The most recent housing data have been encouraging: Both new and existing home sales moved up strongly in the second half of 2019, and traffic of prospective buyers in new homes for sale and expected sales within the next six months have approached all-time highs. Permits for new residential construction, which had been sluggish early last year, recently moved up to highs for this expansion. In all, the national indicators suggest a positive growth outlook for the housing sector over the next several quarters.
Before I conclude, I'd like to address two challenges currently facing the housing sector. The first relates to the difficulties that some employers face, including homebuilders, in finding and retaining qualified and skilled workers. To provide some context, the national data show that the unemployment rate in the private construction industry is now well below the rate we observed in the early 2000s, a time when the housing market was booming. In addition, the ratio of job vacancies to unemployment in the construction industry — a measure of labor market strength — shot up to historic highs at the end of 2018, and it has remained near those levels. These indicators confirm what I have been hearing from construction industry employers during my visits to different parts of the country — it's extremely difficult to find and hire workers, skilled or otherwise.
In response to these hiring-related challenges, we have seen a renewed and broad focus on workforce development initiatives by the public and private sector, a development we have followed closely at the Federal Reserve. I recently heard a very encouraging presentation from representatives of vocational training organizations about progress they are making in connecting young adults, students, and high school grads with skilled trades. I am hopeful that these efforts, along with a continued strong job market, will encourage more people to join — or, in some cases, rejoin — the construction trades.
The second challenge I want to highlight relates to the declining presence of community banks in the consumer real estate mortgage market. As regulatory burdens have risen, many community banks have significantly scaled back their lending or exited the mortgage market altogether. These developments concern me for several reasons. Home mortgage lending has traditionally been a significant business for smaller banks, and the decline in this business threatens a part of the banking industry that plays a crucial role in communities. Bankers who are present and active in their communities know and understand their customers and the local market better than lenders outside the area. Because of their local knowledge and customer relationships, they are often more willing to help troubled borrowers work their way through difficult times.
These two challenges notwithstanding, I remain optimistic about the outlook for housing. I expect construction to continue advancing to meet the underlying expansion in housing demand from population growth and the strong economy. In addition, low interest rates will continue to be a key factor supporting growth in housing activity. As reported in the latest Summary of Economic Projections, released in December, most FOMC participants see the current target range for the federal funds rate as likely to remain appropriate this year as long as incoming information remains broadly consistent with the economic outlook I described earlier.
In closing, let me say that I would also appreciate hearing what is on your minds. As a policymaker, I particularly value opportunities to travel outside of Washington to hear your perspectives on the national and local economies. These conversations improve our work at the Fed by helping us make better-informed decisions.
1. These remarks represent my own views, which do not necessarily represent those of the Federal Reserve Board or the Federal Open Market Committee. Return to text
2. See, for example, Aditya Aladangady, Laura Feiveson, and Andrew Paciorek (2019), "Living at Home Ain't Such a Drag (on Spending): Young Adults' Spending in and out of Their Parents' Home," FEDS Notes (Washington: Board of Governors of the Federal Reserve System, February 5). Return to text
Pages: 1 · 2
More Articles
- Bringing Inflation Down: Federal Reserve Vice Chair Lael Brainard At the Clearing House and Bank Policy Institute 2022 Annual Conference
- "Let's start at the beginning" ... Federal Reserve Post About Lessons Learned on Normalizing Monetary Policy: "Additional insight that only experience can bring"
- How They Did It: Tampa Bay Times Reporters Expose High Airborne Lead Levels at Florida Recycling Factory
- Federal Reserve Issues A Federal Open Market Committee Statement: Committee Will Aim to Achieve Inflation Moderately Above 2% For Some Time
- Biden-Harris Administration Marks Anniversary of Americans with Disabilities Act and Announces Resources to Support Individuals with Long COVID, Increased Access to Democracy for Voters with Disabilities
- Coronavirus Aid, Relief, and Economic Security Act; Chair Jerome H. Powell Before the Committee on Financial Services, House of Representatives
- Jo Freeman Reviews Stories from Trailblazing Women Lawyers: Lives in the Law by Jill Norgren
- Chair Jerome H. Powell: A Current Assessment of the Response to the Economic Fallout of this Historic Event
- Federal Reserve: Optimism in the Time of COVID; Businesses Seem Much Better Adapted to Remaining Open
- Supreme Court Surprises The Public in LGBTQ Ruling: What is Sex Discrimination?