Housing Market Needs Strong Employment

The economy is one giant cycle, as money is constantly coming and going for everyone. If the public is not making money, they cannot spend it. The spending cycle will stop and have a direct impact on business owners and employees. If you are investing in real estate, you should always have one eye on current employment data and local employment numbers. If buyers are not confident in the security of their employment or pace of growth in their wages, they will be far less likely to look to buy real estate. On the flip side, if they are making money and feel their job is safe for the foreseeable future, they will look to buy instead of rent.

Employment data released last week showed the lowest unemployment levels since 2008. This is certainly a good sign for the housing market in 2014. However, there is no guarantee that this will equal higher real estate sales or more transactions in the coming year. Many employees, who may not be working, may still be underemployed or working for a reduced salary. The employment numbers are nice, but that alone will not equal more buyers.

When the real estate market took off in 2004, there was a dramatic increase in the number of first time homebuyers. Both newly married and recent graduates took to buying instead of renting. At that time, there were an ample number of loan programs that could be obtained using little or nothing as a down payment. In some cases, even the closing costs could be financed, leaving the buyer to come to the closing needing nothing more than $500. Those days are long gone with FHA loans and 3.5% down payment as the most affordable option. With recent changes to the FHA program, that option is becoming less and less attractive, leaving first time homebuyers looking for alternatives.

It is no surprise that the real estate market has remained sluggish, as the employment numbers staggered along with it. It is only when employment remains strong that the real estate market will truly turn around. Strong employment equals more disposable income that may be spent on housing. Once more buyers enter the market, lenders will want to capture that market share and slowly start to soften their guidelines. They will most likely never go to the levels of 100% financing, but there may be a solid FHA alternative that will work for first time buyers.

In addition to the national employment numbers, always keep your eye on what is going on locally or in your investing area. You can have a great piece of real estate, but if people are leaving your town to find jobs, the value will suffer dramatically. Look at Detroit and other depressed markets as an example. Once the jobs left, homeowners were forced to sell and values fell dramatically. Job security and employment data is as big a factor on the number of buyers you will have as anything else that is going on in the market.

Keep your eyes open for what the employment numbers are doing and where they are headed. They won’t tell you exactly where the market is going, but they will provide a pretty good idea.