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Jobs Report Bodes Well for Housing
December 2, 2011 By Leave a Comment
The November jobs report was good news for the economy and even better for housing: unemployment among 25-34 year-olds fell to 9.2%, and quarterly job growth in “clobbered cities” was strong at 1.9% (annualized rate). However, construction employment slipped.
Economic recovery is essential for housing demand to pick up. But three indicators in the monthly jobs report tell us whether the recovery in housing demand is underway, approaching or still far off. These include:
- Construction job growth
- Unemployment among 25-34 year-olds
- Job growth in cities clobbered by the housing bust
Construction job growth
Construction jobs are at the heart of the virtuous or vicious cycle that connects jobs and housing. Housing demand leads to more jobs in construction and related industries, and more jobs means more income and housing demand.
In November, construction employment fell month-over-month and grew just 0.3% versus 3 months ago, compared with total employment growth of 1.3% (seasonally adjusted annualized rates). Total employment is up 1.9% from its recession low, but construction employment is up just 0.8% from its bottom in January 2011 (cumulative rates). Construction employment still has a lot of catching up to do to get back even to its pre-boom share of overall jobs.
Unemployment among 25-34 year-olds
Between the ages of 25 and 34 is prime time when many people form households with a spouse, partner, roommate, or by themselves, then start families and buy their first home. During and after the recession, household formation dropped for this age group, and more of them than ever are living with parents or other adults rather than renting or owning their own place. These folks will wait to form their own households and consider homeownership only when their job prospects improve. A key measure for housing demand and homeownership is the unemployment rate for this group and the share of this age group that is employed.
In November, the unemployment rate for 25-34 year-olds dropped sharply to 9.2% from 9.8% in October and is at its lowest level since early 2009 (except for a one-month dip this March). The unemployment rate for all adults also dropped, from 9.0% to 8.6%. In November, 73.9% of 25-34 year-olds were employed (the rest are unemployed or not in the labor force because they’re in school, discouraged from looking, or not looking for other reasons), up from lower September and October levels, so the unemployment drop is not primarily due to young adults leaving the labor force.
But the job market remains tough for this key age group: before the recession, unemployment for 25-34 year-olds followed the overall rate pretty much exactly, but has remained stubbornly above the all-adults rate even as the unemployment rate has drifted down slowly.
Job growth in “clobbered cities
”The housing bust had unequal effects nationally, with many local markets in Florida, the Southwest, inland California and Michigan facing some of the largest price declines and highest vacancy rates. Job growth anywhere will boost housing demand, but compared to other places, these clobbered cities are in more desperate need of motivated homebuyers to help their local housing markets recover. We define “clobbered cities” as metro areas where home prices dropped at least 30% during the bust (according to the Federal Housing Finance Agency house price index) and where vacancy rates are still over 7% (excluding seasonal or vacation homes, according to the 2010 Census). Metro-level BLS data are released several weeks after the national data, so this indicator is for the previous month.
Job growth in clobbered cities grew 1.9% in October relative to three months ago (seasonally adjusted annualized rate, preliminary figures). The comparable national figure for October was 1.3%, so these clobbered cities had faster job growth than the U.S. overall. That’s a big change from the recession, when job growth in these metros was far worse than the national decline.
Among these clobbered cities, job growth was especially high in Riverside–San Bernardino,Phoenix, and Tampa, but other Florida metros – like Jacksonville and Orlando – lost jobs in the last quarter. And Detroit-area employment contracted by an annualized rate of almost 6%.
Where Housing Is Headed
December 1, 2011 By Leave a Comment
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The inventory of unsold homes has declined sharply from one year ago in many markets. While price declines and low mortgage rates have pushed affordability to its best level in the past decade, the prospect of falling prices, more foreclosures, and economic uncertainty continues to hold back demand. — November 2011
Home prices and mortgage rates have fallen so far that the monthly cost of owning a home is more affordable than at any point in the past 15 years and is less expensive than renting in a growing number of cities.
The Wall Street Journal’s third-quarter survey of housing-market conditions in 28 of the nation’s largest metropolitan areas found that home values declined in all but five markets compared with the second quarter, according to data from Zillow Inc. Meanwhile, rent levels have risen briskly across the country and mortgage rates, hovering around 4%, are the lowest in six decades.
Read the rest here.
Measuring the health of the economy with the Men’s Underwear Index
November 30, 2011 By Leave a Comment
The Men’s Underwear Index (MUI)
Did you know that some economists look to the underwear drawers of American men to determine the health of the current economy? The Men’s Underwear Index (MUI) is an unconventional economic indicator that measures how the economy is performing based on the sales of men’s underwear. We’re not making this up, we swear!
The logic behind the MUI is that because men’s underwear is a necessity, not a luxury, sales are steady, but when the health of the economy is poor, sales dip as the necessity becomes a luxury. When sales improve, the health of the economy is said to improve along with it, according to subscribers of the MUI theory.
It isn’t just crackpot economists smoking a pipe full of pretentiousness, no, even former Federal Reserve Chairman Alan Greenspan was a believer in the MUI. He said that because so few people ever see men’s underpants, this is the first thing men stop buying in a down economy.
So how is the MUI right now? As of August, men’s underwear sales rose 7.9 percent from August 2011, according the retail research firm NPD Group, indicating that while we are down substantially from past years, the improvement is in line with other economic indicators that claim the economy has not recovered but is showing signs of doing so, thus at least for now, the MUI is on course.
Critics argue that it is typically women that buy underwear for men, thus the MUI is bunk, and other critics say the theory is flawed because men wear underwear until the holes are too big to stand, thus it does not correlate to the economy.
Seattle tops best cities for tech jobs!
November 22, 2011 By 1 Comment
Top best cities for tech jobs named
Recently, Forbes names the top 50 best cities for technology jobs and the list has made waves in the tech community as the magazine took a look not just at the current scene, but how tech jobs have changed in the past decade, putting some tech cities low on the list.
The top 10:
- Seattle, WA
- Baltimore, MD
- Columbus, OH
- Raleigh, NC
- Salt Lake City, UT
- Jacksonville, FL
- Washington, D.C.
- New Orleans, LA
- Riverside-San Bernadino, CA
- San Diego, CA
John Cook at GeekWire.com wrote, “One of the biggest story lines of the past couple of years in the Seattle tech community has been the arrival of titans such as Facebook, Salesforce.com, EMC, Zynga and other Silicon Valley stalwarts who’ve chosen the region for new development centers.” He adds that Facebook is doubling its presence in Seattle and Amazon.com hired 8,000 people in the third quarter alone.
Are startups like Gowalla going out of business?
Unfortunately, it is true. Austin’s semiconductor industry has taken a hit in recent years while the startup industry has brought in millions of dollars in funding, but our sources hint that the startup world is quickly and quietly dwindling down.
Although it is a quiet notion and likely just a rumor, we were asked by a very successful entrepreneur in Austin if we knew that Gowalla could be going under and later that same day we were asked by a venture capitalist if Gowalla’s $10.4 million wasn’t keeping them afloat and 2012 wasn’t looking good. We have been told that Austin startup CEOs and employees have been quietly submitting their resumes at more established companies and even Gowalla employees are rumored to be sending out a high volume of applications. It isn’t just Gowalla though, they’ll just be the biggest let down if this is even remotely true (which we’re not convinced of).
We’re hearing that the first quarter of 2012 will be the last for many startups in town, so is Forbes on to something? Is 2012 the year the struggling startups finally run out of money or give up regardless of the millions that have been poured into them as they learn they’re not alone in their struggle? Time will tell but 2012 isn’t looking so good for Austin while it is looking quite promising for Seattle.
N.B.: The Seattle area has other employers as well. Namely, Boeing, Starbucks, Nintendo, Nordstrom, Costco, Paccar, Safeco etc. The Puget Sound is no longer a one trick pony in the job world.
Employment (and population growth) is the main reason that housing is a stable and safe choice in our area.
Fannie Mae and Freddie Mac are often just misunderstood
November 22, 2011 By Leave a Comment
Fannie and Freddie – misunderstood?
“The mortgage giants Fannie Mae and Freddie Mac are not blameless in the foreclosure crisis, but the case against them is also often misunderstood and exaggerated,” opines Kevin Park, a doctoral student at the University of North Carolina at Chapel Hill in a piece about the history and evolution of the two government sponsored entities (GSEs) in modern times.
Three years ago, Fannie and Freddie were placed into conservatorship under the Federal Housing Finance Agency and Park notes that together, the two institutions hold roughly $5.3 trillion in home mortgages.Various efforts have been made to wind down or abolish Fannie Mae and Freddie Mac with those efforts accelerating as the two steal headlines over the FHFA approved nearly $13 million in bonuses to Fannie and Freddie execs just days before quarterly reports were released, revealing that Freddie Mac who lost $4.4 billion in the third quarter requested an additional $6 billion, while Fannie Mae lost $5.1 billion and requested an additional $7.8 billion.
Questionable cause of Fannie & Freddie’s failure
Park argues, however, that Fannie and Freddie aren’t exactly the bad guys in the housing market. It looks like they’re going to be the scapegoat though, according to Park’s take on the GSEs. ”The causes behind their failure have been and will continue to be much debated. Below is a discussion of facts related to Fannie and Freddie’s role in the current housing crisis. The accumulation of evidence suggests that profit, not policy, pushed these players like many others into treacherous territory and risky products not borrowers led to their collapse.”
Park’s full argument is below and features insightful charts and easy to understand language:
Negative Equity: How Many Loans are Underwater in Your State?
November 21, 2011 By Leave a Comment
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Home equity has become a thing of the past for millions of homeowners. Nearly 11 million, to be precise. That’s the number of properties nationwide that had negative equity at the end of the second quarter of 2011, according to market research firm CoreLogic. Using their data, we’ve illustrated the number and percentage of “underwater” properties (a common term for those with mortgage loans that are larger than what the property is currently worth) in the United States. Hover over each state for the details.
