Employment Boom Boosts Home Sales
The resurgence of job growth in the United States is helping to power a rebound in the housing market, turning what was the hardest-hit industry during the recession into a highlight of the recovery.
Home sales are at their highest level since 2006, according to industry data, and housing prices across major metro areas have increased 30 percent since bottoming out three years ago. Government numbers show that new residential construction jumped by 20 percent this spring, and in some areas the market has been so strong that analysts are worried about another bubble.
Alongside those gains is a pickup in job growth that started in 2014 and has yet to lose steam. New government data released Friday showed that the economy added 280,000 jobs in May, the biggest number this year. U.S. employers have not been on such a long hiring spree since the dot-com boom of the late 1990s. The unemployment rate ticked up to 5.5 percent, largely because more people decided to seek work.
“They both feed off of each other,” said Danielle Hale, director of housing statistics at the National Association of Realtors. “The job market’s improvement comes first, and then the housing market follows.”
Mounting layoffs and the collapse of the housing market arrived hand-in-hand during the recession. Shoddy loans led many homeowners to default on their mortgages. The resulting wave of foreclosures depressed local economies, leading to higher unemployment — creating a vicious cycle.
Now, a healthy job market is in many ways reversing that pattern, economists say. Those who own a home are less likely to fall behind on their mortgage. More people are able to start saving for a down payment. And workers are gaining confidence to strike out on their own, rather than bunk with family or friends, spurring demand for housing.
That may be most evident in the West, which led the country in job creation in April, according to the most recent regional breakdown available from payroll processor ADP, which compiles a closely watched private forecast. In Utah, job growth spiked over the past six months, and the unemployment rate is well below the national average, at 3.4 percent.
Utah enjoys a booming tourism industry, an up-and-coming tech sector and a growing population — adding up to big business for Realtor Ryan Kirkham.
The 20-year real estate veteran who lives near Salt Lake City said that every house his clients have bid on in the past few weeks has had multiple offers. Some have had up to a dozen. And he said that he hasn’t yet this year had to deal with a short-sale, a tool homeowners use when they are in distress.
“Even though the competition is kind of crazy, I hope that it’s crazy and robust because of good factors that are driving it and not just speculation and bad loans,” said Kirkham, who also heads the Utah Association of Realtors.
Kirkham said that many buyers are interested in moderately priced townhomes and condos. High-end homes over $750,000 — roughly three times Utah’s median price — are not moving as quickly, he said. Many of his clients are first- or second-time home buyers rather than families seeking to upgrade.
In fact, one of the puzzles of the economic recovery has been that people seemed reluctant to live on their own. While job growth was still anemic, many people — often recent college graduates — were not confident that they could afford to pay rent or a mortgage by themselves. That “household formation” reached an all-time low between 2007 and 2011.
But as the employment prospects have brightened, household formation has returned to more normal levels. Even though many of these new households are renting, they still hold potential for the housing market. Realtor.com chief economist Jonathan Smoke said he is particularly encouraged by the fact that a million jobs over the past year went to workers ages 25 to 34 — the prime demographic for first-time home buyers.
“With more jobs, more people in the labor force and higher wages materializing, this spring’s strong pace for home sales will continue,” he said.
Still, there is room for improvement, both on the jobs front and in the housing market.
About 2.5 million people have been out of work for six months or more, while nearly 7 million arein part-time jobs even though they would like full-time positions, government data show. And though workers’ average earning increased 8 cents in May, to $24.96 an hour, wage growth has been stuck around 2 percent for much of the recovery.
“You’ve got a lot of people who are trading one struggle, which is unemployment, for another struggle, which is underemployment,” said Jason Richardson, director of research and evaluation at the National Community Reinvestment Coalition, which works in needy neighborhoods. “They’re not building assets; they’re not buying homes.”
Nationally, housing prices are rising at about double the rate of wage gains. Nela Richardson, chief economist at Redfin, attributed the increase primarily to a lack of inventory: Many homeowners remain reluctant to sell, and new construction is only starting to catch up after years of lying fallow.
Without a pickup in pay, home ownership will remain out of reach for many families, she said.
“The most important thing to prop up the housing market is a stable job, not just a new one,” Richardson said. “While I see a lot of great seeds and shoots, I don’t think the payoff to the strong jobs numbers will come until two or three years into the future.”