Housing Slump Threatens Jobs
The economy's growth has never before been so driven by real estate. Now that engine is sputtering
Jiany Massad isn't quite ready to throw in the towel on his fledgling career as a Miami real-estate tycoon. But if the local housing market continues to head south, the 30-year-old real-estate broker is already making alternate plans. "I might restart my old business," he says of a home decorating company that specialized in high-end window treatments. "At least it's real-estate-related."
With home sales down by nearly a third in Florida last quarter, thousands of those who hoped to cash in on the real-estate gold rush are now facing the cold reality of working in one of the country's most cyclical businesses. "Everyone's getting out," Massad says of colleagues who have already traded in their real-estate licenses for jobs in the jewelry trade and Internet sales.
Until recently, the housing industry was the biggest engine of job growth in the country, accounting for more than a third of all new jobs added to the economy since the boom began earlier in the decade. Housing-related employment now accounts for about 1 in every 10 jobs, a record, according to Moody's Economy.com. "We're more dependent on housing than at any time in the last 30 years," says chief economist Mark Zandi, "which could be a problem if the downturn becomes more pronounced."
Price slide. The latest housing industry numbers suggest that's exactly what's happening. Both existing-home sales and housing starts slowed sharply last month, especially in formerly hot areas like Florida and California. Meanwhile, more than two dozen metro areas reported outright price declines. In Boston, nearly half of all homes on the market had been reduced in price at least once, and more than a third have been marked down in San Diego and Phoenix, according to figures from ZipRealty.com.
Housing economists say the depth of the real-estate slump in markets around the country will depend, in part, on the local employment picture. "If job growth remains strong, that means people are going to keep moving in and buying houses," says housing analyst John Tuccillo.
Trouble is, many areas that have enjoyed the biggest run-ups in real-estate values have also seen corresponding increases in housing-related jobs, leaving them especially vulnerable. That could create a vicious cycle as job losses in the housing sector begin to undermine the overall economy, leading to an even deeper downturn in housing. "There's somewhat of a time lag here, but everyone's eventually going to feel it," says Jay Butler, director of the Arizona Real Estate Center near Phoenix, where housing-related commerce accounts for about a third of the local economy.
In Florida, where in some coastal areas housing now accounts for as many as 1 in 5 jobs, the number of real-estate agents alone has increased by more than 40 percent since 2001, to 305,000. Brokers' ranks have also surged in California, to more than half a million-about one for every home the California Association of Realtors expects to be sold this year. "The numbers just don't add up," says Vince Malta, CAR's president, who predicts a coming shakeout as less experienced agents find they can't earn enough to stay in the business.
Tightening. That process is already underway in other housing-related jobs, such as mortgage lending, title services, and appraisals. With the refinancing boom played out and mortgage applications near a four-year low, lenders like Washington Mutual have recently laid off thousands of workers, while some smaller operations have shut down completely. "It was quick, easy money, but then rates go up and it's over," says mortgage trainer Christopher Cruise, who recently visited one mortgage lending operation in Rockville, Md., that let all 71 of its loan officers go. "At the peak, all you needed was a voice and a telephone, and you were pretty much guaranteed six figures. But now you've got to suck it up, and some folks would rather just go lay on the beach and wait around for the next refi boom."
That's certainly not the case with workers at Bruce Williams Homes in Bradenton, Fla., which recently downsized its ranks by 25 workers, about a quarter of the total staff. "We helped find jobs for everyone we let go," construction vice president Tom McTigue says of the workers he steered into jobs with other builders. "It's not like everything has suddenly come to a grinding halt."
At least so far, the downturn has forced more of a belt tightening than a full-blown bust at his company. "We've cleaned out our backlog, and we're still building," he says, "just not like we were a year ago."
Others note that with commercial construction still booming in places like San Diego, workers with transferable skills are having little trouble finding work. "We've had a big slowdown in condo development but a huge increase in hotel construction," notes University of San Diego economist Alan Gin. "So far, the two are canceling each other out, but it's hard to say how long that will last."
For his part, Massad is trying to adjust his clientele, too. The founder of FloridaRealtyFinder.com had specialized in helping investors buy preconstruction condos. But with investors all but vanished from the Miami condo market, he has recently taken to walking his neighborhood to drum up residential sales. "A lot of other agents don't want to work that hard," he says. "But in six or nine months, they'll be out of business, and that'll just be less competition for me."
This story appears in the August 28, 2006 print edition of U.S. News & World Report.