HOUSING BUBBLES AND JOBS
I noted earlier this month that California in particular has built its recent job recovery -- what little there is of it -- on the housing sector. Firstly, the Golden State has seen slower than average job growth from April 2003 to April 2005 -- 2.4% compared to 2.8% in the US minus California. On top of that slower job growth is an economy stunningly dependent on the statewide housing bubble. Over the same 24-month period, 32.7% of all new jobs in CA have been in either construction or real estate while in the rest of the country over the same period, 15.3% of all new jobs have been in these two sectors.
Calculated Risk, always a great source for housing bubble news and analysis, thinks he may be seeing the demise of the bubble. San Diego is a good market to look at since it has one of the most eggregious run-ups in housing prices combined with the widest income-to-price ratios and the heaviest use of adjustable-rate mortgages, and in San Diego, CR notices that real estate and mortgage financing firms are planning on cutting jobs in the future. At the same time he notes that construction firms are still expanding, leading to the question of whether real estate and mortgage financing firms are a leading indicator of the end of the bubble.
Below is a chart showing the annual rate of change for jobs in the construction, real estate and finance/insurance sectors in San Diego since January 2001.
As you can see, all of these are off their 2003 or early 2004 growth rates. Real estate and finance/insurance in particular are in the doldrums, with both sectors nearly stagnant in terms of job growth. Construction continues to surge ahead, but its growth rate is down sharply from where it was six months ago, not to mention the near-12% growth rates a year ago.
Note also the differences between these three sectors (which I have somewhat liberally defined as "housing-related") and the rest of the San Diego job market. While the housing-related sector overall has seen annual monthly growth rates as high as 8%, the rest of the economy can barely get over 1.5% growth, still far below the 2.5%+ rate of early 2001.
Yet for now it seems that the housing-related sector is still able to carry the San Diego economy. So far in 2005 jobs in these three sectors have grown 1.5% -- the growth rate in construction is 2.5% -- while in the overall economy job growth is a mere 0.2%. Amazingly, so far this year new construction jobs have been a net 88% of all new nonfarm jobs in San Diego. When the building boom ends in San Diego, it will take the whole regional economy down with it.
UPDATE: Here is the data for new construction jobs as a % of total new jobs in all the major California metropolitan regions, May 2004 to May 2005:
Riverside-San Bernardino-Ontario: 51.1%
San Diego-Carlsbad-San Marcos: 30.9%
Los Angeles-Long Beach-Glendale: 25.4%
Santa Ana-Anaheim-Irvine: 20.2%
USA MINUS CA: 13.6%
San Francisco-San Mateo-Redwood City: 12.3%
San Jose-Sunnyvale-Santa Clara: job loss since May 2004