While the nation has regained all the jobs lost during the recession, the home building sector clearly hasn’t done its part, as the government jobs data released Friday show.
When the government tracks construction jobs, it looks at everything from building homes to building roads. A dive into the home-building portion of the data shows that the number of construction jobs has been climbing, rising about 7 percent to 2.6 million in May from a year earlier, when electricians and other speciality trade contractors are added. But that's way down from the high of 3.45 million in April 2006, the housing market’s frothy days.
Jed Kolko, chief economist for Trulia, put the numbers into context this way: While jobs overall are back to their pre-recession peak, residential construction jobs are 34.5 percent below their peak.
Even if the specialty contractor jobs are stripped away, the residential construction jobs are still way off, almost 27 percent down from the peak, according to a Freddie Mac analysis.
These numbers are just another reminder that housing market, usually a strong contributor to economic growth, is not playing a pivotal role in turning the economy around. Instead, it is relying on the economy to bounce back and household income to rise so that housing can get the oomph it needs to fully recover. The thinking is if income grows, consumers will have more confidence to buy.
“We’ve got the cart before the horse,” said David Crowe, chief economist for the National Association of Home Builders. “Since 2009, the housing market has not been the horse bringing the economy along.”
Here are some of the factors at play behind the numbers.
Builders are reluctant to build
Builders just aren’t convinced that there’s enough demand out there for new homes. Mortgage rates have climbed. First-time home buyers, the bedrock of the housing market, have retrenched. The younger set -- loaded with student debt and struggling with underemployment – may not be able to save for a down payment or qualify for a mortgage as lending standards remain tight. And prices have soared in the last two years, though they’ve moderated in recent months.
All these factors are not inspiring builders to break ground on new homes and to hire more people, at least not for single-family homes. Instead, they’re building apartment buildings that cater to renters. Construction for single-family homes increased just 0.8 percent in April from the previous month. But construction jumped nearly 43 percent for multifamily homes with at least five units, the government reported.
That phenomenon is a drag on construction jobs. Every 1,000 single-family homes built create roughly 3,000 jobs, according to the National Association of Home Builders. By contrast, every 1,000 multifamily units built generate 1,000 jobs.
Crowe noted that the builders who survived the downturn by nature are more conservative. “They’re not going to expand their businesses until they feel the market is solidly back,” he said.
A lot of builders tried to keep their crews employed even during the darkest days of the housing crisis. They learned from past boom-bust cycles that it’s tough to bring back employees once a crisis passes, Crowe said. Many builders are also small, family-owned operations that have long-term relationships with their workers, and they’re loathe to let them go, he said.
But it’s not just about relationships. It’s expensive to hire and fire, said Kolko of Trulia. So builders did lay off aggressively because of the housing bust, but not as much as one might expect given the drop in construction activity.
Even in big impersonal companies, employment levels typically won’t fall as much as sales do if that drop is expected to be temporary. In other words, if demand for a product drops 50 percent, a firm may not lay off 50 percent of its staff. In the home building sector, construction employment didn’t fall as much as construction activity after the housing bubble burst.
Even five years after the housing meltdown, a sizeable chunk of homeowners remain underwater, meaning they owe more on their mortgages than their homes are worth.
About 6.3 million homes, or 12.7 percent of all properties with a mortgage, were underwater as of the first quarter, according to data released this week by CoreLogic, a mortgage research firm. About 1 in 10 homeowners are almost underwater, with less than 10 percent equity in their homes, a recent report from Black Knight Financial Services shows.
That’s millions of homeowners who can’t move – and buy a new home – unless they bring cash to the table. And it’s another reason that builders are not rushing to build and hire. The builders aren’t confident, and neither are the potential buyers.
A survey released this week by the MacArthur Foundation found that 43 percent of those polled said it is no longer the case that owning a home is an an excellent long-term investment and one of the best ways for people to build wealth. More than half said that buying a home has become less appealing than it once was.
And, perhaps more significantly, 70 percent believe the nation is still in the middle of a crisis and that the worst is yet to come.