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Freddie Mac: Housing Is the Economic Recovery’s ‘Juice’

The ""juice"" that will fuel the economic recovery is housing, or more specifically, new home sales, ""Freddie Mac"":http://www.freddiemac.com stated in its economic and housing market outlook report for May.

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Although the unemployment rate has been decreasing, falling to 7.5 percent in April, the GSE explained the reduction is due to a decline in the labor force participation rate, not an increase in employment.

According to Freddie Mac, the labor force participation rate, which remained at 63 percent in ""April"":http://dsnews.comarticles/payrolls-up-165k-in-april-unemployment-rate-drops-to-75-2013-05-03, was at the lowest level since 1980.

However, as the building of new homes adds to the availability of jobs, the unemployment rate should inch down.

""Based on historical correlations, every additional 100 thousand housing units started brings down the unemployment rate for construction workers by about three-fourths of a percentage point,"" the report stated.

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For 2013, Freddie Mac forecasts housing starts will increase by 200,000 units, which would support over 100,000 new jobs in construction.

Adding to this are the additional households that will form.

""Household formations are expected to gradually rise to a 1.2 to 1.4 million annual pace in coming years, supporting a sustained level of construction. Supplement this with replacement of existing stock and building for the second-home market housing starts should rise to 1.7 to 1.8 million dwellings by 2017. This will supply the juice to help strengthen the recovery,"" said Frank Nothaft, Freddie Mac VP and chief economist.

Another reason for the GSE's confidence in construction is because unlike the general labor market, the construction sector is not facing a ""structural"" problem.

Currently, one of the problems facing the labor market is that workers don't have the necessary skills to match the jobs that are available, according to the report. Based on historical averages, Freddie Mac explained the unemployment rate should actually be about 2 percentage points lower when considering job openings.

On the other hand, the issue facing the construction sector is that there are not enough buildings being built to place the millions of unemployed construction workers back into the labor force, according to the report.

The GSE also noted that while construction workers typically have higher unemployment rates compared to other workers, job gains in construction tend to be substantial during an expansion.

About Author: Esther Cho

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