Economy: More Jobs Needed to Spur Home Sales

Businesses must ramp up hiring before the lag in home sales will subside.

October 1, 2010

We’re in the midst of a post–tax credit pause in home sales, but the length and depth of the pause don’t depend heavily on consumer spending. This time, businesses are in the driver’s seat.

Consumers are largely tapped out. For the past 18 months or so, low interest rates and the home buyer tax credit drew consumers into the housing market, giving enough of a boost to the economy to help pull it out of the recent recession.

Businesses, having earlier made painful staff cuts, are now seeing profit growth. If this were a more normal recovery, these newly profitable businesses would be adding employees and expanding into new markets. But because of uncertainties about the economy and new federal policies that affect businesses, we’re seeing little of that.

The result? Stalled economic growth, continuing high unemployment, and the prospect that the current pause in home sales could deepen into something more serious.

If the pause does deepen, home prices—which have been stable for the last 18 months—could turn negative again. However, significant price changes aren’t expected in either direction; prices today are closely aligned with incomes and there’s been little new construction to add to housing inventories.

Against this backdrop, we need businesses to shift gears and start creating jobs. In Houston and Washington, D.C., where jobs are growing, pending sales contracts also remained healthy in August, despite the absence of the tax credit.

Should business spending rise to where it should be, the economy could easily grow at a 5 percent rate. That would correspond to very healthy employment gains of possibly 3 million jobs in a single year.

That’s what we need to see before the pause button on home sales will be lifted.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.