Skip to comments.If Unemployment is 6.7% Shouldn't We Have a Housing Boom?
Posted on 01/27/2014 4:27:29 PM PST by Kaslin
The National Association of Realtors Chief Economist Dr. Lawrence Yun reported 5.09 million home sales in 2013. December was widely reported as up by the media, but only 1% over a November that was revised down. Year over Year December was down 0.6%. The second consecutive monthly decline.
To say the year in housing ended with a whimper would be an understatement.
But wait a minute, isn't the job market improving with only a 6.7% unemployment rate? If more people are working doesn't that translate into more people buying homes? The unemployment rate is as bogus as the inflation rate or we would be selling more homes and ground beef.
As a member of the National Association of Realtors I understand the desire to put a positive face on housing numbers to benefit members, however, to say the reason for the slowdown is due to a lack of inventory and bad weather is a stretch.
The weather argument falls flat because closings typically occur thirty to forty five days following a purchase contract. Bad weather in October and November didn't impact the number of closings in December.
I take the opposite view of the association, sales are down and slowing not due to a lack of inventory but due to a lack of demand.
We are heading towards an inventory shortage eventually because new construction has never recovered. New home construction remains at half the rate of pre-recession levels, and the recession ended four and a half years ago.
It is noteworthy that the number of mortgage applications were down by 66% in 2013. The reasons are twofold, rising interest rates killed the refinance market, and cash sales were at historic levels. Primarily from major investors entering the own to rent market gobbling up foreclosures. That too is slowing to a crawl.
If interest rates continue to rise into the five percent range the inventory of homes for sale will be hurt because anyone who doesn't have to sell won't trade a mortgage at or below 3% for a 5% mortgage.
Regardless the shortage of inventory you must still have demand, and demand comes from family formation and job growth. With 18 to 34 year olds accounting for 46% of all unemployed Americans most of the family formations are those based on love not money. Does love count toward a loan approval?
Obamacare casualties continue to mount, but the toll from employers cutting hours to part time, and laying off employees to avoid the mandates has harmed demand. When tens of millions with employer paid policies start getting cancelled and have their premiums increased, look out housing.
The president and his chief adviser Dan Pfeiffer can claim they have created 8 million jobs all they want, which you will hear in the State of the Union, but they won't tell you most of those jobs were part time and that eight million barely surpasses population growth during that time.
That means a net zero improvement in the labor market or adding demand for housing. Why no mention of the record 92 million working age Americans out of the workforce and the workforce participation rate the lowest since 1978?
The best thing to happen to the real estate market has been the hard winter. There is pent up demand building because people can't or don't want to get out and look at homes. When the weather breaks we will have a huge rush of home sales, but it won't last long without job creation.
The good news is that the president in his State of the Union message will chide the dangers of inequality, call for an increase in the minimum wage, more infrastructure spending, and more pre-school programs.
Yes siree Bob, that should cause an explosion in job growth not seen since the Stimulus and the Summer of Recovery!
Back to Dr. Yun and another statement he made.
"More people working means additional housing demand," said Lawrence Yun, chief economist at the National Association of Realtors. "In last 12 months the private sector has added 2.2 million jobs. That's 2.2 million potential homebuyers."
Really? If 1.54 million of those were part time jobs, please refer me to the lender who will approve a mortgage for these part time employees. Maybe they will loan on love too?
The only thing I think would stop it is significant inflation. The currency would have to devalue because the jobs just aren't coming back.
I woulds not be surprised if we did
Housing is in a boom in my area. Only 25 new foreclosures in my county last week. That’s down from 26 the week before. Happy days are here again!
The unemployment numbers are so thoroughly fake I don’t know if anyone can tell us the real numbers.
But it isn’t 6.7%. It isn’t anywhere near single digits.
Housing starts have doubled since 2011...
Foreign money and hedge funds are doing a lot of the buying.
Cheap money chasing hard assets.
As long as the Fed keeps creating fake money, I don’t see that changing.
Well, we would except things are all to shit because it’s Bush’s Fault. Simple.
Yeah, from 2 to 4.
Much is the same in the commercial end with people taking existing structures and remodeling to suit their needs. A big part of the commercial end is in health care related services.
There is a new Panda Express going up over by the Walmart though. woohoo. (we dint get that bid)
We should have a lot of good things in the economy with a 6.7% unemployment rate. And we probably would, if we actually had a true 6.7% rate.
Of course, we do not. The unemployment rate, like most everything in the Obama recovery, is smoke and mirrors and not the true picture of the economic mess we’re really in.
I hope I am wrong, but I cannot shake the feeling that we are going to have a “lost decade”, ala Japan. None of the traditional indicators of real economic recovery are there. And if the Fed ever turns off the QE tap...
The true unemployment rate is some 36% and rising. Just because some people are not looking anymore or have settled down to live off the dole dousent mean they aren’t unemployed. Business is chasing profits by cutting costs and downsizing. This is not time to tie yourself into a mortgage and risk a down payment.
They only count people looking for work. Pretty stupid, huh??
I believe you. I was trying to determine the true number myself and its pretty difficult, the way they count I couldn't arrive at a number.
Its not 6.7% though. Its not single digits. I always assume its north of 20%. Hardly a family in America doesn't have someone out of work.
The lost decade is a certainity and will probably last 2 decades. We are already at 5 years and things are steadily getting worse all the while being told how good things are.
We are told 6.7% unemployment, yet they are pushing on extending unemployment for 99 weeks again. We are told how great things are while more than 45 million Americans are on Food Stamps alone.
We are told how goood it is..you get the picture! There is no way to reverse this downturn in just a year and certainly not with obama as President, so that is 8 years minimum.
Good update, thanks. The only reason health care related businesses are building is because Medicare, Mediciad, and ObamaCare are consuming more than our tax revenues. As baby boomers become geriatric, it will get even worse.
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Here, even the remodelers are without work. New home sales are non-existent for all intents and purposes. Older home sales a little better if the seller is willing to give it away. My original “Happy days are here again” comment was sarcastic. Foreclosures are down but still too high. That suppresses the crap out of the entire market. Foreclosures and short sells being scooped up by investors who are not willing to sell at today’s values. I believe in the future because with God’s Grace the American people will overcome this. Too bad we don’t have some help from the RINOs that keep rubber stamping 0bama’s agenda. But God and the American People are bigger than the opposition.
The good news here is the people I work for cancelled my health insurance on January 1. And it was decent insurance with dental and vision with my share at about $100/month.
We are having a huge housing boom, if by boom you mean vacant houses that the unemployed former owners had to leave.
My son (24) has been pretty much unemployed for the last three years. He gets a job and they tell him this could work into something good--full time--but that isn't the case from what I see. Companies hiring temps but advertising full time positions just to get them through a big job with promises and shineons.
There’s a boom in rentals and vacant houses scooped up by professional landlords. The houses that aren’t used will rot, before they’re sold for low prices. Property taxes will continue to be propped up by many in the political regulator regime.
You are correct. As an investor I have no intention to sell. Rents are up, potential owner occupants lack cash, investors get the good deals with cash, demand is slack, inventories are down. Until the labor market improves, people fix their balance sheets, the analysis in the article rules. It will be at least three more years of this.
It has become ridiculous. But we will win. I’m 60 and I know we will.
>> They only count people looking for work. Pretty stupid, huh??
Smoke and Mirrors, that is all this dictatorship has leading the low brows over the cliff. It will never end until these commies are run out of town.
There was an article? I just read the headlines. I scooped up several properties as a partner with my 5 siblings. We live in 6 different states and own properies in each. We are making a dollar or two on each until we sell them in 4 or 5 years.
NJ is dead in terms of housing; whatever lies the government spreads about the unemployment figure, the fact is that jobs don’t move into homes - people and families do. We’re bleeding people profusely, only making up some of it with illegals; they are the government’s answer to the housing crisis (and by extension, the public education crisis - there are much fewer American students to fill the seats).
“He gets a job and they tell him this could work into something good—full time—but that isn’t the case from what I see. Companies hiring temps but advertising full time positions just to get them through a big job with promises and shineons.”
I can’t believe how many part-time jobs now aren’t second jobs; they require a flexibility that would make them your only job possible. The 29-hour workweek is here...
Illegals don’ buy homes. They end up pooling resources and government freebies and renting single family homes and occupying them with 2 or 3 families or 15 or 20 individuals. The houses and neighborhoods fall into a state of abuse with garbage and junk everywhere. They overburden schools, hospital emergency rooms, increase the crime rate. The property values tank even worse than similar non-illegal areas.
I certainly don;t think they are the answer; importing them has closed some hospitals here. They don’t buy homes; they rent apartments (and pay with cash) - often in neighborhoods that are falling already. They make it even more undesirable for Americans to settle in an area...
Well actually from 500,000 annual to 1 million annual. Still far below the 50 year run rate of 1.5 million average annual.
Not exactly as vacancies are down significantly and are the lowest they have been since 2007:
Example, I have an escrow with a home on commercial zoned property. The buyer is solid, 20% down on a conventional loan. The underwriters for the bank are putting a hold on the loan for the manager of the underwriters to review. It has been a week as we scramble to find comparisons and they are strict on what they want. I fear they will turn down the loan due to the "house", not the buyer.
6.7% is a lie through and through. Double that, at least.
How is that calculated and has it be jiggered recently? I think there’s building going on that is multiunit, but I don’t think it’s being driven by new SFR. Low interest rates are allowing people in higher income tiers to buy or even move, but I don’t think we’ll see a boom. A lot of RE investors are sidelined by restrictive lending and/or uncertainty. Nobody wants to not have their units sold when the music stops, i.e. interest rates rise.
A lot of 3rd World Wealthy are parking their money in the US on both coasts. It’s a good bug out strategy.
NY and Florida are having a rehab rebound as well. I don’t think it is a sign of recovery, though. People are stuck, they find it easier to remodel than move.
I wish the government would get out of the housing market. It is a massive distortion and the tax incentives just encourage unnecessary debt. The NAR are a major cause of the problem and they lie, lie, lie.
they got no place else to go
SF starts are up 60+ % since 2011. MF starts traditionally lead from housing troughs. Demographics drive housing and household formations have more than doubled since 2010. It’s not a matter of “if” we get back to 1.5 million but when. Most macro forecasts have that in 2015/16. Most projections have 14-15 new households this decade. Considering we’ve built less than 4 million we will have a sever shortage in a couple of years.
2011 was a record low year for SF starts and the lowest years ever since recording began in 1959. So I’m not surprised to see them rise by a large percentage gain.
Single-family homes fell 7.0% to a annual pace of 667,000 in December and that level was still the second strongest reading in the category since May 2008.
Much of that is driven by historically low interest rates. When the rate rose sharply in the spring it slowed building. The rough rule of thumb is for every 1% rise in interest rates you need to reduce the cost of the unit by 10% to maintain the same monthly payment. The builders I know are nervy. Nobody wants to be caught with too much or too pricey inventory when the music stops. Enough survived that last time and fear a repeat that will kill them just like it did dozens of others. Toss in rising construction costs and it isn’t an ideal market, despite pent up demand. This is an interest rate driven improvement.
Demographics matter, but I think they won’t go to SFR ownership, but apartment rentals and, perhaps, well priced condos in good school districts.
Don’t get me wrong. I’m not betting against America or a doom and gloomer. We’ll get out of this. It’s hard to shut down a 16 trillion dollar economy. Here’s the things I’m watching for: a GOP sweep in 2014 where they take the Senate by 51+ and strengthen in the House. That will mark the start of the real recovery. It means an end to the uncertainty a Dem Senate and an America-hating executive branch are causing. Just returning the regulatory environment to Bush-era status, which is still too little of a reduction, would be rocket fuel for our entrepreneurial economy.
The next POTUS, who I hope is the most conservative we can elect, will preside over an explosive recovery that will benefit owners of capital as well as employees. If the country doesn’t throw the Dems out or if infighting between the GOPe and conservatives costs us easily winnable races as it has in at least 4 Senate races, then the uncertainty caused by standard fare liberalism coupled with Obama’s very aggressive crony capitalism will continue to be a very powerful headwind against a genuine economic recovery (which I define as one not rigged by FED action - we’ve not had one of those in a long time and I suspect it is because crony capitalism is and has been the only game in DC since Clinton, they just don’t trust the free market enough or else they fear it).
I meant to say that I do very much appreciate your level headed and actual numbers based approach to these topics. Too many were purged from FR for not toeing the line and that was foolish. At the same time, sentiment and emotion are what really drive investment and the people I know are hunting opportunity, cautiously.
Thanks for the discussion. I’ll respond when I get back to my office in a few days as I’m stuck in the Atlanta Snowpocalyose :-) Just as an FYI I work in forecasting for a public company that participates in residential construction market so I have some good data and look at it constantly. It’s going to be a long road (heck it already has been) but I’m very bullish on housing over the next few years. I just hope I’m right :-)