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U.S. Housing Market Recovery Dependent on Jobs Growth, Harvard Report Says
Job growth will be the key factor in whether the U.S. real estate market can extend a recovery after the end of the federal homebuyer tax credit, according to a Harvard University study.
High unemployment is fueling the foreclosure crisis and discouraging the household formation that drives property demand, according to the State of the Nation’s Housing report issued today by Harvard’s Joint Center for Housing Studies. The weak labor market resulted in people “doubling up,” or sharing residences, rather than buying their own home, the report said.
“What happens with jobs will matter the most to the strength of the housing rebound,” said Eric Belsky, executive director for the center in Cambridge, Massachusetts. “If employment growth surprises on the upside or downside, housing numbers could too.”
The U.S. unemployment rate dropped to 9.7 percent last month from 9.9 percent in April, the Labor Department said June 4. For all of 2010, it probably will be 9.6 percent, the highest for any year since 1983, according to the average estimate of 82 economists polled by Bloomberg.
The homebuyer tax credit of as much as $8,000 required buyers to have a signed contract by April 30 and close on a property by July 1. The credit resulted in 1 million additional home sales between February 2009, when it began, and its expiration this year, according to Lawrence Yun, chief economist of the Chicago-based National Association of Realtors.
Consumer confidence now needs to improve for the market to sustain itself, he said in an interview. The percentage of consumers who planned to buy a home in the next six months fell to 1.9 percent in May after touching a seven-month high of 2.8 percent in March, the New York-based Conference Board said in a report last month.
‘Self-Fulfilling Prophecy’
“It comes down to whether consumers perceive that the market has bottomed or if they continue to wait,” Yun said. “If they wait, it pushes the market down and becomes a self- fulfilling prophecy.”
Mounting foreclosures are another headwind for a real estate recovery, according to the Harvard report. There were 2.1 million loans in the foreclosure process in the first quarter, almost quadruple the number from three years ago.
“The foreclosure trend is going to get worse before it gets better,” Thomas Lawler, an independent housing consultant in Leesburg, Virginia, said in an interview. “The biggest risk for housing is that you’ll see more foreclosed homes hitting the market and not have an offsetting rebound in household formation triggered by a recovering jobs market.”
To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.
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