The economic recovery creates low-paying jobs that fail to stimulate housing

So far the economic recovery created low-paying jobs incapable of supporting mortgage payments thus failing to stimulate home buying.

too_littleIn a housing market where lenders, the federal reserve, and government officials don’t conspire to artificially inflate house prices, the primary driver of prices is job and wage growth that leads to new household formation. If businesses expand and create new, high-paying jobs, those new employees take their new wages and bid up the price of available housing alternatives. If the the jobs are low paying, the new employees will bid up rental prices or occupy new rental units. If the jobs are high paying, the new employees will bid up the prices on nearby residential real estate.

The last six years witnessed a decrease in high paying jobs, and the jobs created pay poorly, rendering employees incapable of buying a home and sustaining payments. In addition, many people who kept their jobs became concerned with keeping it, so many who might have bought a house delayed their purchases, perhaps permanently. Further, with the collapse of house prices, many who would ordinarily be making a move-up trade don’t have the equity to make the deal go through. All these circumstances contribute to low housing demand and a gilded age of low housing inventory.

I recently wrote that weak Job and wage growth hobbles housing. Apparently, I’m not the only one who noticed…

Janet Yellen’s big concern: Housing slowdown

By Annalyn Kurtz @AnnalynKurtz May 7, 2014: 12:11 PM ETYellen_fed_reflation

Federal Reserve Chair Janet Yellen is upbeat on the U.S. economy for the most part, but there’s one sector that causes her some concern: Housing.

“One cautionary note, though, is that readings on housing activity — a sector that has been recovering since 2011 — have remained disappointing so far this year and will bear watching,” she told the Joint Economic Committee in prepared remarks Wednesday.

The housing sector was a key part of the economic recovery last year but has since fallen short of economists’ expectations.

Building permits — a gauge of future home construction — fell 2.4% in March, and existing home sales were flat. Economists had expected both these indicators would improve more, …

The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery,” she said.

Have you noticed that the one thing consistent about this economic recovery is that it consistently falls short of economists’ expectations? Why is that? Are economists that incompetent as a profession? Perhaps the majority succumb to their optimism bias?

Will Janet Yellen use this as an excuse to delay the taper? Based on the recent drops in interest rates, stimulating housing through more printed money seems unwarranted. Perhaps if rates had risen to 5% she might print more, but with mortgage rates back down near 4%, I doubt the federal reserve under Yellen changes their policy.

Low mortgage interest rates only stimulates house prices, not overall demand. Low mortgage rates allow the buyers that are active to bid heavenly sums based on their current income, but the market needs to increase the number of buyers to increase sales. To get a recovery with both price and volume, the economy needs to create large numbers of high-paying jobs — the opposite of what’s happening.

Recovery Has Created Far More Low-Wage Jobs Than Better-Paid Ones


WASHINGTON — The deep recession wiped out primarily high-wage and middle-wage jobs. Yet the strongest employment growth during the sluggish recovery has been in low-wage work, at places like strip malls and fast-food restaurants.

In essence, the poor economy has replaced good jobs with bad ones. That is the conclusion of a new report from the National Employment Law Project, a research and advocacy group, analyzing employment trends four years into the recovery.


Several astute observers posit the strength in local housing is due to prosperity among highly educated workers. That idea is simply wrong; no data supports it. While people in a select few fields enjoy good wage growth, that is the exception rather than the rule. I know many people in homebuilding that took pay cuts to keep jobs, and many others who consider themselves fortunate to be paid the same as they were in 2006. Very, very few real estate related fields saw wage or job growth over the last 8 years.

“Fast food is driving the bulk of the job growth at the low end — the job gains there are absolutely phenomenal,” said Michael Evangelist, the report’s author. “If this is the reality — if these jobs are here to stay and are going to be making up a considerable part of the economy — the question is, how do we make them better?”

The report shows that total employment has finally surpassed its pre-recession level. “The good news is we’re back to zero,” Mr. Evangelist said.


We may be back to zero, but we still need to employ the people who entered the job market from 2008 to 2014, so in reality, we are still behind.



But job losses and gains have been skewed. Higher-wage industries — like accounting and legal work — shed 3.6 million positions during the recession and have added only 2.6 million positions during the recovery. But lower-wage industries lost two million jobs, then added 3.8 million.


The data is clear: high-paying jobs are fewer than before the recession, and employment gains are in low-paying jobs.

With 10.5 million Americans still looking for work — the unemployment rate is 6.7 percent — employers feel no pressure to raise wages for those who are working. As a result, the average household’s take-home pay has declined through the recession and the recovery to $51,017 in 2012 from $55,627 in 2007, after adjusting for inflation.

y_real_estate_careerIt isn’t likely wages will rise any time soon.

With joblessness high and job gains concentrated in low-wage industries, hundreds of thousands of Americans have accepted positions that pay less than they used to make, in some cases, sliding out of the middle class and into the ranks of the working poor.

That includes Connie Ogletree, a former administrative and executive assistant who now earns $7.25 an hour at a McDonald’s in Atlanta. “It was 40 years ago that I had my first fast-food job, at a Dairy Queen,” said Ms. Ogletree, 55. “This is my second.”

The National Employment Law Project study found that there were about a million fewer jobs in middle-wage industries — including parts of the health care system, loan servicing and real estate — than there were when the recession hit.

Economists worry that even a stronger recovery might not bring back jobs in traditionally middle-class occupations eroded by mechanization and offshoring. The American work force might become yet more “polarized,” with positions easier to find at the high and low ends than in the middle.

The local job market used to be dominated by lending and real estate. Many of those jobs are gone for good, particularly the lending jobs as mortgage applications continue to plummet.

There has also been strong jobs growth in some high-paying industries, like professional, scientific and technical services — a category that includes accountants, lawyers, software developers and engineers. That sector accounted for about 9 percent of the private-sector job gains in the recovery.

This explains much of the strength in Silicon Valley. Their real estate may not be immune as many think, but as long as the local population sees rapid job and wage growth, house prices will likely go up.

For the rest of the country, the low-paying jobs will serve as a drag on real estate prices and sales volumes. Only the lender manipulation of inventory will keep prices up.

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