Jobs. Jobs. Jobs.
That’s the secret sauce for California home prices.
Far too often, housing analysis ignores job creation. Yet the importance of employment to homebuying math is fairly simple to me: if you don’t have a paycheck, or you’re just worried that your household’s current income stream is in jeopardy, you’re not buying a house.
Read more Justice Department targets slow immigration judges as Trump pushes faster deportations
To prove my point, the trusty spreadsheet looked at California job growth dating to 1990, using Bureau of Labor Statistics data, and compared that with Golden State home values, as measured by a Federal Housing Finance Agency price index. These years were ranked by the pace of job creation and sliced into three groups.
First, think about the slice covering the boom years. The 12 years with the fastest employment growth saw bosses statewide increase staffing at an average rate of 3% per year. In those same years, California home prices averaged 8% annual gains.
Now, contrast those upswings with the weakest job markets.
Over those 12 slump years, bosses were shrinking their workforces at an average rate of 1% per year. Meanwhile, home prices also fell by an average 1%.
That’s a fairly stark lesson that paychecks matter to home prices.
Face the nation
Let me assure you, these jobs vs. home prices patterns are not just a California quirk.
Let’s ponder similar results on a nationwide scale.
Peek at the 12 best years for U.S. job growth, years when employment expanded at an average 3% annual clip. In the same period, home prices rose by 6% yearly.
Read more Chief Justice John Roberts says Supreme Court is not political
Yet in the worst years for employment creation since 1990 – periods averaging 1% job losses – home prices increased by just an average 2%.
Look, job creation is a decent yardstick for housing demand. Not all jobs lead to buying a home, but a steady salary is a start.
One caveat is the oddly painful relationship between jobs and home prices for anyone seeking a housing bargain. Home values have a habit of falling just when your job security may be dipping, too.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]
Read more World Cup Group B Preview: Co-host Canada looks for breakthrough on home soil
- Try Jonathan Lansner’s Substack collection of economic trends. CLICK HERE!