by Calculated Risk on 10/07/2015 10:43:00 AM

From Adam Ozimek at Moody's Analytics: Labor Market Gains Not Sparking a Single-Family Housing Recovery

The unemployment rate is marching ever lower, and the economy is approaching full employment, but still single-family housing is lagging. This is prompting some to wonder, what will it take to turn things around?

One suggestion is that once unemployment falls low enough we’ll see the long-awaited single-family housing recovery. If this were true, one would expect that metro areas with already-lower unemployment would be seeing a single-family turnaround.

To test this theory, metro areas were ranked by their August unemployment rate compared with their historical average. Around 43% of metro areas have an unemployment rate lower than the 2000 to 2004 average. The 25 that are doing the best are concentrated in Texas, California, and states in the Northwest. Austin TX has the lowest relative unemployment rate. In August, the unemployment rate there reached 3%, which is 62.3% of the 2000 to 2004 average of 4.8%.

The average unemployment rate in these 25 metro areas is 3.9%, compared with 5.6% for these same areas in 2000 to 2004, and 5.1% for the total U.S. today. In other words, employment is looking healthy in these metro areas compared with historical averages and the U.S. overall.
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However, even in these 25 metro areas, single-family housing permits remain significantly below historical levels. This suggests that even where unemployment has fallen to historically low levels, it has not been enough to boost single-family permits.

CR Note: I think single family is lagging for several reasons:

1) the builders had limited entitled land following the bust, so they built fewer but higher priced homes. The data on New Home prices supports this.

2) in some areas, there is still competition from foreclosures (Judicial foreclosure areas like Florida).  However Ozimek focused on areas that have recovered, so this doesn't explain his findings.

3) and there used to be quite a bit of financing available for first time homebuyers - many of these programs are gone.

There is much more in Ozimek's article.