Is Housing at a Bottom – Part 2
by Tom on May 30, 2009
in Market Musings
I’ve said it before, but it bears repeating. The biggest issue the housing market is facing (not the only, but the biggest) is jobs. Unless people have jobs that allow them to afford to make their payments and jobs that they feel secure in, we won’t see people buying new houses, keeping their existing houses, putting money into home improvements, etc.
I try to keep my personal life out of the business life most days, but I was talking to my Mom yesterday (I still try to do that from time to time) and she was asking how the banking world was going. She said, “Didn’t we get some good news on the jobs front in the last few days?” When I explained to her that the good news was that ONLY 623,000 people filed for unemployment claims for the first time, down from over 630,000, she’s like, “Oh, that’s still a lot of people.” Yeah, I’d say it is.
The job situation is going to drive the housing market because people won’t buy a new house if their job situation is “marginal” and if people lose one or more of their incomes, they are going to have a hard time keeping their homes. That means additional inventory, additional foreclosures and short sales, increased downward pressure on prices and increased losses for banks and the government owned Fannie Mae and Freddie Mac.
So, when you want to get a feel for what’s going to happen in the housing market, take a look at the employment numbers and their direction. I saw a sign at a local business that said, “Michigan’s employment rate is 88%.” Let’s say that the number of people in Michigan who make up the “workforce” is 5 million (that is a totally unscientific pull a number out of a hat type of number) and unemployement has gone from 6 to 12.9 in the last 3 years, that means that Michigan has lost over 300,000 jobs in the last 3 years. That means there are 300,000 people who are struggling to make house payments or rent payments, 300,000 people who are considering moving somewhere else, and 300,000 people who are NOT considering buying a home in Michigan right now.
That’s why Jobs are important to housing and if you look at the jobs market, you can see we aren’t at the bottom of the housing mess yet.
More on Monday. Stay tuned,
Tom Vanderwell
Signs of more trouble ahead for housing market
- Rising unemployment. It doesn’t take an economist to realize people will not buy homes if they’re worried they might lose their jobs.“Employment is crucially important,” said Peter Morici, a professor at the University of Maryland business school. “We lost more than 600,000 private-sector jobs last month. That means the housing market is not going to turn up yet for a while.”
Unemployment also will spur supply. While the first wave of foreclosed-upon homeowners comprised people who could not afford their homes from the get-go, as more people lose their jobs, they are likely to lose their homes because they no longer have enough income to make the payments.
