Chicken (Jobs) or the Egg (Housing)?

From the L.A. Times

Data on Homes Cause Jitters

“Things are clearly turning down pretty hard” for residential real estate, said Jan Hatzius, an economist at investment firm Goldman, Sachs & Co. in New York. “You’re going to have some payback from this” in the economy overall, he said.

Just how much payback is in store — and how consumer spending may be affected by the downturn — is a matter of growing debate among economists.

Many analysts believe that the economy is strong enough to avoid falling into recession even if housing continues to weaken. “You have to be careful not to exaggerate how much [housing] dampens the economy given that everything else other than the auto sector is doing well,” Federal Reserve Bank of Dallas President Richard Fisher said after a speech Monday.

But the real estate boom of the last decade has been unprecedented in size and scope, which raises the risk that the downside also could exceed forecasters’ best guesses, said Eric Belsky, executive director of Harvard University’s Joint Center for Housing Studies.

After any boom, “there’s a tendency to predict a more gradual unwinding than actually occurs,” he said.
Housing’s troubles pose two main threats: one to millions of jobs directly dependent on the business, the other to homeowners’ willingness and ability to spend if they feel poorer because of the trend in property prices.

About 10 million jobs are tied directly to residential real estate, from construction workers to escrow agents to the clerks at the local hardware store, Goldman Sachs estimates. That’s about 7% of total U.S. employment. Some analysts believe the total is closer to 10%.

Soaring job growth in construction, real estate sales, mortgage lending and related businesses helped buoy otherwise anemic employment gains from 2001 to 2004 as companies hired to meet the spectacular appetite for homes.

Goldman Sachs estimates that the housing sector nationwide could shed 1.5 million to 2 million jobs over the next several years as the industry retrenches. The result could be to reduce total U.S. employment growth to a monthly average of 100,000 jobs in 2007, from an average of 150,000 a month over the last three years, the firm said.

This entry was posted in Economics, Housing Bubble, National Real Estate. Bookmark the permalink.

20 Responses to Chicken (Jobs) or the Egg (Housing)?

  1. X-Underwriter says:

    A cousin of a cousin worked over at Toll as a project manager for the last few years. He just got the pink slip last week

  2. James Bednar says:

    From Marketwatch:

    Food for thought

    Just when you thought it was safe to stop worrying about inflation, along come higher food prices to change your mind.
    Nowadays, lots of attention is being paid to falling energy prices and their impact on the overall price level. With the price of crude oil slipping below $60 a barrel on Monday, down from over $75 less than two months ago, many pundits, politicians and the press are hoping that the Federal Reserve will soon declare victory over inflation and start cutting interest rates.
    Not so fast. There’s a little matter of rising food prices that needs to be reckoned with. And, as you know, food is every bit as important as energy.
    The Commodity Research Bureau reports that spot prices of foodstuffs have jumped 14% over the past six months; 8% since June alone. At the wholesale level, prices of finished foods rose at an annual rate of nearly 17% in August, according to the Bureau of Labor Statistics, while retail prices of meats, poultry, fish, eggs, fruits and vegetables went up at more than a 12% annual rate last month.

  3. metroplexual says:

    To add to this story, I read that the other big employer other than government over the last 5 years has been healthcare. So job growth has been primarily in stuff we don’t export. Any wonder there is a growing trade gap.

  4. njresident286 says:

    More from the inflation front:

    Health insurance jumps twice inflation rate
    Study: Smallest increase since 1999, but costs up 78 percent since 2000

    Altman said the rising gap between premium growth and wages is particularly startling when one takes a longer look back. Since 2000, health insurance premiums have gone up 78 percent; wages 20 percent.

  5. anon says:

    the fed ignores inflation in my opinion. the cpi is measuring socks and paper clips. housing, healthcare and food are our biggest expenses and the fed doesnt measure these things

    the cpi formula is changed with each new president. if we went back to the first Bush’s formula and used it today inflation would be %6-7.

    the fed’s real target was housing.

  6. anon says:

    you posted a study from rutgers saying the projected economic growth for NJ was %.06
    was that forecast including job loss in the housing sector?

    with the midwest facing mass auto layoffs and in local recession already a weak forecast for nj how does the rest of the nation seem? is there any strength besides financial market?

  7. SAS says:

    anyone know why HOV is up 4.5% today?

    These home builders have picked up a little as of late.


  8. njresident286 says:

    SAS –

    dead cat bounce. People think that they home builders have hit bottom and can only go up from here.

  9. chicagofinance says:


    “Dead cat bounce” is not the correct description. That would imply buying and price action due to shorts that are covering.

    Instead, Lennar came out with bad numbers, but above priced in info [if not expectations]. Jim Cramer is out there saying the worst is over for this sector and there is nowhere to go but up. The new buzz [based on the NAR propaganda] is that sellers have finally “gotten it” and are dropping their asking prices. Throw in a bond market rally and mortgage closer to 6% and presto, you have a thesis to buy.


  10. James Bednar says:

    I think the volatility on some of these is the interesting story.


  11. SAS says:

    That Jim Cramer is so full of s**t.

    I forgot about the Cramer effect and how it can move things.



  12. twice shy says:

    in terms of the home builders bounce,
    I would add today’s rising consumer
    sentiment, falling gasoline prices and
    the expectation of a soft landing
    for housing.

    caveat emptor indeed.

  13. MJ says:

    So how has the income grown since 1995, doesnt it grows faster then inflation?

  14. d2b says:

    The inflation information is interesting. I have been saying that inflation has been under reported for years.

    It seems like there are so many ways to manipulate numbers. Politicians can always find a person or study that will view the world through rose-colored glasses. Everywhere you turn they use ‘seasonally adjusted numbers’.

  15. BC Bob says:

    H-Builders, sell the rumor buy the news.

Comments are closed.