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The Housing Sector and Employment in the United States

The health of the Housing Sector in the United States is hugely important to its economy. The Housing Sector does not only include the construction of new homes but also everything that feeds off that activity such as timber and building materials supply, furniture manufacturing, appliance manufacturing, carpet and home décor manufacturing and even banking. Importantly, the Housing Sector and related industries are major employers and there is a very close relationship between the state of the Housing Sector and the level of employment in the US.

America needs about 1.5 million new homes every year. The main driver of demand for new housing is immigration into the US of about 1.3 million households annually. As can been seen in the aricle below (see PDF), for a number of years prior to 2008, America added more housing units than households and inevitably ended up with far too many units (an estimated 2.2 million excess units).

In the early 1980s, Housing Starts dropped well below the required 1.5 million units and as a consequence the Unemployment Rate rose to almost 10%. By the mid-1980s, Housing Starts recovered to well above 1.5 million units for a few years and the Unemployment Rate dropped down to 5.3%. During the early 1990s, Housing Starts again dropped to below 1.5 million units per annum and the Unemployment Rate increased to 7.5%. We then had a decade of Housing Starts above 1.5 million units and the Unemployment Rate dropped to 4.0%. During the early 2000s we had the burst of the IT bubble and the 9/11 terrorist attacks, which caused a mild recession in the US and the Unemployment Rate increased to 6.0% before dropping back to 4.6%. With the burst of the housing bubble in 2007, Housing Starts decreased to about 550 thousand per annum in 2009 and 2010 and the Unemployment Rate increased to 9.6% by 2010. With the recent improvement in the Housing Sector, the Unemployment Rate has been steadily declining over the last two years.

After six years of waiting on the sidelines, new home buyers across the United States are now discovering that there are not enough houses for sale to accommodate the recent increase in demand. Home builders are scrambling to ramp up production to meet this pent-up demand, which bodes well for the unemployed in America as the housing upturn looks set to continue. It is quite feasible that once Housing Starts get back to 1.5 million units per annum, the Unemployment Rate will drop to below 6.5%. An improved jobs market in the US combined with a much healthier Housing Sector will lead to higher consumer and business confidence. This, together with a manufacturing renaissance and significant growth in the energy sector, bodes well for the US economy over the next decade.

Disclaimer

The information contained herein is of a general nature and does not take into account the reader’s particular needs, circumstances, financial circumstances or preferences. It is a guide only and based on current legislation. We believe the information contained in this update has been obtained from reliable sources but we cannot be responsible for any errors, omission or inaccuracies. You should seek professional advice before acting on the information in this update.

Please contact your Intralink Wealth Management adviser, on (03) 9629 1100, if you require any clarification or further information regarding this update.

Download The Housing Sector and Employment in the United States pdf

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