Actionable insights straight to your inbox

Equities logo

Unemployment Recovering But Housing Lags

The United States has tacked on 200,000 new jobs in the last month according to a Labor Department announcement on Friday. The robust growth is being taken by some market watchers as a tangible

The United States has tacked on 200,000 new jobs in the last month according to a Labor Department announcement on Friday. The robust growth is being taken by some market watchers as a tangible indication of an economic recovery. The decline of the nation’s unemployment to 8.5 percent is certainly a step in the direction but a full recovery is far from near. One major area of the economy, housing, remains stubbornly unmoving and is expected to continue to fall this year.

The housing market has been predicted to bottom in 2012.  Loans, especially for large purchases remain elusive. Values continue on a steep decline and those homeowners who chose to wait out selling in 2009 or 2010 are surely regretting their decision as the state of the housing market continues to decline.

The likelihood that the increase in unemployment will drive housing is also unlikely. It still stands that the large majority of jobs being added to the economy are in low paying fields, like retail and hospitality; jobs that for the most part do not inspire a sense of stability strong enough to consider buying a home.

The Federal Reserve recognizes this disparity, or at least New York President William Dudley does. In a speech requesting a handful of policy actions to aid the housing market today, he discussed the disparity between the unemployment picture and the housing market.

“Because the outlook for unemployment is unacceptably high relative to our dual mandate and the outlook for inflation is moderate, I believe it is also appropriate to continue to evaluate whether we could provide additional accommodation in a manner that produces more benefits than costs, regardless of whether action in housing is undertaken or not,” he said.

The Fed has been working to provide aid to the economy, as evidenced by the continued low interest rate, but a lack of cooperation between monetary policy and housing policy continues to weigh on the recovery. The interruption between the two is being cited as a primary reason why the housing market seems to be well behind the rest of the economy in picking up.

“Implementing such policies would improve the economic outlook and make monetary accommodation more effective,” Dudley said.

It may take more than policy to revive the housing market though. Americans are also reticent to begin buying in the tenuous economy. Having been burned once and facing threats of a potential European collapse that could shake the global economy, now hardly seems the time to make one of the biggest ticket purchases a person can make. Simultaneously, as mentioned above, the jobs the American economy is adding do not allow the necessary savings to pay a down payment in the current economy.

There’s also the added factor that people are delaying having children,  a huge driver for purchasing a house. According to recent Census results, the U.S. population is growing at its slowest rate since the mid-1940s.

“I don’t foresee a youth boom anytime soon,” said William Frey, demographer at the Brookings Institution, who analyzed the new estimates in a piece in USA today.

Thirty-six states demonstrated declines in the number of young residents. The combination of the economy and depressed housing market are encouraging people to delay having children until they are able to offer them greater financial stability.

Americans are likely to remain unsure about the state of the U.S. economy until housing recovers, creating a cyclical challenge to the market. The unwillingness of Americans to purchase a house in an economy that is only half way on its way to a recovery will continue to suppress the other portion from rising up from the ashes.

A weekly five-point roundup of critical events in the energy transition and the implications of climate change for business and finance.