Job Growth Too Slow for Housing Recovery
NEW YORK (TheStreet) -- The recovery in housing is helping create jobs in the economy but anemic growth in overall employment is doing little for prospective homebuyers.
According to Trulia economist Jed Kolko, the latest July jobs report shows residential construction employment was up 4.5% year over year, outpacing national employment growth of 1.7%.
But the report also showed that young adults in the age group of 25-34 years are still struggling with unemployment. The employment rate in this category is 75%, well below the pre-bubble normal rate of 78%-80%.
Unless employment picks up in this category, first-time homebuyers will remain absent from the housing recovery.
First-time homebuyers accounted for just 29% of home purchases in June, according to the National Association of Realtors (NAR), down from 32% a year ago. Historically, their participation rate has been close to 40%.
These homebuyers are viewed as fundamental to the health of the housing market. Their demand allows existing homeowners to "trade up," thus fueling greater housing turnover.
Tight credit is one reason why these buyers have not been able to participate in the housing recovery. Lack of confidence about jobs and the economy is another.
Kolko estimates that there are approximately 2.4 million "missing households" -- people who should be renting or buying but instead choose to live with parents or under the roof of someone else.
"Not only are young people not buying homes; they're not even renting," Kolko wrote in a recent post. "Household formation is the most important indicator of the housing recovery that ISN'T making great strides," said Kolko.
Kolko also noted that job growth in "clobbered metros" -- those hardest hit by housing -- is still trailing behind the rest of the country, as June's metro jobs data reveals. Year-over-year growth is slowest in Detroit, which filed for bankruptcy recently. It is also very slow in Riverside-San Bernadino in California and Miami.
These cities are trapped in a downward spiral, where a housing bust has dragged the economy lower and the lack of jobs is adding further pressure to housing.