The ongoing collapse of housing sales is reverberating across the U.S. economy, threatening further increases in unemployment, especially among construction workers and others affiliated with the housing industry. Today, the Census Bureau reported that in November new home construction fell to a record low annual rate of 625,000 units. The prospects for future investment are also weak as permits are down 48.1 percent compared to a year ago.
This is just the kind of news that unemployed or underemployed construction workers cannot afford to hear as the holidays near, but the incoming Obama administration and the 111th Congress can do something about it—enact a sweeping economic stimulus and recovery program that includes new “green” jobs for construction workers
The new administration and Congress can’t act soon enough, considering that today’s home construction numbers—unadjusted for seasonal swings—reveal an even worse jobs situation. Fewer than half as many building permits were issued for single-family homes last month, compared to a year ago. The Census Bureau takes into account historical trends when making their seasonal adjustments and these are likely to overstate trends during a downturn; the unadjusted numbers tell the tale today.
This collapse in housing construction is devastating for construction workers. Since employment peaked in September 2006, the construction industry has lost nearly 800,000 jobs. Employment in residential construction began falling in September 2006, but non-residential construction employment has now also begun to fall sharply.
On the positive side, less new home construction could help to curtail falling home prices. With more than 10 months worth of unsold new and existing homes available for sale, new home construction is the last thing that sellers need. But the reality is that the volume of foreclosures is overwhelming the market and will continue to pull down prices. Last month alone, over 165,000 properties were taken over by banks or slated for auction.
A housing recovery will not occur until foreclosures fall. Yet, the trends are moving in the opposite direction: One in 10 mortgages are currently delinquent or in the foreclosure process, with Credit Suisse predicting 8 million foreclosures over the next four years. If unemployment reaches 8 percent, Credit Suisse’s foreclosure forecast rises to 9 million, which will put further downward pressure on home prices and continue to reduce investment in new construction.
With residential construction activity essentially moribund for the foreseeable future, job losses in the construction sector will likely continue to mount alongside job losses in other industries. The economy has shed 1.3 million jobs in the past three months, which is the largest three-month job loss in over three decades. Real wages are falling alongside higher unemployment, which combined with uncertainty in the housing market and lack of availability of credit, are discouraging homebuyers.
Future foreclosures will be driven by job losses, not bad loan terms. Reducing foreclosures will reduce downward pressure on house prices, but we must also address the fact that rising unemployment discourages people from taking on long-term debt obligations. The place to start is to find ways to productively employ the nearly 800,000 laid-off construction workers.
We can start by investing in infrastructure projects and improving the quality of the current housing stock by “greening” it. Energy efficient retrofits reduce operating costs, potentially increasing affordability, while the process of upgrading existing homes creates construction jobs without adding to the quantity of unsold homes.
Cleaning out the current oversupply of housing will likely take years to fully sort through, but we cannot wait to address the serious unemployment problem that is following in the wake of the bursting housing bubble. Moving swiftly to enact a green economic stimulus and recovery package is exactly what the new Congress needs to do for President-elect Barack Obama to sign into law after his inauguration next month.
Andrew Jakabovics is Associate Director of the Economic Mobility Program at the Center for American Progress. Heather Boushey is a Senior Economist at the Center. To read more about the Center’s economic stimulus and housing policy recommendations and analysis, please go to the economy page of our website.