Thursday, June 02, 2011

A recovering economy is dependent on a recovering housing market, and vice versa

The economy and the real estate market are caught in a Catch-22 situation:
Home prices won't rebound until jobs come back. But jobs won't come back until the housing mess gets fixed.

That's a problem because both the housing market and the broader economy are having trouble getting back in gear. Hiring is losing steam, and after home values hit a post-boom low, many are projecting further price declines.

"The economy can move forward without housing," said Mark Zandi, chief economist with Moody's Analytics. "But I don't think it can flourish and create enough jobs to bring down unemployment in a significant way without a revival of the housing market." ...

Housing typically helps lead the way in an economic recovery not only through a surge of construction and the hiring that goes with it, but though demand for goods and services that go into forming a new household. ...

Doug Duncan, chief economist of mortgage finance giant Fannie Mae, is focused on the impact of jobs on housing — and vice versa.

"Our mantra all along has been employment, employment, employment," Duncan said. "Until you see employment growth and then income growth and then household formation, you don't get to the bottom of this." ...

On Wednesday, payroll processor ADP reported that hiring by businesses ground to a halt in May, raising concerns about the recovery in employment.
Here's more on the weak job market:
"The ADP Employment report coughed up a hairball in May," Robert Dye, senior economist with the PNC Financial Services Group, said in a research note, referring to a report by payroll processing company ADP released Wednesday.

That report showed private sector employers added only 38,000 workers in May, far lower than the revised 177,000 jobs added in April and much weaker than economists had expected.

That level of job growth is the weakest number since September. ...

The ADP report followed on the heels of an already disappointing jobs number released by outplacement consulting firm Challenger, Gray & Christmas on Wednesday morning.

According to that report, the pace of planned job cuts edged higher in May, as 37,135 jobs went on the chopping block — a 1.8% increase from April's planned job cuts.

But government sector layoff announcements dominating those numbers.


  1. thanks for this post..i need it for my exercise

  2. You are totally wrong-in fact I would say that a declining real estate market is BETTER for the economy than a rising real estate market.  

    Although a fast-rising real estate market may offer a temporary sugar-rush, this is not real wealth-creation; in fact it is wealth-destroying, because one of people's primary expenses (shelter) increases in cost.  Right now, houses are still way too expensive and rents are way too high.  Most people simply cannot afford quality shelter.

    The further real estate prices (and corresponding rent prices) fall, the more income Americans will be able to keep in their pockets, to save or spend.  

    Costs should be LOW; incomes should be HIGH.  These are the hallmarks of a good economy.  You are advocating bubble-economy economics ala Greenspan and Bernanke.  Maybe you will be the next Chair of the Federal Reserve.