Heidi Moore of the Guardian recently described the recovery of the US economy as “false.” Much of her premise is based on the rising prices of housing, especially the more recent jumps that are close to levels seen during the bubble, and how she sees them as artificial. From her article:
So pry between the boards of the housing recovery and the termites start crawling out. Here, you’ll find some old villains of the last housing bubble, crawling on the same properties. There are the house-flippers and the financial institutions, the foreclosure players that regenerate whenever there is a boom. … There is evidence that lenders are controlling the housing supply by reducing the number of houses for sale. Last year, AOL Real Estate’s reporting suggested that as many as 90% of available properties were not even really on the market, but just polished for sale and being held back to keep supply low.
How concerned should we be about this? Does it portend dark days ahead?
It is time to run?
I don’t think so, despite much of the picture Moore paints being accurate. Many real estate markets are dominated by investors and speculators; I can vouch for that in my own market of southern California. I have family working in the San Antonio real estate market, and they tell me it’s much the same there.
But there are two very important aspects that this narrow view misses: First, real estate is very local. While some markets are clearly dominated by investors, It’s not accurate to paint this as a single stroke covering the entire country.
Second, her argument makes no mention of the incredibly strong growth in new home construction. This isn’t being driven by “flippers and speculators” to the same degree that the rest of the residential real estate market is. New home construction levels in 2012 were up more than 50% from 2011, but the estimated 800,000 homes built last year were still nearly half of the historical average (hat-tip to Morgan Housel) of 1.5 million.
Moore goes on to quote economist and former Secretary of Labor Robert Reich:
Another topic that’s not being talked about: Half of working Americans now (are) earning less than they did 10 years ago, adjusted for inflation.
Yes, this is a real issue that affects many of us. But there’s a little bit of mixing topics going on. Income stagnation is a real problem, and there will be long-term effects. And while Moore points out some important social challenges, she disregards the other side of the housing recovery that is spurring the economy: Job creation.
Per Forbes, the construction industry is only about 1/12 of the US job market, but accounted for more than 1/3 of the job losses since the start of the recession, hemorrhaging over 2 million jobs, or more than a quarter of its workforce. The tide has now turned to the point that many in the home building business are concerned about a shortage of labor, maybe as soon as next year. And one of the great things about a recovering housing market is that the jobs created are usually very good paying ones.