It's a question worried builders can't help asking: How will the country's continuing job losses affect an already flattened housing market?
Their concern is understandable. The Census Bureau this morning announced that housing starts in November plummeted to a seasonally-adjusted annual rate of 625,000 units, the fifth consecutive month that starts have fallen, and the lowest rate in the 50 years that the government has been following those numbers. In November, the United States also lost 533,000 jobs, the fourth consecutive month of employment erosion. Non-farm employment in November, at roughly 136 million jobs, was nearly 1.4 percent below a year ago, according to Bureau of Labor Statistics estimates.
And the pain isn't over. The Conference Board projects that the country could lose as many as 3 million jobs before the current recession ends. And the conventional wisdom among economists is that America’s unemployment rate, at 6.7 percent in November, will hit at least 8.5 percent sometime in 2009.
But will job losses and housing starts continue to run along parallel downward tracks? The answer is: maybe, based on an analysis of starts and job growth over the past 35 years. In some cases, housing bounced back after a falloff in employment; in others, its declining starts rate signaled future weakness in the economy.
Certainly, there have been times when starts activity and job growth were aligned. Take, for example, the period from 1978 through 1982, when the country was experiencing double-digit unemployment and interest rates that relegated President Jimmy Carter to one term in office. During that time, job growth fell in 18 of that period’s 60 months. Job creation was particularly weak from September 1981 through November 1982, when there were declines in 14 months.
What happened to housing between 1978 to 1982? In this five-year period, housing starts dipped in more than half of the 60 months, and sank even when employment was relatively stable. It’s worth noting, too, that both housing and employment traveled together on their steepest downward trajectories in 1982.
But it's also worth noting that the pace of starts during this period fell from 1.738 million in January 1978 to 1.303 million in December 1982, employment actually rose nearly 5 percent. Meanwhile, as job growth returned to a positive track over the next eight years, the nation's housing starts were much more up-and-down.
It's an argument against a particularly strong relationship between housing starts and job growth (or loss). After all, this volatility would seem to reflect regional weaknesses in big housing states such as Texas (whose oil economy dried up in the mid 1980s) and California (whose economy plummeted along with defense spending in the early 1990s).
Later in the decade, the savings-and-loan collapse in the late 1980s and early 1990s surely had a greater impact on new-home construction than job growth in the early 1990s.
Still, housing’s plight in 1990 and 1991 may have been exacerbated by a sudden and steady dip in the nation’s monthly employment lasting for 10 months. But where job growth rebounded and stayed strong, construction had its fits and starts, increasing for several months, declining for several others, throughout the 1990s and into the following decade.
The dot-com meltdown that instigated the recession in the early 2000s turned into a six-year boom for builders, developers, real estate owners, and homeowners. For what it's worth, housing and job growth seemed in sync from March 2001 through September 2002, when the annualized start rate declined in 10 months and job growth fell in 12 months. Then again, where job growth rose consistently through December 2007, housing took a wild roller-coaster ride, rising and falling in equal measure. The industry’s construction activity peaked in January 2006, when starts hit a level of 2.292 million, and it’s been mostly downhill since.
Through the first 11 months of 2008, both starts and employment declined in eight of those months. There is no dispute that demand for new homes will remain soft if significantly more people lose their jobs. Conversely, statistics seem to show that job growth benefits housing.
But statistics might be meaningless during the worst recession since the 1930s. And if employment takes the kind of hit that many are predicting, a sustained housing recovery could be farther off.
John Caulfield is senior editor at BUILDER magazine.
For the latest starts information, read "November Starts, Permits Down by Nearly Half Compared to '07."
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