Wednesday, September 06, 2006

Housing: "Third Best Year Ever"

by Calculated Risk on 9/06/2006 06:07:00 PM

I've heard several commentators mention that this will be the third best year ever for New Home sales.

Click on graph for larger image.

Right now 2006 sales are in third place, through July, behind 2004 and 2005. But if the recent sales rate continues, annual sales for 2006 will probably fall into fourth place behind 2003.

With regards to employment, residential construction employment is significantly higher than in 2003. In 2003, builders were ramping up employment to meet growing demand. So all else being equal, I'd expect residential construction employment to drop below 2003 levels, even if sales plateau at this level (something I think is unlikely).

Residential Construction Employment, Monthly Average, Thousands
YearResidential buildingResidential specialty trade contractorsTotal
200178118492630
200280318872690
200383719652802
200489621233019
200594922783227
200697923463325

This table shows the average residential construction employment for each of the last six years. If employment falls to 2003 levels that will result in the loss of over 500 thousand residential construction jobs.

There is little evidence that these construction layoffs have started: via MarketWatch, Layoff announcements bounce back in August
"There are some signs that the housing slowdown is taking a toll on jobs," said the firm's CEO, John Challenger [Challenger Gray & Christmas]. "Job cutting in real estate this year is nearly double last year's pace." But job cutting in other housing-related sectors, such as finance or consumer durable goods, has not risen, he said.

"The housing slowdown has not had a major impact on the job market, yet," said Challenger.
Last week I noted that I heard through a company insider, about significant layoffs at one of the major (top ten) homebuilders. I still haven't seen any public announcement, but I expect layoffs soon at all the homebuilders.

So even though 2006 might be the "third best year ever", the impact on the economy will still be significant - and the impact from the loss of jobs hasn't really started yet.