Correction: It was a USA Today Article, not the WashPost

This article in the WashPost proves a bit of my remarks about labor being in short supply. And as we all know, if demand for labor exceeds the amount of available labor, then wages must increase to satisfy that demand. This article isn't about the Washington Region, but I'd bet a dollar that skilled labor is hard to find around here, unless employers are willing to open their wallets. Here is the Article's link and a few blurbs from it.

By Barbara Hagenbaugh, USA TODAYTue Dec 5, 6:58 AM ET
http://news.yahoo.com/s/usatoday/20061205/bs_usatoday/usmanufacturersgettingdesperateforskilledpeople&printer=1

EMMAUS, Pa. - Michael Bunner has done everything he can think of to hire workers.

He's increased pay, offered training and recently, hired a man straight out of prison.

While his story isn't too surprising given that the unemployment rate of 4.4% is at a 5 ½-year low, what is unexpected is that Bunner is in the manufacturing sector, an industry that has been grabbing headlines for losing jobs.

But despite all those layoffs, Bunner can't find plastic welders or even people who are willing and able to be trained for the specialty job.

"I'm turning down contracts," says Bunner, president of Electro Chemical Engineering and Manufacturing, which makes chemical tanks. "I could expand 20-30% overnight if I had more people."

I agree, the inability to attract younger workers because employers aren't willing to pay hire wages only hurts two parties. The employer who can't afford the labor and the local economy who doesn't benefit from the influx of money, taxes, etc. But younger workers aren't usually the type to be buying $500,000+ homes. Such purchases are usually reserved for established families selling a previous home and pumping the proceeds into the new home (ie: moving up the housing ladder). Condo to Townhouse. Townhouse to Single Family House. Single Family House to Toll Brothers Mansion.

I went to homesdatabase.com and selected Ashburn, Sterling, and Leesburg for a Condo under $200,000. I found 25 listings. Under $150,000, I found 4 listings. If the starting salary of a professional is around $50,000, they can qualify for a $200k Condo. If their income is less, they might have to consider renting until they move up the corporate ladder or think about commuting from cheaper regions like West Virginia or Winchester. Its terrible, but blame it on Inflation and send complaints to the Federal Reserve. If they would have cranked up interest rates in 2002-2005 more drastically, this price run up wouldn't have occured.

In any case, housing is semi-affordable. The real question is about the standard of living people expect. Will a Family of 4 have to settle for a 2-Bedroom Condo going into the 21st century? Or will they be able to move into a Townhouse or Single Family home? And that question will be answered by how desperate are employers for labor? Are they willing to fork over the incomes levels needed to employees for such a lifestyle and pass on the cost to their customers? Throw in a retiring baby boomer generation and a 1.5% unemployment rate in Loudoun County (2.7% in all of Virginia), and the writing on the wall might speak for itself. Lack of labor leads to increased wages, thus giving those homebuyers the incomes to afford this region's standard of living. The employers who refuse to open their wallets might end up out of business.

Even according to the BLS, the average hourly wage in America is $16.70 ($34,736/yr) ( http://www.bls.gov/news.release/empsit.t16.htm ). Which means Wage Inflation is coming to haunt businesses sooner or later. And with a retiring baby boomer generation starting to leave the workforce, sooner might be right around the corner.

Doug, always good to hear from business people on the ground with good anecdotal experience. I don't think anyone is saying we will have a dramatic uptick in prices. Just the opposite. The market is in an adjustment period. Supply and demand have to come back into balance before we see even single digit appreciation. I have consistently said that a pullback to early 2005 prices will not surprise me.

This may not help the young upwardly mobile professionals get into the market, nor does it help the people we depend on to keep us safe or teach our children. Affordable housing is a growing problem and a scar on the DC Metro area.

Ultimately, an inability to attract workers for expanding businesses translates into a higher cost of doing business and will impact the strength of the local economy.

It seems to me that these projections -- and the idea that we can expect prices to shoot skyward -- are wildly optimistic. My company is currently working hard to hire young engineers to fill necessary slots. We have approached many young men and women who have come back to us to say that the cost of living is too high in this area and they either are not considering coming to this area or that they are considering leaving. Granted, this information is only anecdotal, but it seems to be the same story I hear from other folks hiring in our industry.

Likewise, I can't see median incomes of $100k pushing prices higher. Using a generic online mortgage calculator, an income of $125k, a downpayment of ~20%, and a 30 fixed rate loan, I'm told I can afford a home of about $450k. How many SF homes in this price range exist in Loudoun county -- that is, ones that young professionals making $100k a year would feel comfortable buying?

I admit being biased -- my wife and I were lucky enough to sell our old house last spring, and are currrently looking for a house (we weren't trying to time the market, our Sterling neighborhood's quality had spiraled downhill over the last 5 years and we needed to get out).

However, I simply don't see the scenario Alby paints. Additionally, as someone running an organization in this area, I don't see that as a 'rosy' scenario either. The home prices in this area have certainly had a negative effect on our ability to bring the best and the brightest into our area as employees -- and I don't see how that can help anyone.

Alby, have you googled it yet? I now know what an Alby is:

"Patriots, we already know about the supposed "nice" skwerl that Skwerlhugger Libby calls Alby. Some of you may have seen our article regarding the drooling point mutation (see link below). But now, it appears that Alby's disciples are spreading their heretical nutkin theosophy on the web. Some say that there is no threat, that Alby is a harmless tree rat (click pic at right for one opinion). However, don't be fooled. As skwerlhuggery creeps through civilization, the young and impressionable and the old-and-in-the-way are at risk of becoming its unwitting victims... "

Hahahha... What is an Alby.. That is funny. Before you know it, I might even get my own Wikipedia blurb. :)

Alby, thanks for the link. The URL was so long it drove my comment trimming logic nuts! I had to fool around with it a bit and reformat the sidebar comments to get it all working right. A bug in this new version of software I installed.

BTW, I found a recent Google search term in my server statistics: "what is an Alby?" I hope they found what they were looking for. :-)

Here are the Loudoun County Population Projections from loudoun.gov.

Loudoun Population Forecast

Alby, Good to have you back. Your comments are always appreciated. If the population forecasts are anywhere near correct, I agree. Unlike other forms of investment, people need a place to live.

Although the skies read doom and gloom in the Loudoun housing market, there is one bright fact that I'd like to bring to light. According to Loudoun's Demographics, the expected population for 2007 will be 278,778. By 2010 the estimate is for 310,000 - 320,000 people. That is nearly 60,000 new residents to Loudoun County. If you figure that per unit density is usually around 2.5 persons, it means that Loudoun needs 24,000 new residential units in the next 3/years. If the current inventory is only around 2,500 units or maybe 3,000 if you factor in new builder homes, then Supply/Demand law would suggest that a pending housing shortage is in the works. And that means a rise in prices and a return to a Seller's market. Although the builders will jump when demand increases, there is no way on earth they'll be able to build enough housing in Loudoun County to fill the expected population increase over the next 3-5 years. And with Loudoun's median income level being just shy of $100,000, the population in the county has the income level to push prices skyward in a hurry. Anybody who is waiting for a housing market crash should temper their expectations with this near-term data.