The Causal Relationship between High Job Unemployment and a Poor Housing Market

Today’s Poor Housing Market is Directly Related to High Job Unemployment

By Mark J. Donovan

If you haven’t figured it out already the housing market is closely coupled with the job market. A strong job market translates into a strong housing market, and a poor job market translates into a weak housing market. With the job unemployment rate sitting above 8% for nearly four years, it’s no wonder the housing market has been in the slump for nearly 6 years. Historically a healthy unemployment rate should be about half of what it has been, approximately 4%.

With the unemployment rate at more than twice this rate (8.3% at the time of this writing) it should be surprising to no one why the housing market continues to be in the tank.

Plain and simple, when people are out of work they can’t buy a new home. Moreover if they own a home and are unemployed for an extensive period of time they are most likely going to be foreclosed on due to a lack of income. With increased home foreclosures, the amount of available homes on the housing market increases, which puts downward pressure on home prices.

This situation causes people who are lucky enough to be employed to hesitate selling their homes and buying new ones. As a result, the entire housing market declines further and stagnates, which is exactly what we’ve witnessed between 2006 and 2012.

Consequently the only solution to improving the housing market is to create an environment for real job growth. I specifically mean creating an environment where jobs in the private sector grow, be it manufacturing or service, white collar or blue collar.

The Causal Relationship between High Job Unemployment and a Poor Housing Market.

Public sector job growth means little for improving the housing market, as these jobs are the results of creating higher taxes on the few folks who are already working. By taxing the public more, the amount of income they have to buy new homes decreases, which as a result, counteract the effect of any public sector job growth.

So if you want to see your home values recover, as well as your overall net worth, then you need to support political policies that enable small and large businesses to grow. As these businesses grow they increase the country’s gross domestic product (GDP), employ additional people, and truly strengthen the country’s, and its peoples, economic power. With increased economic power, more home buyers will enter the market and drive up the demand, and the price of the homes. As a result, the housing market will recover, as well as your overall net worth.

If you disagree with this philosophy, then study the history and economic demise of Europe over the past several decades. If after studying Europe you’re still not convinced that a healthy housing market is tied to a strong private sector job market then unfortunately you simply have other political objectives.

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Keep in mind, however, that without a strong private sector economy the chances of your other political objectives and aspirations being achieved are very unlikely to occur. As a matter of fact, your altruistic political objectives may become completely subverted by a future political leadership that doesn’t believe in a free market economy.

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