When the Feds pumped money into the economy and kept rates artificially low as a recovery tool for the pandemic, it kicked off a once-in-a-couple cycle commercial real estate boom. Artificially low rates drove values up and cap rates down. Developers see these values as an indication of the future and hit the “go” button on new construction.
When this happened in 2021-2023, the number of construction job openings hit a new all-time high dating back to 2000, when the data was first collected. It wasn't just new demand for multifamily and industrial that created a record number of construction job openings. It is also tied to the nuances of how the US handled the pandemic. Workers received an additional $600 per month in unemployment, and business owners received PPP money on top of the overall disruption of people moving either to get a larger, suburban home to states with less onerous COVID restrictions.
In 2021-2023, developers had to check contractor pricing weekly and sometimes daily to ensure costs didn't run away. Every construction component increased, including labor wages, commodities, and profit markets.
Fast forward to 2024, with the number of construction jobs in freefall. The last four months averaged 78% monthly declines in construction jobs. In January 2024, there were 425,000 job openings. This June, there were 295,000. That's a 31% decrease in six months. To find a similar six-month drop that is as steep as our last six months, we would have to go back to 2001!
But wait—there is good news—the number of job openings was down 66% from November 2008 to April 2009.
The numbers are starting to tell a story of a hard landing, not the soft one that the Fed and politicians predicted when they said everything was going to be ok.