Whoever wins November's election is going to go into 2013 with the mother of all tailwinds: The U.S. real estate industry is officially in recovery mode.
Is the latest improvement in unemployment a statistical fluke, a political conspiracy or the start of something real? The answer, obvious to anyone paying attention to the US housing market, is that it's real. Just look at this morning's housing construction numbers--a 15% increase in September, the best performance in more than four years.
Economic news will be saw-toothed through the winter, but the real estate industry is finally starting to create jobs, and will keep doing so in 2013, regardless of who becomes the next US president.
No one at this point is even arguing that real estate has rebounded. Last February, Redfin was one of the first to call the bottom, at a time when others were still revising their 2012 forecasts downward.
Now, Goldman Sachs predicts that home prices will increase 2% over the next 12 months, rising another 2.8% the year after that. JP Morgan CEO Jamie Dimon said on Friday that housing has turned the corner. Only 11% of consumers now expect home prices to decline.
US banks have already benefited, both from increased mortgage applications and fewer real-estate-related write-downs, with the biggest two reporting record profits. The only questions now are whether it will last and what it means for the overall economy. On the ground and in national statistics across the board, we see ample evidence that prices recovered in 2012, and now expect that sales -- and jobs -- will follow suit.
WHY REAL ESTATE JOBS MATTER
The reason real estate leads America in and out of recessions--of the 14 times American home prices have declined, 11 have resulted in a recession--is because it employs so many people in so many places, contributing as much as 18% of the gross domestic product. The US has more than 1 million licensed real estate agents but less than half that have recently served a customer. The construction industry has lost roughly 2 million jobs in the past five years, mostly due to the real estate crash. Many of these folks struggle to find jobs in other industries.
Because of trade deficits, electoral politics and nostalgia, we talk almost exclusively about the ebb and flow of manufacturing in Michigan and Ohio, but the auto industry's impressive recovery has only added 250,000 jobs. Even a modest increase in real estate jobs can swing the economy even further, reaching every corner of the country. Any town big enough to have a gas station and a pizza parlor usually has a real estate office, with plenty of empty desks. This is why an uptick in real estate sales has far-reaching effects.
THE BUILDERS ARE BACK
One of the first sectors to add jobs will be construction. The reason builders have had a great year in 2012 is because they've been able to build more without hiring more. Skeleton crews finishing off half-built projects--often bought for pennies on the dollar from bankrupt competitors--haven't added many jobs. It takes fewer cooks to prepare leftovers for dinner.
But now the builders are hiring big teams to break ground on new projects; housing starts are up 29% over last year. The Federal Reserve just reported not only strengthening home sales, but more construction across most of the country. In almost every American city, there are more cranes in the sky and holes in the ground, and more jobs.
So why has it taken so long for real estate to contribute to a recovery? Prices rose this spring due to demand, but sales lagged. And sales are what matter most, putting money in the pockets of brokers and builders.
It's hard for sales to increase more than a few points when inventory is down 29% from last year. The Federal Reserve spurred demand with record-low interest rates, throwing a party for the real-estate industry that many sellers decided to skip.
So when will sellers and buyers hook up? The truth is that there's always a lag. When real estate prices first start to move up, builders hesitate to build and sellers hesitate to sell. As in other cyclical industries, it takes most of a year just for everyone to believe it's real.