by Calculated Risk on 5/02/2006 06:20:00 PM

From CNNMoney: Working on the housing boom. The sector is cooling, finally. Now, a debate is raging over whether the employment market will prevent a implosion.

Experts who say the housing market is cooling, but won't implode, argue that solid job growth should be enough to prevent a collapse in home prices. But others who see a housing "bubble" ready to pop say a developing slowdown in home building itself could hurt job growth enough to put a big dent in housing.

And as if on cue, Ameriquest Parent to Lay Off 3,800 Workers. Back to the CNNMoney article:

Recent government figures show that about 1.5 million homes were vacant in the first quarter, most of those presumably up for sale, a 17 percent increase from a year earlier. ...

"When you see it increasing quarter after quarter, there seems to be something going on here," [Dean] Baker said. "We're building more homes than are being filled."

Among those most worried about the real estate market are home builders themselves. The National Association of Home Builders saw its index of builder confidence sink last month to the lowest level since 1995, save for two months right after Sept. 11.
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But some economists say that while housing will cool as mortgages continue to rise, home sales and prices won't collapse, due mostly to strength in the job market.
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"Our experience says prices do not go down when there's job creation in the local economy," said [Lawrence Yun, senior economist for the National Association of Realtors] "In local markets where they are flat on jobs, they could see prices decline. But we're projecting 2.3 million new jobs this year. The job market is providing a buffer. It's a counter force to rising rates."

So far job growth is cooperating.
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But the experts who see a possible meltdown say strong employment isn't enough to support an overinflated housing market.
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Past housing downturns have seen builders slash their work forces by up to 40 percent, said Baker, the housing market bear, and with an estimated 3.5 million people working in residential construction, the loss of more than 1 million jobs would obviously cause problems for the labor market.

Add job losses at mortgage firms, building supply retailers and real estate agencies and the downturn in home building could itself further weaken one of the key supports for real estate.

One of those worried about just that is James McShirley, owner of Sulphur Lumber near Indianapolis. He's already laying off staff and not filling open positions due to a slowdown in orders from his builder clients.
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McShirley said when he sees his clients cutting staff, and a local mortgage broker with 100 employees go out of business, he grows more worried.

"Those people losing their jobs are the classic home owners. This could be a vicious circle," he said.