The housing bubble was a major culprit in causing the financial crisis and the Great Recession. Therefore, a recovery in this important economic sector will play a critical role in the economy’s future. Home prices appear to be stabilizing.
Through November, this year’s existing home sales surged 25 percent, benefiting greatly from Congress’ $8,000 first-time, purchaser tax credit expanded and extended through April 2010. Further supporting home sales, the government has also doubled the maximum size of FHA-guaranteed mortgages and recently granted to Fannie Mae and Freddie Mac, government-controlled agencies accounting for more than 90 percent of residential mortgage financing, three years unlimited funding and a waiver on the $1.5 trillion limit on mortgages held on their balance sheets.
Last year’s jump in home sales and weak new home construction has reduced available home inventory to fewer than seven months’ worth – down from more than 10 months’ at the beginning of the year. Equally encouraging is the 31-month decline of new, single family homes on the market, which are at their lowest level since 1982, according to Barclays Capital.
Stabilizing and reversing the decline in housing is a prerequisite to long-term economic growth. The extension and expansion of the home buyer tax credit can be counted on to help home sales through the first half of this year, but how will markets fare after the credit expires on April 30, with deals having until June 30 to close?
The health of housing for the second half of the year is dependent on jobs, and on this point the picture is mixed. Although we expect GDP growth of about 3 percent this year, job growth will lag and we could see unemployment worsen before it improves.
Employment has always lagged economic growth and for commonsense reasons. Unemployment is by far the most important driver of consumer confidence and ability or willingness to spend. Among other factors, companies tend to hold off on hiring even as business rises until they see growth is sustainable.
However, several factors give reason to believe that the job market is moving in the right direction, especially here in Texas.
Four of the top five cities best surviving the recession are in Texas
Government spending has benefited Austin. It is the seat of state government and tied for No. 1 on Forbes’ recent list of the top 10 cities best surviving the recession. Jobs have been lost nearly everywhere in the country for the last three years, but between December 2007 and December 2009, the number of jobs in Austin rose by .98 percent. Within three years from now, jobs in Austin are expected to grow by 8.09 percent.
Third on the Forbes list is Dallas, home to a thriving technology and energy sector, where jobs are projected to jump 7.19 percent in the next three years. Like Austin and Dallas, Houston came in at No. 4. It is expected to experience a three-year 7.03 percent rise in jobs.
But nowhere are jobs projected to grow more than San Antonio, where four military bases should help drive an expected 8.32 percent increase, the highest projected increase in the country.
Federal government gearing up to spend billions to stimulate job creation
Today, 15.4 million people are unemployed and another 10 to 12 million of full-time employment seekers are working part time. However there are flickers of good news, such as the declining rate of job losses. Employers hired 52,000 temporary workers in November, which is the largest increase since October 2004 according to the U.S. Department of Labor. Historically, employers hire temporary employees before hiring permanent workers as the economy begins to recover from the recession.
Another sign that unemployment may have peaked is the increase of average hours worked. Moreover, the Obama Administration and Congress are gearing up to spend billions on new programs to stimulate job creation in addition to extending $150 billion of unemployment insurance, COBRA support payments and tax breaks.
2010 is a census year
Positive job growth is expected to increase in the third quarter, and the government is expected to hire more than 1.5 million temporary workers to conduct the 2010 census, which should provide some relief in the job market. Unemployment is expected to decline slowly in 2010, ending the year at about 9 percent. This once-a-decade event is a big job generator in its own right. These temporary jobs will serve as a bridge while the economy strengthens and companies ramp up hiring.
Some key sectors are already adding jobs
The professional business service sector – which encompasses accounting, management consulting, and law – got hammered in the recession, but added 50,000 jobs in December of 2009. That’s positive news for housing and commercial markets. Meanwhile, jobs in health-care service and education remain strong.
Home sales, housing starts and home price appreciation all hit or were close to hitting record lows at the beginning of 2009, but all indications have started to show some modest signs of recovery as we enter the summer.
Inventories of unsold homes, as measured in both units and months’ supply, have moderated since peaking in 2008. Although many pieces must fit together for real estate to gain after the tax credit expires, we can say the most important underpinning of economic health – jobs – is showing encouraging signs.
