We have received some good news over the past few months regarding employment growth. The creation of jobs is the most important function of the economy. When people can find jobs, this creates confidence. When people are secure in their jobs they tend to spend more. This includes large purchases such as houses and cars. Of course, the real estate sector is another huge factor within our economy. So, the next question is--how good are the job numbers? Here is the good news, May represented the fourth consecutive month of jobs gains over 200,000 and that is the first time that has happened since 1999.
On the negative side, the labor participation rate was 62.8%, which was unchanged from April. This is the lowest rate in decades. We do understand that this number is affected by the number of people retiring and with baby boomers aging there are record numbers retiring. But it is also affected by the fact that the population has been growing. A few weeks ago, we pointed out that the population growth of our country may be poised to present us with a housing shortage in the future. Well, it also means that we must create more jobs than ever before and that has not happened yet.
We lost 8.7 million jobs during the recession. Again, the good news is as of May these jobs have been recovered over the past four years. That is a rate of approximately 180,000 jobs per month. We are now creating jobs at over 200,000 per month. If we can create jobs at a rate of 200,000 to 250,000 per month this would appear to help us catch up with population growth in a few years and lower the unemployment rate further. We believe as more people obtain gainful employment, they will spend more money and this will spur housing and other sectors of the economy which will create more jobs. That is what a virtuous cycle is all about and that is why this "200,000" number is so important. When the Fed meets starting today, you can be sure that these employment numbers will get a lot of attention from the members of the Federal Open Market Committee.
Declines in home values
experienced during the recession have already been, or are close to being,
erased in almost 20 percent of metro housing markets nationwide as values
continue to rise, according to the first quarter Zillow Real Estate
Market Reports. U.S. home values climbed 5.7 percent year-over year in the
first quarter, to a Zillow Home Value Index of $169,800. Home values nationwide
rose 0.5 percent from the fourth quarter of 2013, the ninth straight quarter of
increasing home values. U.S. home values are expected to rise another 3.3
percent through the first quarter of 2015, according to the Zillow Home Value
Forecast. Nationally, home values remain 13.5 percent below their 2007 peak,
after falling 22.6 percent during the recession before bottoming in 2011. But
the housing recession is almost entirely in the rearview mirror in 1,080 of the
more than 8,700 cities and towns covered by Zillow, with home values already at
or expected to reach pre-recession levels in the next year, including in many
hard-hit areas. Among 6,781 cities and towns that experienced home value
declines of 10 percent or more during the recession, values in 527 have either
fully recovered or are expected to recover fully by the first quarter of 2015.
"The lows of the housing recession are becoming an increasingly distant
memory as home values reach new highs and homes become more expensive than ever
in many areas. This is a remarkable milestone coming only two and a half years
after the end of the worst housing recession since the Great Depression, and is
a testament to just how robust this housing recovery has been," said
Zillow Chief Economist Dr. Stan Humphries. "So far, this steady
appreciation has not created affordability issues in the majority of places.
But there are a handful of markets where affordability is again a challenge,
even with interest rates incredibly low." Source: Zillow
Americans have
renewed confidence in real estate as a great investment. In fact, Americans
believe real estate is the “best” long-term investment, followed by gold,
stocks, mutual funds, savings accounts/CDs, and bonds, according to a new
Gallup Poll of about 1,000 adults who were asked to choose the best option for
long-term investments. Bonds were the least favorite investment among the
options Gallup surveyed. In 2011, Americans surveyed said the most popular
long-term investment was gold. That also marked a time when gold was at its
highest price and real estate and stock values were lower than today, Gallup
notes. “With housing prices improving across the country, Americans are regaining
faith that real estate is the best choice for long-term investments,” according
to Gallup. “Home ownership is also associated with views of real estate as an
attractive investment opportunity.” Americans with higher incomes are the most
likely to say real estate and stocks are the best investments – “possibly
because of their experience with these type of investments,” according to the
Gallup poll. Higher income Americans are most likely to say they own their home
(at 87 percent), followed by middle-income earners (at 66 percent) and
lower-income earners (36 percent) Home owners are slightly more likely than
renters to say real estate is the best choice for long-term investments – 33
percent versus 24 percent, respectively, according to the Gallup poll. Source:
The Gallup Organization
There was a time
during the Great Recession when it looked like Americans were rethinking our
mega-homes, reining in our budgets and ambitions and love of the three-car
garage. Clearly, that moment has passed. Census data released recently on
the characteristics of new single-family housing construction confirms that the
median size of a new pad in America is bigger than it's ever been. In 2013, the
median size of a new single-family home completed in the United States was 2,384
square feet. That median is above the pre-crash peak of 2,277 square feet in
2007, and it dwarfs the size of homes we were building back in 1973 (median
size then: 1,525 square feet). Historically, this trend actually runs counter
to another demographic pattern: Our homes have been getting larger as
our households have actually been shrinking. So the long-running American
appetite for ever bigger homes can't be explained by the need to fit more
people into them. What, then, do we want all of this room for? What's
particularly striking in the Census Bureau's historic data on new housing
characteristics is the growth of what would be luxuries for many households:
fourth bedrooms, third bathrooms, three-car garages. Notably, demand for all
three dipped during the recession in parallel to the trend line above. These
numbers are not a reflection of all U.S. housing stock. Rather, they reflect
only trends in new construction, and only new construction among
single-family homes. Right now, high-end homes are driving new
single-family construction. And so perhaps these numbers will scale back
some as the housing market continues to recover for families who can only offer
smaller down payments and have dreams of more modest homes. Source: The
Washington Post
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