The labor market and housing are two of the biggest headwinds still hobbling the economy. Job growth, at least, seems to be picking up, as ADP’s latest estimate of payrolls suggests. The case for optimism faces a higher hurdle with housing, however, a sector where the suffering rolls on.
How bad is it? A picture’s worth a thousand words, as they say. Consider the annual rate of change in four housing indicators:
• New housing starts
• New single-family houses sold
• New building permits issues
• The S&P Case-Shiller 20-City Home Price Index
As the chart below shows, all are now falling on a year-over-year basis. After a brief recovery, the housing market is trending down once more.
Housing has been in a bear market for some five years. Is there any end in sight? The optimistic view is that this sector is due to stabilize. Growth worthy of the name, however, is still a long way off. It’s not for lack of incentives. Mortgage rates are at or near rock bottom. Meanwhile, it’s a buyer’s market in every sense of the phrase in terms of supply and demand. Indeed, in most regions and cities across the country, there’s still a glut of houses relative to buyers.
What’s the solution? Ultimately, it’s still all about jobs. When the net change in nonfarm payrolls is rising on a sustained level at, say, 200,000-plus, it’s reasonable to expect that housing may finally be headed for better times.
The good news is that job growth seems to be recovering. Private nonfarm payrolls are rising once more, as the chart below shows. But the pace of recovery in the labor market is still modest by historical standards. The net change in private nonfarm payrolls has averaged +90,000 for the past year. That’s not good enough to bring the housing market out of its slump. Perhaps the December payrolls report from the Labor Department that’s scheduled for release later today will bring better news.
“Real estate remains a pothole due to uncertainty,” John Tuccillo, a housing analyst and former chief economist for the National Association of Realtors, says in a recent interview. “The ‘what-if’ factor is hurting us. People don’t know if they’ll have a job; don’t know if we’ve reached the bottom of the market; don’t know if more bank failures are imminent; don’t know if housing is the answer at all.”