Wednesday, July 9, 2008
Jobs and houses…
The Labor Department reported increased unemployment claims for May of this year last Thursday, which would make May the seventh consecutive month for job losses. Out of 369 metropolitan areas, 328 reported higher unemployment rates, or lower employment, if you will. The housing industry watches jobs reports closely, because that's the best indicator of economic health to come.
According to the Conference Board, leading indicators of employment suggest more trouble in the job market in the months ahead resulting in one of the most turbulent, hard-to-read markets ever. As an example, Dallas-Fort Worth added the most jobs this year (+66,100) while Detroit lost the most jobs (-47,400.) Employment went up 2.2 percent in Dallas, while it dove 3.3 percent in Detroit. Well, that’s just another category that we didn’t need to be number 1 in, isn’t it?
The National Association of Realtors expects job losses to be temporary, as companies clean house. The unemployment rate should average 5.4 percent this year and rise to 5.8 percent in 2009, but that's still well under the seven percent unemployment we had as recently as 2003. Actually, I believe that we are above 7% in the Detroit area already.
This might mean that a mass migration is about to start as people who are out of work seek employment in greener pastures. That's good news for cities that are adding jobs that perhaps missed the housing bubble like Dallas. And it's good news for buyers in more challenged areas, too. In Detroit, the people who still have jobs are buying homes. Realcomp, the Realtor's MLS for the Detroit metro, says home sales are up for the sixth month in a row in June year-over-year, (+13 percent.) Pending sales are also up by a whopping 32 percent. A part of that “whopping” sound is the result of the sellers getting hit “up side the head” by the low prices that they are getting. In places like Detroit, Pontiac and Ypsilanti, there are many home sales taking place for under $10,000, which is essentially under the cost of the land itself.
One reason is that homes are competing with foreclosures, and the average price for a home has plummeted. The median sales price for a home in Detroit is $137,000, and median foreclosed homes are selling for about $40,000. Compare that to the median national sales price of $205,300, expected by year's end. Whenever housing is affordable, sales tend to go up, so as the national median falls more than six percent in 2008, that could tip an increase in sales prices of as much as 4.3 percent in 2009. And those areas that are adding jobs are going to push sales back up even more. That means location has never been more important, says the NAR.
The old real estate mantra – Location, Location, Location – is still true; but, in today’s market I would put it this way – LOCATION, Price, Price. Price is second only to location and is really the most important factor, when you can’t do anything about location anyway. For many, there is no option, or maybe no desire, to move out of Michigan, even if jobs are scarce here. And, if you have to stay in Michigan, now is a great time to buy a house. Call me and I’ll help you with the location part, too.