Friday, April 13, 2012

THE ECONOMY: Real Estate Outlook: Labor Market Improvements

The health and recovery of the real estate market is closely related to the health of the labor market. This much has been seen since the beginning of the recession and continues today.

Federal Reserve Chairman Ben Bernanke spoke last week on this subject at the National Association for Business Economics Annual Conference in Washington, D.C.
Will the labor market continue to improve or are the recent declines in the unemployment rate simply a temporary respite from an otherwise struggling jobs market?

He noted that job creation has seen an uptick recently and layoffs in the public sector are moderating. He also made clear that today's job market may have seen improvements, but it is weak in relation to historical normal.

"The positive signs from the labor market have shown through to measures of labor utilization," he said. "After hovering around 9 percent for much of last year, the unemployment rate has moved down since September to 8.3 percent in February, and the share of employment represented by people working part time for economic reasons, an indicator of underutilization, has declined modestly."

The real question on most homeowners minds, however, is whether or not the recent improvements will lead to further declines in unemployment. The answer to continued labor market rises: more-rapid economic growth. 

"A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed.  Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks, even without adjusting for growth in the labor force," he said.  "Moreover, we cannot yet be sure that the recent pace of improvement in the labor market will be
sustained." This means keep tuned, the market could have a few surprises left up its sleeve.

Pending homes sales continued to struggle as well, falling by 0.5 percent for the month of February. This rate is above February 2011 by a healthy 9.2 percent and leads us into a more hopeful Spring season.

Lawrence Yun, NAR chief economist, said we're seeing the continuation of an uneven but higher sales pattern. "The spring home buying season looks bright because of an elevated level of contract offers so far this year," he said. "If activity is sustained near present levels, existing-home sales will see their best performance in five years. Based on all of the factors in the current market, that's what we're expecting with sales rising 7 to 10 percent in 2012."

Regional activity was mixed. The Northeast fell 0.6 percent, but is a whopping 18.4 percent above year ago levels. The South fell 3.0 percent and the West decline 2.6 percent. The Midwest, however, saw a large 6.5 percent jump in pending home sales and is now 19.0 percent above February 2011.

Finally, mortgage applications last week decreased. They were down 2.7 percent from the week prior. The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey found that the refinance share of mortgage activity was down to 71.9 percent, a considerably decline from the months prior.

This could be due to the recent rise in interest rates -- a response to higher bond yields

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