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Employment Key to Economy and Housing


Last week we talked about the many varied predictions regarding the economy for 2012.

It makes sense that the next question will then be: What factor will be most important with regard to which prediction turns out to be correct?

We can answer that question in one word: employment.

There are many factors helping the economy right now. Companies are sitting on cash, debt levels of consumers have lessened in the past several years and consumer confidence is rising.

There are factors holding the economy back right now, as well. These include the debt crisis in Europe and the shadow inventory hanging over the housing market.

However, the one factor that could override all these others is employment. Employment is improving, but the unemployment rate remained stubbornly high as we closed out 2011.

The economy added 200,000 jobs in December and 1.6 million jobs for all of 2011. Definitely, this iss a much better performance than the 940,000 jobs added in 2010 and the improvement needs to continue in order to for the unemployment rate to continue to fall from its current level of 8.5 percent. When you look at the fact that the weekly first-time claims for unemployment have dropped from an average of approximately 650,000 per week in 2009 to under 375,000 at the end of December, this is an indication that there could be more good news on the horizon.

When people have jobs, they purchase homes and other big-ticket items such as cars. We must continue to build consumer confidence, and a better job market is the key to sustainable confidence. Companies have cash, but they will not hire unless they know consumers will stay confident. Any significant decrease in unemployment in 2012 will go a long way toward supporting a stronger economic recovery than most have predicted this year.

Here are two recent news stories to consider:

An improving job picture and prices stabilizing for non-distressed homes are all signs that point to a housing recovery taking shape, Barclays Capital analyst Stephen Kim told HousingWire.

“In the absence of a government home buyer incentives, prices for non-distressed home sales have stabilized for almost a year,” Kim said. “This is the most important trend in the housing industry right now, and we are amazed at how little attention it has been getting from the media and the street. This stability on the part of nondistressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.”

The key to when the housing recovery will largely take off “depends primarily on when these first-time buyers decide it is safe to buy a house,” Kim told HousingWire.

Source: HousingWire

The multifamily market continues to post gains.

“Rents are rising, vacancies are falling, household formations are growing and rental supply is limited,” according to a recent report, “2012: The Year of the Landlord,” issued by Morgan Stanley. “We believe the demand for rental properties will continue to grow.”

Vacancies of rental properties dropped to 9.8 percent in the third quarter of this year compared to 10.3 percent earlier this year. Led by strong gains in multifamily housing, groundbreaking for new-housing market soared 9.3 percent in November. Construction of multifamily homes of at least two units increased 25.3 percent in November, the Commerce Department reported last week. Starts for structures with five or more units have increased more than 30 percent from October and is nearly double year-over-year levels, Reuters reports.

Rental costs are also on their way up, increasing 2.4 percent over last year compared with an increase of 0.6 percent in 2010, Reuters reports.

– Source: Associated Press