“Encompassing everything from land surveyors to general contractors to loan officers, the sprawling sector has added 700,000 jobs to the nation’s payrolls over the last four years, according to an analysis by Economy.com, a research firm.
Combined, the rest of the economy has lost nearly 400,000 jobs over the same span, which stretches back to the start of the most recent recession, in 2001.
For all its benefits, the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years. Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy’s largest single sector, slightly bigger than the industries and services that supply health care, according to Economy.com.”
A separate study by Northern Trust Company came to similar conclusions. From November 2001-April 2005, employment in housing related industries comprised 43.15% of total private employment gains. Starting in June of 2004 – when the Federal Reserve starting raising interest rates – and continuing to April 2005 – the percentage of housing related industries to total private sector payrolls was 13.68%. This is a statistically significant decrease, meaning it’s magnitude is problematic.
Just to throw fuel on the fire, there are numerous articles speculating the US currently has a real estate bubble. According to a May 2 FDIC report titled US Home Prices: Does Bust Always Follow Boom?, some 63 markets are currently experiencing a real estate bubble, which the report defines as market appreciation over 30% over the preceding 3 years. In other words, the domestic US economy’s primary engine of job growth is in a speculative period of asset appreciation.
Starting in 2000, the US has lost 2.5 million manufacturing jobs. Some of these losses are due to productivity increases, but certainly not a large proportion. As a result, the US is simply not making other products that would add necessary diversity to the economy. This diversity would limit the impact of a decrease in real estate prices.
Tying all these facts together, we arrive at a very dangerous situation. The US economy is a one-trick economic pony that literally is involved in real estate development to the exclusion of other economic sectors. As I have said before, I am all for real estate, but not to the exclusion of other industries. And right now, other industries are not involved with the current economic expansion.
When the housing bubble pops, we could be in for a world of hurt.
northerntrust.com (PDF file)