Job, Housing Woes Often Linked

September 8, 2010

This article is included in these additional categories:

Financial Services | Real Estate | Staffing

US metropolitan areas which have suffered the worst declines in housing value have also often experienced the highest job losses, according to research by MetroTrends.

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Manufacturing Major Link to Job Loss
The nation’s loss of more than 6.4 million jobs between 2007 and late 2009 coincided with a 12% drop in home values and a dramatic increase in foreclosures. Metropolitan areas in four states: Florida, Arizona, Nevada, and California, experienced the steepest collapse of housing prices, while job losses have been worst where manufacturing was concentrated.

MetroTrends analysis indicates that more than 38% of all US jobs lost from 2007-2009 years were in manufacturing, even though those jobs made up just 10% of the total in 2000. According to MetroTrends, one reason for the link between declining housing prices and job losses in metros heavily reliant on manufacturing and construction is that local purchasing power disappears with jobs, driving home prices down further.

Another possibility is that what MetroTrends terms the “triple header” of an unprecedented drop in house prices, rise in foreclosures, and subsequent increase in vacancy rates forced builders to slow or stop residential construction, creating another blow to jobs in the construction industry.

1 in 3 Metros Suffers ‘Double Trouble’
MetroTrends divides the nation’s top 100 metros fall into four categories. Twenty-nine urban areas (roughly one-third) are suffering from what MetroTrends terms the “double trouble” of declining house prices and jobs; 29 are going through the recession without major negative consequence; 21 have strong employment despite big house price declines; and 21 are seeing house prices holding steady despite substantial job losses.

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‘Double Trouble’ Follows Housing, Job Gains
For most of the metro areas in the “double trouble” group, the sharp downturn followed rapid gains in house prices and employment opportunities earlier in the decade. In fact, the bigger the boom, the harder the fall. House prices across the top 100 metros declined by about 5% in 2006-2009 for each 10% gain between 2000 and 2006.

In addition, steeper falls in house prices between 2006 and 2009 went hand in hand with bigger declines in jobs between 2007 and 2009. In fact, for each 15% drop in house prices, employment dropped by 1%. So metros as diverse as Detroit, Providence, Los Angeles, and Tampa are in the grip of “double trouble,” experiencing big house price declines coupled with severe job losses.

In contrast, metros like Houston, Wichita, and San Antonio are coming through the downturn relatively unscathed, with flat house prices and much smaller job losses (or even small employment gains).

But this link wasn’t universal. Bakersfield, CA saw a 0.9% increase in employment but a 43% drop in house prices. And in Greensboro, NC, jobs fell by 6.8% while house prices dropped by only a little more than 1%.

Housing Hardships Continue
Despite a general drop in home prices during the recession, home affordability problems persist for many Americans, according to other recent data from MetroTrends. Since the recession started, unemployment has spiked, jumping from 4.6% among the top 100 metros in 2007 to 9.6% in October 2009. In addition, MetroTrends analysis indicates average earnings have declined, although 2009 data aren’t yet available, and house prices have plummeted.

However, average home prices remained 26% higher in 2009 than in 2000. And most families’ monthly rent or mortgage payments haven’t fallen because they haven’t yet moved or refinanced. At least for now, housing affordability problems are more prevalent, not less.
MetroTrends says one indication of deepening hardship in the downturn is the recent rise in food insecurity. Until 2007, about 11% of metropolitan households experienced food insecurity. But in 2008, this share climbed to almost 15%.

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