The jobs report released on April 6th, posted much lower than expected numbers. After February numbers had managed to reach the 200,000 mark, it was assumed (there’s that word again), that the March report would indicate a job market that was beginning to show signs of life. But instead, the report was a disappointing 120,000 new jobs – well below general expectations.
But the general jobs report demonstrates only part of the issue. According to detailed analysis by the Federal Reserve and the Bureau of Labor Statistics, there is a link between the weak job growth and the loss of construction jobs, which accounted for 5% of all U.S. employment in 2005.
According to the BLS report, residential construction accounted for approximately 7.4 million jobs in 2005. By 2008, due to falling demand in home construction, this number had already dropped to about 4.5 million. That is a loss of 2.9 million jobs in 3 years, or about 80,555 jobs lost per month, just in the residential construction sector.
These jobs were concentrated in the states that also saw the best and worst of the housing boom and bust. Arizona, California, Georgia, Florida and Nevada top this list. It’s no accident that those states are among the top ten in foreclosures, and unemployment rates. Residential and commercial construction were a very significant portion of the job base. And those lost jobs have also translated into lost incomes, more foreclosures and falling demand from home buyers.
It’s a downward spiral of fewer jobs leading to more foreclosures and fewer home sales. At the same time, these specific areas are not seeing significant increases in rental rates, due to the higher unemployment. And these areas have more than their fair share of the 88 million people who are now counted as out of the employment market and are simply no longer looking for work.
The most recent jobs report cited some small growth in professional services, hospitality, and health care. Construction jobs were not significant and cited no change from one year ago. The unemployed and underemployed combine to account for roughly 20 million people. This total, along with the 88 million who are no longer counted in the work force is a loss of 100 million people who have lost some or all of their income from working. These are big numbers to overcome from the standpoint of creating jobs and the demand for housing that accompanies significant job growth.
Interestingly, the job studies cited above also noted that demand for homes had fallen in the boom/bust areas, as many of the people who had been attracted to these areas for the construction jobs during the boom years, had since moved on, further reducing demand for the existing housing stock.
But for other parts of the U.S. the picture is totally different. Energy production is driving an unprecedented housing and construction boom in parts of North Dakota and Oklahoma. Wyoming is also seeing very stable to growing home pricing, due to demand created by the higher paying energy jobs in places like Cheyenne. These cities were not dependent on construction jobs during the housing boom, but they are experiencing their own housing boom today. In these areas, employment is 100% with many jobs going unfilled.
The resulting demand for housing is creating an influx of people from other parts of the country looking for construction jobs. The oil boom would seem to be a pretty good bet, so perhaps those areas won’t fall victim to a short boom / bust cycle, but if energy prices were to drop significantly – (not likely) – these areas could bust just as quickly.
At the end of the day it’s about the market fundamentals and how they are impacting a given local market. The housing boom states that were heavily dependent on construction jobs to boost employment and create demand for housing are suffering under bad fundamentals that include higher unemployment, high foreclosure rates, falling property values, and too much vacant inventory, with the resulting negative impact on commercial property. While the states benefiting from the increasing energy prices are experiencing rapid growth in jobs and population, leading to more demand for housing and rising housing prices.
In most areas, healthcare, and hospitality, food and drink are adding jobs. Even in states that were negatively impacted by the loss of construction jobs, those areas with concentrations of jobs in healthcare and higher education are still more stable than the general market around them. Real estate is a very localized business at it’s core, and it’s all about the local fundamentals in the immediate area.
Donna S. Robinson is a 16 year veteran of the real estate industry, and is a staff writer for Realty Biz News. Visit her website at www.RealtyBizConsulting.com to join her email list.