Abstract
The labor market in the United States has changed significantly over the years because of the changes in the global market and the impact on the work force in the country. The changes have led to diversity in the way people live and work. For many people, the loss of jobs causes structural changes in the ways that people live as these people are no longer able to finance their way of life. Mortgages also have been affected by the changes in the labor market and people have now become more aggressive in securing their homes. In addition, the labor market has also influenced the way in which people access housing and housing development. Flexible wages in the labor market and the anticipated results of a decline in the employment rate will lead to poverty. Poverty will lead to changes in the labor market and in turn will create challenges for homeowners. Unemployment leads to fiscal challenges and this in turn leads to the destruction of the labor market. In essence, the non – labor market policies have created many challenges for job creation, development of the country’s infrastructure and attracting foreign investments. The paper will examine the way is which the labor market impacts the housing market and vice versa.
Introduction
Recently, a number of researchers have become even more interested in the connection or the link between the Great Recession and the housing market. The crisis has brought about a number of changes at the national level. But the recent crisis started long before the recession in the global economy. Researchers have looked at this issue and have realized that the labor market has a significant impact on the housing prices, household formation, and public policy as. In addition, the labor market has impacted the evolution of education, school and work which in turn will affect the living arrangements in the population in the United States. Labor markets provide the homeowners with the opportunities to rent or own homes. Therefore the changes in the labor market will have a significant effect on housing and housing development in the country. The structure and developments on the labor market has a profound impact on job opportunities and this in turn will impact the access to housing and the rates of affording homes in the society.
The labor market and the lack of job opportunities impact the independent living in the society as job opportunities will create opportunities for education and growth. The lack of job opportunities will lead to many persons not being able to access education. This makes it difficult for the younger population to leave home and find suitable housing opportunities for self and future families. Job prospects allows people to afford mortgages and rent, but the economic recession and the decline in job prospects will increase the mortgage rates and create challenges for future home owners. The increase in mortgage rates will also make it difficult for people to own homes and lead to the decrease in revenue in the housing markets.
The economy faces a number of challenges in the economic turmoil in the country as it is not easy to stay ahead of the changes in the economy of the country. Many persons often exaggerate the magnitude of their problems and the ways in which the economy impacts the growth or decrease in their businesses. For construction and building companies, the changes in the economy have had an impact on the growth and development within these organizations as there is a shortage of qualified construction workers. This shortage leads to the increase in cheap labor based on the labor market. The construction on homes decreased in 2015 because of the problems in the land and the labor market. Home builders have been affected most severely as they have had to reduce the number of workers in the field and increase the cost of construction. The move leaves mortgagers and renters with the added financial burden and the task of having to pay more for homes.
The recovery of the economy will effectuate changes in the process of home ownership. In 2012, the real estate market began to rebound significantly and this helped to increase the number of investors. The increase in the number of investors led to the eventual economic recovery of the labor market. The rebound on the market means that the employment rate will increase and lead to affordability in homes. The increase in the strength of the labor market will encourage people to own homes. Americans have begun to take positive steps towards home ownership. Based on the increase in the demands for home ownership, the homebuilders must employ more laborers. But, the employment of the laborers will also mean that home builders will now have increased the wages for workers. This move will allow for skilled laborers to earn more so that they can make a more meaningful contribution to the country’s economy. The increase will also lead to more positive growth in the labor market as more people will become employable.
Background to the trends and conditions in the labor market
The United States is one of the strongest and most powerful countries in the world and yet, like many other countries in the 21st century, the United States Labor market faces a number of challenges that have impacted the growth and development of the country as a whole. Lucia Mutikani agrees that “U.S. employment gains slowed more than expected in January” (Mutikani 2016) and this has led to “”rising wages and an unemployment rate at an eight-year low suggested the labor market recovery remains firm” (Mutikani 2016). The changes in the market have led to an increase in non-farm payrolls and have created over 151,000 jobs (Mutikani 2016). Despite these job creations, the unemployment rate declined by at least a tenth of the percentage mark and is still considered as the lowest since the start of February 2008. But some analysts suggest that the rate of unemployment doubled in the United States during the recession and reflected a higher rate of employment losses (Bernard 2014). The findings suggested that the recession was higher in the United States among all age groups than other First World countries such as Canada (see Appendix II).
Conversely, the decline in the payrolls surfaces because of the decline in job opportunities for persons. But, this does not entirely lead to negative repercussions for the country. Some analysts will agree that the gains in these payrolls mean that the United States is moving towards improvement and growth in the economy and this will eventually increase the rate of future employment. While there has been an increase in the number of jobs since then, the 2000 jobs that were created in November and December means that the United States will regain control of the economy. The positive move towards this new growth could offer a false sense of hope that there is positive growth when in fact the lower unemployment rate and the increase in the wages only supports the belief that the labor market is merely tightening (Mutikani 2016). Clearly, the positive growth or the lack of positive growth in the economy will lead to changes in the affordability of housing in the country.
The United States housing market crisis surfaced from the labor market crisis and resulted in a decrease in the number of home ownership. The housing crisis started in the early months of 2007 and came about as a result of the “deepest employment decline that the United States has experienced since the end of World War II” (Rogers & Winkler 2013). The events brought about a number of questions and researchers have noted that the crisis in the labor market and the housing market have led to families doubling up. The effort also led to a reduction in the number of young people who have been forced to return to their family homes during the last few years. Those persons who have been living in their parents’ homes have been reluctant to leave the security of these homes as the cost of personal space and homes have increased significantly.
In essence, the housing market has forced families to remain together to reduce the financial burdens of the labor market. The failure in the American housing market and the start of the Great Recession in 2007 led to investigations into the causes and consequences of the crises labor and housing crisis. The problems have been assessed at the sub-national level and the findings reveal that there is a close relationship between the decline in the labor market and the new formation of housing structures. In recent years, the boom in the national housing market has caused many researchers to analyze the possibilities of the causes that impacted the housing development in 1996, 1998, and 2002. Nonetheless, some researchers have narrowed the positive changes in the national housing bubble burst and have revealed that the changes started during the mid-2006. The Case –Shiller Home Price Indices revealed that the first quarter of 2007 revealed changes in the labor and housing markets and this resulted from the House Price Index from the Federal Housing Finance Agency [FHFA]) (Rogers & Winkler 2013). In addition, Roger and Winkler revealed that foreclosures on homes have impacted the housing submarkets including the subprime lending (Rogers and Winkler 2013). Foreclosures mean that the rights on ownership have been terminated because of the lack of financial revenues to finance homes. The rate of foreclosure calculated based on the foreclosures per number of loans (multiplied by 100) (Rogers & Winkler 2013).
The labor challenges in the United States are not unique to the country as the world’s economy has fluctuated over the last decade. The economic recession struck a number of countries and has caused challenges in the housing markets around the world. Americans have become cognizant of the changes in the economy and the impact on the lives of each person in America. Citizens have adjusted to these changes in a number of ways, but the greatest adjustment come from the changes in the ability to own and maintain homes. The collapse in the housing market in the United States and the subsequent challenges in the financial markets has left many persons, even more aware of the challenges that will arise from the decline in the labor markets. The lack of employment means that people will be unable to afford housing solutions. Real estate organizations will also see a decline in profits and ultimately this will lead to more job losses.
In order to fully understand the changes in the United States labor market, one can compare the activities to the changes in Canada’s labor and housing market. Andre Bernard compares the recent labor market trends for Canadians and Americans since the last recession and revealed that based on the Current Population Survey (CPS), U.S. labor market has generated a high level of interest (Bernard 2014). The author further highlights that following the recession the employment growth in Canada and the United States followed an upward trend (see Appendix I). Nonetheless the author indicates that the “rate of growth was not steady, and average monthly employment growth in both countries was slower in 2013 than in 2012” (Bernard 2014).
The labor and housing markets faced a number of challenges in the past because it has seen an increase in the number of job losses in the last year. The structure of the United States government will allow for intense effect of the downturn in jobs. In 2008, the United States revealed that there were several factors that impacted the labor market. The employment rate in that year revealed a significant decline in the labor force and in 2009 the figures remained relatively the same. This decline meant that employment rates had declined and therefore this would impact the housing industry because persons are unable to afford homes and mortgages. Vincent Ferrao suggests that the unemployment level was most significant in the younger population between age 16 to 24 and resulted in the downward turn of 985,000 (-5.0%) (Ferrao, 2009).
The American labor market was adversely affected in 2008 and this resulted in “marked differences in performance at different times of the year” (Ferrao 2009). Nonetheless, the “economic activity increased by 0.9% and 2.8% in the first and second quarters” (Ferrao 2009). Interestingly the number “fell 0.5% in the third, and preliminary GDP estimates indicate that the U.S. economy contracted by 6.2% in the final quarter” (Ferrao 2009). At the end of the period, the National Bureau of Economic Research revealed that the United States achieved its highest economic activity December 2007. Based on these findings, economists agreed that the country and the economy fell into recession by the start of 2008. The period also marked the steep decline in employment rates.
Changes in the United States Housing Market
Within the last five years, there have been significant changes in the local employment conditions and the housing market activities. These changes have piqued the interest of many economists as the American housing market continues to create positive momentum. Additionally, the fluctuation in the unemployment rates has sparked a number of “interrelated events that has led to increased demand among renters and buyers “ (Nationwide Report 2015). Based on these figures, insurance and financial services organization, Nationwide reveal that the housing market will continue to improve and there are no foreseeable challenges that could cause a downturn in the next year (Nationwide 2015). The report from the organization suggests that the “housing markets in the vast majority of metropolitan statistical areas and divisions are healthy” (Nationwide 2015) as the country continues to improve its economic challenges.
The predictions for the future of the housing economy suggest that there will be an expansion in the majority of the housing markets at the local level. The predicted sustainable expansion stems from the changes in the way people perceive the value of work and housing solutions and lends to the best efforts of the country in improving the standard of living for the citizens in the country. Nationwide reports that the Midwest region of the United States has the most sustainable housing markets because of the increase in jobs, the increase in the formations and development of households and the renewed appreciation of the prices of houses. These factors stem from the incomes of the citizens and their need to acquire housing.
The decrease in energy prices continues to impact the way in which states such as Louisiana and Texas look at the regional housing markets. The changes in the prices of oil and energy will undoubtedly cause a decline in job opportunities and this will cause a rapid reduction in the national house price appreciation and make it more difficult to afford and sustain housing. The senior vice-president and economist, David Berson suggests that the majority of the regional markets have seen the highest increase in the housing fundamentals in almost a decade,” (as cited in Nationwide 2015). The economist further adds that this is a result of the “strong labor market, low mortgage rates and an uptick in the pace of new household formation, which tends to rise as employment conditions improve” (as cited in Nationwide 2015).
But, the increases in the interest rates have caused many questions among economists who believe that this increase will result in negative repercussions for housing in 2016 and in turn impact the housing market in the future. Interestingly, some economists suggest that despite the increase in the interest rate there is no immediate effect on housing as the present low level of mortgage rates and solid job growth will prevent any immediate negative impact on the housing market (as cited in Nationwide 2015). However, there may be long term effects, but this is not an immediate threat to the housing market.
Rogers and Winkler suggest that the American housing market crisis came before the labor market crisis (Rogers & Winkler 2013). Based on the order of the crisis, there have been a number of changes in the current housing policies. The severity of these changes varies according to the metropolitan statistical area (MSA). The authors further add that most of the metropolitan statistical area reflected the early decline in the labor market and this decline preceded the crisis in the housing market (Rogers & Winkler 2013). These views are in direct contrast to the popular beliefs of the majority of the metropolitan statistical area. Nonetheless, there is a relationship between the two markets based on the decline in the regional housing distress and rates of home ownership.
Growth and development in the labor market
Michael Madowitz et al point to the fact that the United States Bureau of Labor Statistics report on employment for February 2016 reveals that the country continues to add jobs and pull workers off the sidelines (Madowitz 2016). Many economists, including Madowitz have questioned the trend and its continuity and the impact this will have on the labor market. Despite the challenges in the past and the impact of the Great Recession, there has been growth in the economy. The question though is whether the country’s economy will continue to crow and provide positive changes in the economic status of the citizens and in turn improve the crisis in the housing markets.
Reports reveal that the “national unemployment rate for the month of January fell to 4.9 percent, a record low in this recovery and half its peak of 10 percent in October 2009” (Madowitz et al 2016). The numbers are comforting as this would mean that the economic growth would lead to more jobs monthly. Nevertheless, there can be an improvement in this growth in the labor market, which can improve the process of economic recovery. The new growth has created a new record and this suggests that despite the setback from the economic recession, the country continues to grow into a healthy housing market that has been helped by a favorable labor market. Arguably, the improvements in the labor market do not mean that there is no growth for the future of the labor market.
Despite the positive growth in the economy in 2016, there is room future growth based on the historical standards of job growth in the country. Statistics reveal that “there were 12.3 million more jobs in January 2016 than in June 2009, when the recession officially ended” (Madowitz et al 2016). Additionally, the private sectors added 12.8 million jobs. In contrast, the growth in jobs was greater in the 1990s as the government expanded the economy by creating over 250,000 jobs each month. The 1990s did not see the Great Recession and therefore one cannot truly compared the economic growth of that period to that of the present economic growth as the slow increase in the job prospect is a sure sign that the country is making a positive turn despite the global economic challenges and the changes in the price and production of oil and energy.
The future of housing and labor markets
The increase in the United States housing market will not reduce for a while as there are improvements and growth in the labor market. Economists suggest that the housing market will improve significantly “unless there's a definitive pickup in wages, entry-level housing affordability” (Oyedele, 2015). But, the problem that may arise is the decrease in the affordability of housing due the changes in the trends in housing. Akin Oyedele further adds that "a lack of affordable homes near city centers will push new and first-time homebuyers to suburbs that feel like walkable, amenity-rich mini-cities" (Oyedele, 2015) and thereby reducing the productivity in the specific state. Housing is one of the primary factors in the recovery of the economy as the interest rates and employment determined the affordability of homes.
Additionally, “interest rates would have to rise to about 6.5% for the cost of renting to be cheaper than buying” (Oyedele, 2015). In other words, the rate in mortgages would give to rise significantly or doubled for persons to want to rent a house instead of buying the house. This means then that there would be a tailwind in the housing market. In states such as California, it would require almost 50 basis points or an increased 4.5% mortgage rate to ensure that buying a house is more expensive than renting a house. Lucia Mutkani, in his article “U.S. inflation pushing higher; housing market firming” appoints out that the underlying U.S. inflation increased significantly in February of 2016 as the rents maintained their upward trend (Mutkani, 2016) and this means that the Federal Reserve can maintain the gradually raise interest rates in 2016.
The housing market strengthened in February of 2016 because of the number of positive activities that reflected the highest level of strengthening within five months. Based on this trend, the Federal Reserve hopes to raise the probability of an increase in the rates in June due to the steady changes in the housing sector and controlled labor market conditions (Mutikani 2016). The changes in the rate of inflation are likely to cause an increase in the coming months as there has been a slight increase on the Consumer Price Index. But, these changes do not alter the fact that “the housing sector is being supported by a firming labor market” (Mutikani, 2016). In fact, this will encourage many young adults to own or rent their own homes. Nonetheless, the demand for housing increases as the builders face the challenge of finding skilled labor and housing lots. This challenge leads to an increase in the rents in a number of major metropolitan areas.
In concluding, the United States housing market has seen a positive change in the momentum of the market. The fluctuation in the unemployment rates has led to a significant increase in the demand for housing among buyers and renters in many states. This has led to a turn in the growth of the housing market and many economists believe that this growth is unlikely to see a housing downturn in the upcoming year. The increase in the interest rates will have an impact on the affordability of houses. In addition, the increase in borrowing rates would set back the progress in the labor market and would lead to an increase in the mortgage rates. This increase would further lead to a reduction in the renting and purchasing of houses. But, rate hikes, on the other hand will not be effective immediately in the mortgage market as such a move would allow homeowners the chance to adjust to the different changes in the costs of borrowing.
Works Cited
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Appendix I
Appendix II
