Growing optimism in the housing purchase market stems from faith in a strengthening job market nationwide. Recent snapshots of the national housing economy by Fannie Mae and Zillow cite job growth as a spur for more robust markets, particularly in western states, where new jobs and competition for houses are escalating home prices.
Now Freddie Mac has joined the chorus. In its latest Economic and Housing Market Outlook, released Wednesday, the agency expects home sales to grow along with wages this year, despite a still-tough job market in most sectors. Freddie is projecting a 3 percent rise in home sales and a 20 percent rise in new home construction in 2014, which the agency expects to level out to a 5 percent overall growth.
Freddie's latest analysis paints a complex picture, particularly when measured against job figures from 2007, the last time the national job market was considered solid for the entire calendar year. Compared to then, most job sectors, particularly manufacturing and construction, are down. In February, construction employment was 5.9 million, 1.5 million less than December of 2007, according to Freddie.
But these sectors are on a steady rise, with construction at about 80 percent of its 2007 peak and manufacturing at about 90 percent, according to the report. Freddie's numbers bolster Fannie Mae's February report showing that construction jobs and the number of new houses built are up since the beginning of the year. And these factors are key to a healthier housing market, said Frank Nothaft, VP and chief economist at Freddie Mac.
"In order to have solid home sales in 2014 we need to see continued improvement in the labor market," Nothaft said. "Manufacturing and construction are the two sectors that have been slowest to recover. With increased economic growth, these two sectors should start to improve."
Considerable growth, according to Freddie, is happening in mining and office jobs, but particularly in education and health services, which has grown by 2.4 million jobs since 2007. Despite substantial progress, however, the labor market remains below its potential, and unemployment is stubbornly hanging on at 6.7 percent.
But these numbers are not as black and white as they may at first seem. While it may look bad that the employment-to-population ratio dropped from 62.7 percent to 58.8 percent in February, annual wages measured that same month grew by 2.5 percent, which is well above consumer price inflation.
Also, according to Freddie, about 40 percent of this drop-off was driven by baby boomers who have retired between December 2007 and February 2014. This may open the door for more jobs as boomers continue to leave vacancies in the workforce.
"With more jobs, wage growth should continue to accelerate, giving American households much needed income to help sustain the emerging purchase market," Nothaft said.