What is the correlation, if any, between jobs and home prices? The 2007 collapse of the U.S. housing market and the subsequent onset of the Great Recession generated a significant amount of inquiry into the link between the two crises. Though some argue there is little to no correlation between job growth and home prices, that’s not necessarily the case. Further examination concludes it’s not so much the amount of job growth, but the type of jobs. Professional job growth in steadily performing sectors does indeed influence a boom in home prices.
The Right Type of Jobs
It’s important to look at more than just the data on job growth when determining housing market growth. Studies show that the type of jobs – versus the number – most strongly impact home prices. Specifically, the wages and professional level of the jobs of the region in question. The types of jobs make more of a difference than the volume of jobs available when predicting the performance of the housing market and rising home prices. Workers in the technical, professional and business services sectors tend to have higher wages. This makes them more likely to be in the market to buy a home. Even with a strongly growing job market, low-wage jobs will not as strongly impact home price growth.
The state of Florida is tied with Georgia for the fastest rate of private-sector job growth for 2017. Compared to the nation as a whole, Florida has the third-fastest annual private-sector job growth rate. The state has been steadily outpacing the rest of the country for 63 consecutive months. According to the Kauffman Foundation’s 2017 index, the Miami metro area is ranked #1 in startup activity in the US. “The big takeaway is the job market is continuing to tighten. We had a good increase in the number of jobs created as well as in the workforce, which is a sign there is momentum and confidence in Florida’s economy,” said Mekael Teshome, Florida analyst for PNC Bank.
The Right Type of Neighbors
The characteristics of new residents are more important than just the population numbers. Job growth that attracts workers right out of high school or college will have a different impact on home prices. Jobs that attract more mature employees or native residents who are looking to settle down have the most impact. This demographic is more likely to be interested in home buying. Young employees are more likely to be renters, so their presence won’t have as much of an impact on home prices – unless they decide to stay. However, if these workers can afford to buy a home in the region and decide to stay, that’s a different story. A long-term presence – ideally 9-10 years down the road – could have a major impact on the housing market.
The Right Home Prices
Affordability matters whether job growth is fast or slow. Assessing the cost of renting a home or apartment versus buying is also important for understanding the impact of job growth on home prices. Even if a region sees substantial job growth, those workers may not choose to buy. To predict where home prices are going, we need to look at the margin between owning and renting. If home prices are too high, or rent prices substantially lower, prospective buyers may not see the long-term value of homeownership. Workers with wages that are low enough may not even be afforded the choice. If home prices are too high, workers may continue to move to the region, but they are less likely to put down roots and buy. This means job growth will continue to show growth despite home prices remaining stagnant. If no one can afford to buy, home prices and property value will not see as dramatic a rate of growth.
The Right Type of Growth
Labor market information for Florida indicates substantial job growth. In the last seven years, Florida businesses have created nearly 1.4 million private sector jobs. As of 6 months ago, Florida’s unemployment rate had reached a 10-year low. This is in sharp contrast to the national unemployment rate’s 0.1 percent increase. “We’re encouraged as we continue to see year-over-year job growth across sectors,” said Beacon Council’s Jaap Donath, senior vice president of Research & Strategic Planning.
So what does this mean for prospective home buyers? A greater share of jobs in the well-paying tech and business sectors means more home sales and higher prices. Communities with positive job growth are more likely to experience a stable single-family housing market. Knowing when a major employer is coming to the region is important. Positive employment growth and attractive interest rates will continue to bring buyers to the South Florida market. Positive professional job growth has been shown to create strong housing market activity. As job growth remains positive and unemployment rates continue to decrease, consumer confidence will improve and bring increased economic activity to the area. Property value and home price growth will continue, which is goods news for sunny Florida.