Housing is a fundamental source of the shift, a sector that is showing clear, sustained signs of healing. Measures of new home construction, builder sentiment, new-home sales and price increases are all at multiyear highs. It remains a far cry from pre-recession levels – but the steady improvements over the course of this year are underpinning economic expansion and a key reason for rising consumer confidence.
The spillover effects are significant. An improving economy and tight supply are bolstering home price gains, which are 5 per cent higher than last fall – the biggest annual increase in six years, according to property information provider CoreLogic. Average national home prices have risen for seven months in a row.
Increasing house prices create a so-called wealth effect, as growth in the value of peoples’ homes gives them the security to spend more. Every dollar increase in housing wealth typically boosts consumer spending by about 3 cents, according to Patrick Newport, Lexington, Mass.-based economist with IHS Global Insight. He expects sustained growth in house prices, because inventories are so low.
That explains why the sisters in Bellingham say they are optimistic about the U.S. economy. Ms. Hind, 49, lives in California, where she and her husband Rex recently upgraded to a 3,000-square-foot house.
It has been a difficult journey in California’s housing market, Ms. Hind says, who works as a deputy sheriff and law enforcement trainer.
She and her husband bought a home in Sacramento, Calif., for $197,000 in 2000. After pouring tens of thousands of dollars into renovations, that home’s value rose to $370,000 in early 2008, before the financial crisis hit. This month, the California couple sold that Sacramento house for $275,000 – but that price is at least $25,000 higher than a couple of months ago.
Housing “was the missing link in this recovery story,” and though levels are still low, growth rates in housing starts look “sensational,” says Craig Wright, chief economist at Royal Bank of Canada. Years of under-building in the sector on top of pent-up demand now mean “the good news in the housing sector is probably going to continue for some time.”
An improved housing market also spells job growth. Mr. Newport expects two million new jobs will come from the construction side alone in the next two years as housing starts ramp up.
When housing-related spinoffs are included, hiring in construction, manufacturing and retail could soon add 30,000 to 40,000 jobs a month, according to UniCredit‘s Mr. Bandholz. For each new home that is built, three jobs are created, generating $90,000 in taxes for government coffers, the U.S. National Association of Home Builders estimates.
Housing is seen as a leading economic indicator, but jobs tend to be a lagging one. The recession wiped out a staggering eight million jobs, and recovery in the labour market has been slow, painful and uneven. About four million jobs still haven’t come back.
But recent months show improvements, with average payroll gains of 173,000 since June and a declining rate of underemployment. Retailers are hiring, particularly those at home furnishing and furniture stores. So is the construction industry and factories, including the auto sector.
An improving labour market is giving many people more confidence to spend. In Washington state, Josh Newman is pleased to be working on Black Friday, happy to be at the sales counter at Arch Telecom, where he gets commissions for everything from selling cellphones to earbuds.
At the Bellis Fair mall, Mr. Newman, 23, makes the state’s minimum hourly wage of $9.04 (U.S.), plus commissions – a relief after an eight-month bout of unemployment. “It was rough going for a while. Now that I have a job, it’s a lot less worrisome.”
Many measures track the mood of U.S. consumers, and virtually all are pointing in the same direction – way up. Consumer confidence doesn’t always translate into higher retail sales. But it does show brighter news about the economy is seeping into the American psyche.