by Calculated Risk on 2/16/2005 01:35:00 AM

Earlier I posted a bullish analysis on housing from the NAR and a cautionary report from the FDIC that expressed concerns about credit quality and excessive leverage for many homebuyers.

NAR President Al Mansell claims that "the population is growing faster than the supply of homes". However this is somewhat contradicted (in the short term) by the Housing Vacancies and Homeownership data from the Census Bureau. This data shows that an extra 800K rental units are available nationwide (above the normal percentage for the last 20 years). This increase has happened during the last 3 years. For other reasons, another 700K housing units are sitting vacant above the normal percentages. These are included in "bought but not occupied yet" and "other vacant" categories. Could this be speculation? Regardless of the reason, this suggests overcapacity in the housing market in the short term.

What about jobs?

If we have a RE slowdown, it will probably have a significant impact on employment and aggregate income. From the following chart, we see that we have added 200K jobs in the mortgage industry alone in under 4 years. The mean salary (according to the BLS in 2001) was $45,380 for the mortgage industry. If we lost those jobs (returning to pre-2001 employment levels), we would lose $8 to $9 billion in aggregate annual income ... just from layoffs in the mortgage industry.


Thanks to ild and Elroy for the chart. 

For RE agents, California alone has added 99,281 licensed RE agents since July 2000. Many of these agents only work part-time, but that is still a substantial loss of income if RE volumes drop 30 to 40% - like a typical RE slowdown.

And then there is the residential construction industry. Many of these jobs are reasonably high paying - and we have added over 300k construction jobs since 2000. And that figure doesn't include the impact of illegal immigrants working in the construction trade. When these immigrants lose their jobs, their lost income will also ripple through the economy.

We could add other potential lost jobs to this list: like service jobs in escrow, title, home inspection, and many other jobs on the periphery of RE. These are just the jobs directly impacted by a slowdown.

There are also the secondary effects (the vendors for the above businesses) and the tertiary impacts (restaurants, retailers, etc.) that suffer as aggregate income falls.

The bottomline: a significant RE slowdown would have a serious impact on employment and the economy.