by Calculated Risk on 5/22/2014 03:03:00 PM

More insight from Atif Mian and Amir Sufi at House of Debt: Employment Scars of the Housing Bust

One way to see the scars of the housing bust is to look at the unemployment rate today in counties that saw the biggest decline in house prices. As we argue in the book, such an approach actually significantly underestimates the impact of the house price-driven spending collapse. This is because even people living in areas that were not hit by housing lost their jobs when people living in areas where house prices crashed stopped buying goods. But even with this under-estimation ... [t]he unemployment rate in counties hit hardest by the housing crash is more than 3% higher in 2013 relative to 2006. The rise in the unemployment rate is twice as high as the rise in counties with the smallest decline in house prices. The housing crash has led to a large and persistent increase in unemployment.

This reminds me ... way back in 2006 I disagreed with some analysts on the outlook for the Inland Empire in California. I wrote:

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

And the Inland Empire was crushed.  Note: The Inland Empire unemployment rate in March 2007 was 5.3%. The rate peaked at 15.0% in 2010, and was at 9.4% in March 2014.