This morning’s Employment Report for May was disappointing with the unemployment rate up 0.1 to 9.1% and weaker than expected growth in payrolls. Many people point to the poor employment picture as the leading reason for falling home prices. Without question, employment and people’s views of the labor market are important, but they are not the only issue. The national unemployment rate covers everyone — teenagers looking for part time summer jobs to seasoned workers in stable industries to people being hired by the booming oil and gas industry. (The Bureau of Labor Statistics reports that the unemployment rate in Mining, quarrying,and oil and gas extraction was 3.8% in May). Some groups with unfortunately high unemployment rates would not be potential home owners in the best of economies. Some sense of why more detail is needed to understand employment issues can be seen in different age groups. People aged 25 to 54 have an unemployment rate of 8.1% and those over 55 have a rate of 6.8%, both lower than the national average. These groups are more likely to be home buyers than those aged 20-24 years (unemployment of 14.7%) or 16-19 years (unemployment rate over 20%). The labor market has as many different pieces as the housing market.
One factor that probably does explain why housing is weak and why it seems that home ownership is fading from the American dream is people’s expectations of future income growth. The Cleveland Federal Reserve Bank published data from a consumer sentiment survey done by the University of Michigan Survey of Consumers. It shows that for most of the last decade consumers expected family income to rise at 2% or a bit more per year, keeping up with or a touch ahead of inflation. When the recession of 2007-2009 hit, that outlook collapsed and since then people expect their incomes to be flat. Someone looking back at income gains that kept pace with prices and their neighbors, but looking forward to slowly slipping behind inflation isn’t likely to have an optimistic view of the future or to make big long term financial commitments like buying a home.