We're going to talk about new-home demand.

It's already running at what many builders characterize as "not so bad." That's thanks to both friction among existing mortgage holders slow to sell their homes, and from the juice of builders offering good value products and working like the dickens on terms that work for buyers.

For as long as so many existing homeowners enjoy the vast monthly payments advantage of below 3% mortgage rates, ground-up homes have a moat.  

Today, demand got another adrenaline boost from an employment report that blew through the estimates of people who make a living based on their ability to ground them to reality.

An economy creating an annualized run-rate of 3.8 million jobs earns its reputation as resilient, i.e. more about what's in the near- and midterm economic and business future than reacting to and digesting shocks and stresses of the recent past or even the present.

There were a few catches below the stellar headline (not entirely negative, since they could help persuade the Federal Reserve to hit pause on further rate hikes to learn more about the direction and rate of inflation's decline):

• Wage growth slowed
• Unemployment rose
• The number of unemployed increased

Wolfe Research homebuilding and building products analyst Truman Patterson spotlighted three top lines in this week's jobs releases:

(1) The US has added 1.57M jobs through the first five months of the year (3.77M annualized) compared to full year job growth of only 2.2M on average from 2016-2019. Until something changes, we believe tight existing for-sale inventory and job growth are supportive of New Res market share gains.

(2) Net, it appears Resi construction employment is decelerating, though the recent builder demand improvement suggests trades are likely gearing up for improved sequential SF Starts. On an absolute basis, Residential Construction employment is 295K above pre-pandemic levels.

(3) While buyers appear to have accepted the reset pricing and mortgage rate realities of the housing market, wage gains remain key for deepening the buyer pool in a reduced “affordability” environment.

As Wolfe Research's Patterson says of the dynamics that thin or deepen a buyer pool, gross demand and real supply remain imbalanced.

Meaning, raw inputs of deeper demand – people, jobs, and wages – are still out of whack with what most developers and builders can profitably offer the market. Patterson writes:

Wages have failed to keep up with 40%+ home price appreciation post-pandemic and higher mortgage rates, indicating there’s further wood to chop before affordability returns to normalized levels, which could be solved through a combination of increased wages, home price reductions or lower rates."

With affordability as such a stubborn delimiter in real demand calculus, the near-term question when it comes to that all important "buyer pool" Patterson refers to, it's not just payroll positions, it's the quality and pay-levels of those jobs that matter for continued improvement for homebuilders.

Insofar as mass layoffs have started to pile up, many of them have hit professional and knowledge worker class positions at tech, banking and financial services, marketing communications, and media firms that normally pay associates higher wages.

What's more the economy's direction and trajectory now have an added catalyst sculpting the shape and size of the "buyer pool" ... A.I.

Seventy-nine percent of workers feared or were on the fence that A.I. implementation would become so beneficial at helping them with their work that employers would issue a pay cut, according to a survey of 3,000 employed American adults by Checkr, a company that provides employee background screening. Millennials led the pack at 82%, compared to 78% of Gen Xers, 77% of boomers, and 74% of Gen Zers." – Jane Thier, Fortune

Google generated 148 million results this morning to a query, "how many jobs lost to A.I.?" Among the top 10 results, wild-guess predictions for job loss, displacement, range from half of all jobs, to 300 million jobs, to 14 million net job losses by 2027, etc. In other words, all over the map, and prone to panic-mongering.

New York Times staffer Emma Goldberg dials back the hype, but keeps it real in terms of A.I.'s dizzying impacts. She writes:

Historically, when automation has led to job loss, the economic impact has tended to be offset by the creation of new jobs. Generative artificial intelligence, according to the Goldman report, could raise America’s labor productivity growth by nearly 1.5 percentage points per year over a decade. It could increase annual global gross domestic product by 7 percent. It could give rise to previously unimagined creative occupations.

But there will be immense instability for displaced workers. Automation has been a significant driver of income inequality in America, according to a study from researchers at the Massachusetts Institute of Technology and Boston University. By their estimates, 50 to 70 percent of changes in the U.S. wage structure since 1980 were due to loss of income among blue-collar and office workers because of automation.

Areas of the country where robots have been adopted most intensively, particularly manufacturing-heavy parts of the Midwest, have also seen the most precipitous declines in employment, according to research from Daron Acemoglu, an economist at M.I.T." – New York Times

But at the rate the resilient jobs economy is going, and the resilient consumer's role in fueling it, it could be that new-home demand might have one more still-unappreciated tailwind working for it.

That's this. When A.I. itself starts adding people to payrolls to do the jobs and tasks it no longer wants to do.