Housing And Jobs

January 11, 2002

Rising Unemployment Hasn?t Undermined Housing Markets

By Bridget McCrea
Inman News Features

The nation?s economy has been plagued by a patten of job layoffs and slow job growth since it sunk into recession in March, but the impact of rising unemployment on the nation?s housing markets has been difficult to assess, in part because the manufacturing and technology sectors--not housing--led the country into the slump.

The poor employment picture was exacerbated by the Sept. 11 terrorist attacks, and the nation lost 124,000 more jobs in December, according to a report from the U.S. Department of Labor. That decline was the smallest since August, but it was enough to push the national unemployment rate to 5.8 percent, a level it last reached in April 1995.

But housing was a mainstay of the economy last year, which saw a record number of new and existing home sales.

David W. Berson, chief economist of Fannie Mae in Washington, D.C., outlined three primary determinants of housing markets: affordability, driven mostly by mortgage rates; consumer confidence, affected primarily by job market trends; and underlying demographics, including age groups of home buyers and homeownership rates.

Berson said demographics are most significant in the long run and typically don?t fluctuate much in business cycles.

"When you look at the movements in housing from one year to the next and going into a recession and coming out of a recession, it?s mostly the affordability and confidence factors that drive the movements," he said.

The decline in mortgage interest rates to 30-year lows over the last few months has propped up housing, despite the economic recession, weak labor market and recession-typical consumer confidence levels, Berson said.

"Affordability and demographics are pushing housing up. Consumer confidence?coming from the labor market?is pushing housing down, but less than normal," he said.

Record home sales naturally wouldn?t be expected during a recession.

"Normally, housing leads the economy into a recession, then leads it out. But not this time. Housing remains one of the strongest sectors of the economy and for a while actually kept it from falling into a recession," Berson said.

Michael Carliner, an economist with the National Association of Home Builders in Washington, D.C., said there is a global connection between employment and housing, but it?s difficult to distinguish on a national level the effect that each has on the other.

Making the correlation is easier on a regional level because employment is closely related to differences among local areas in the rate of home construction and home sales. Places with little or no employment growth typically wouldn?t see much home-building activity, Caliner said.

But in areas where home building is robust, Carliner said, housing can serve as a leading economic indicator of both untapped opportunities and unforeseen dangers.

"If there?s a lot of home building and not much employment growth, that?s a dangerous signal," Carliner said. "Or if there is a lot of employment growth and not much home building, it?s likely that area will see home prices rise and additional home building (commence)."

A nationwide unemployment rate of 5.8 percent is considered "pretty low" by historical standards, Carliner said, but the number seems high today in comparison with the explosive job growth of the late-?90s and 2000.

Berson expects an economic rebound based on stimulated monetary and fiscal policy, dropping energy prices and the impact of the lower mortgage rates on home refinancing, although he anticipates higher interest rates this year.

"All of these factors imply a recovery for the economy this year," he said, adding that the labor market typically is a lagging indicator of the economy overall.

Berson expects housing demographics to hold steady in 2002, but predicts the net impact of the recession will result in a small downturn in housing in 2002 compared with 2001.

Carliner also sees a turnaround ahead, despite December?s employment numbers.

"The decline was more modest, and the average number of hours worked per week actually increased," Carliner said. "Market turnarounds typically show up first in more overtime, then companies start hiring again. The increase in hours is probably an indication that we?ll start to see employment grow at least a little within the next few months."

Copyright: Inman News Service

Contact ALTA at 202-296-3671 or communications@alta.org.