Employment is just one of many factors that impact home prices, and a recent paper from Collateral Analytics examines how housing prices are driven by employment levels long-term. Across all core-based statistical areas (CBSA) studied, Collateral Analytics found a general correlation between employment change and price change in its 20-year snapshot, between 2000 and 2019.
“The actual relationship for a simple linear fitted trend line suggests a 1.3 multiple for the change in home prices relative to the change in local employment. The R squared is .3677 for price change relative to employment change.”
On a more focused level, larger markets, representing just 18 local markets showed a similar but even stronger relationship of prices to employment, with a 1.56 coefficient for the change in price relative to the change in employment. The highest change in prices is Los Angeles at 234% over this time period, with 12.77% change in employment.
This period includes the rapid run up in prices in those markets like Phoenix, Jacksonville, Portland and Seattle where subprime lending expanded in the 2000-2006 period leading to faster price appreciation and subsequent declines.
Employment, Collateral Analytics notes, provides an excellent long-term indicator of demand, even without including variables for changes in interest rates, population changes or access to credit, all indicators that are more important for short term forecasts of housing prices.
“Positive employment change is essential for any kind of local income growth including the retention of local population. Adding in an index that measures supply barriers and variables for interest rate changes would improve the forecasts as we have demonstrated in more robust analysis in our prior research. Here, we simply wanted to demonstrate the strong long-term relationship of housing prices with employment holds for most housing markets.”
Download the ful report from Collateral analytics here.