“Encompassing everything from land surveyors to general contractors to loan officers, the sprawling sector has added 700,000 jobs to the nation’s payrolls over the last four years, according to an analysis by Economy.com, a research firm.
Combined, the rest of the economy has lost nearly 400,000 jobs over the same span, which stretches back to the start of the most recent recession, in 2001.
For all its benefits, the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years. Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy’s largest single sector, slightly bigger than the industries and services that supply health care, according to Economy.com.”
A separate study by Northern Trust Company came to similar conclusions. From November 2001-April 2005, employment in housing related industries comprised 43.15% of total private employment gains. Starting in June of 2004 – when the Federal Reserve starting raising interest rates – and continuing to April 2005 – the percentage of housing related industries to total private sector payrolls was 13.68%. This is a statistically significant decrease, meaning it’s magnitude is problematic.
Just to throw fuel on the fire, there are numerous articles speculating the US currently has a real estate bubble. According to a May 2 FDIC report titled US Home Prices: Does Bust Always Follow Boom?, some 63 markets are currently experiencing a real estate bubble, which the report defines as market appreciation over 30% over the preceding 3 years. In other words, the domestic US economy’s primary engine of job growth is in a speculative period of asset appreciation.
Starting in 2000, the US has lost 2.5 million manufacturing jobs. Some of these losses are due to productivity increases, but certainly not a large proportion. As a result, the US is simply not making other products that would add necessary diversity to the economy. This diversity would limit the impact of a decrease in real estate prices.
Tying all these facts together, we arrive at a very dangerous situation. The US economy is a one-trick economic pony that literally is involved in real estate development to the exclusion of other economic sectors. As I have said before, I am all for real estate, but not to the exclusion of other industries. And right now, other industries are not involved with the current economic expansion.
When the housing bubble pops, we could be in for a world of hurt.
northerntrust.com (PDF file)
in the early 80’s when the oil and gas industry took a hit. It was ugly……..really really ugly!
Wasn’t that the old example from economics: Dutch Disease – where the entire economy becomes dependent on a single resource or asset. Most Persian Gulf countries have their entire economic development built on top of oil revenues (without oil and associated revenue – all other economic activity dries up).
Those are some pretty scary statistics in your diary!
Anyone know about the effects of the bubble bursting? I mean, that’s what bubbles do right?
So if I live in an area that is relatively immune to the bubble’s effects…since it’s an armpit, mostly…and the bubble bursts–should I expect there to be an economic spillover effect or is that not possible? And what should I expect if so?
I remember reading way back the Greenspan said that since housing markets were highly regional, it was impossible to have a nationwide ‘housing bubble’. As usual I think he’s full of crap but then I don’t know from economics. I just don’t like the guy. 🙂
because there really isn’t a bubble where I am either because it also is kind of a pit. I do wonder though how it will affect where I live right now.
Amongst the risks are: major bank failures, CMO (collaterialized Mortgage Obligation – bonds backed by home payments) default, dramatic increase in unemployment, reduction in economic activity as consumers discover they have to pay for all that crap they’ve been buying, foreclosures up the wazoo, increase of Federal, state, and local deficits, even less money going into the education system, dogs and cats living together … the usual.
seriously,
in general you are right. However, the severity depends on so many factors that I am uncomfortable with making major predictions.
… the severity depends on so many factors that I am uncomfortable with making major predictions.
So am I and that’s why the semi-humor.
I read an article recently that suggested it’s not a bubble, it’s the effect of several factors that include demand overstripping supply and won’t change any time soon. I’m no economist but the supply/demand argument was fairly persuasive to me. Sure looks like a housing shortage in my neck of the woods. What do you make of this?
I live in an area that has undergone intense gentrification in a relatively short period, pushed by astronomical prices in nearby Santa Monica.
In what used to be a neighborhood of writers, artists and bohemians, there is now a crop of film/television people and lawyers. Not only are they paying top dollar, they still have money for improvements, remodeling, landscaping, etc. The economy has been very, very good to some segments of the population, and others have to fight to expand homeless shelters to accommodate the growing need. I have friends who have been priced out of Venice, and West Los Angeles by the outrageous rents.
Yes, there is a lot of money in construction and improvements in our neck of the woods. Expensive tile and stone stores are in the area, upscale nurseries, furniture stores. The funky beach cities are gone.
Also, Los Angeles County has had no virtually no increase in jobs in the last 10 years, while population has grown. I can’t give a link since it is from economic research that my husband does on his own – retired analyst from CA EDD Labor Market Information Division.
I can actually watch the line of defunkification moving outwards from Seattle, especially on lands with direct access into town.
As one who’s been downsized from gentry to bohemian, I’m presently renting a pre-renovated shack that I could have bought with our artistic income when we arrived 5 years ago but which after we move on will sell as a 3rd summer house to someone in the McMansion class.
Purchase prices are plateaued, but the rental market is is slagging. After steady 6-8% increses, I just negotiated a renewal back to the 2001 rate.