The simple answer is not yet — not enough of a drop in the unemployment rate. The November unemployment rate, released Friday morning was a pleasant surprise as the rate dropped from 9% to 8.6%. The rest of the employment report (the release was 39 pages of statistical tables) showed some improvement but wasn’t as suprisingly strong as the headline number. One item buried inside was a drop in construction employment of about 8,000 jobs, suggesting that building homes was not the reason the unemployment dropped. The unemployment rate for men 20 years and older dropped to 8.1% from 9.3%; while the decline for men was bigger than for women over 20 years old — their unemployment rate dropped to 7.8% from 8.1% — women were still doing better than men.
The question for housing is wrapped up with how confident people feel. If the only factors affecting the decision to buy a house were mortgage rates and home prices, we would be looking at a housing boom. Prices are down to the levels seen in 2002-2003 and mortgage rates are lower than any time in the last 40 or more years. Still, people are not rushing to buy. A big missing factor is confidence — confidence about the economy, about jobs, about being able to make mortgage payments and about the future. That’s where the economy and the unemployment rate make a big difference.
Looking at the chart, we can see how unemployment and housing prices align. Note the the unemployment rate, the red line and right hand axis, is inverted so the top of the chart is lower unemployment numbers and the bottom is higher unemployment rates. This makes it easier to compare home prices with unemployment. Home prices peaked before unemployment began to rise and home prices leveled off before unemployment rates began to improve. Even with the good news in the November data, both series don’t seem to be showing rapid improvement. Just as one good month of employment data isn’t likely to convince very many people that the next stop is a 5% unemployment rate, it won’t convince people to rush out and buy a new home either. For both housing and jobs, we need a string of good reports, not just one little pop. The red line does seem to be slowly moving in the right direction so there may be hope that both will be in better shape sometime in the new year.