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Yet the U.S. economy added 263,000 jobs in September. And while the labor market is somewhat cooler from earlier in the year, it's a long way from anything that could be characterized as weak.
What could change this? One possibility is that it's just too early to see the impact, and the weakness in the housing market will pack more of a punch sometime next year. But I see two reasons for optimism that something structural has changed compared with prior housing cycles, making the U.S. economy better able to weather a downturn in single-family housing activity.
The first reason for optimism is that demand for multifamily housing has remained strong, as has apartment construction. High mortgage rates don't make the need for shelter go away, and if buying becomes too difficult, people are pushed into the rental market. Multifamily housing starts remain close to the highs of the cycle, and at a level 50% higher than we saw at the peak of the mid-2000s housing bubble. As long as housing units are still being built there will be jobs for construction workers and demand for related products and services. That's helping offset the downturn in single-family activity.
The second point is that the level of overall job openings, even though it has declined somewhat from the spring, remains very high historically. In August there were 10 million non-farm job openings in the U.S. That compares with 7 million at the onset of the pandemic and 5 million in early 2007 as the housing bubble was deflating. Even in the construction industry, there are twice as many job openings as there were in the mid-2000s. That leaves a lot of room for the labor market to weaken before it leads to a significant rise in joblessness. Even within construction, if there are layoffs in the single-family housing industry, workers can shift to building apartment buildings, warehouses for e-commerce, and projects funded by all the infrastructure spending approved by Congress.
The risk is that just as it took a while for the housing market downturn in the mid-2000s to spread to the broader economy, the same will happen today, and it's only the timing of the lag that's different this time. Back then, the resetting of subprime and adjustable-rate mortgages led to risky borrowers being unable to keep their homes, which over multiple quarters led to rising for-sale inventories, falling home prices, reduced construction and eventually mass layoffs.
Today, what's unique about the cycle is the historically high backlog in the number of housing units under construction because of high demand and delays related to supply chain problems.
As those homes get completed - and even if supply chain delays persist into 2023, the completions will happen eventually - and if mortgage rates remain elevated, there will be less need for construction workers. Even if there is some initial labor hoarding on the part of home building companies who anticipate a rebound, we'll eventually see construction layoffs as we did in 2007.
The good news is that this will take time to play out. From the peak in units under construction in mid-2006 it took another 18 months for construction unemployment to rise in a meaningful way. Today the backlog is greater, there is some offsetting demand from multifamily and the public sector, and the labor shortage is more acute due to retirements of older workers and a lack of immigration for more than a decade. And we haven't even talked about how policy changes have made mortgage underwriting and the banking system safer than they were 15 years ago.
So if you're looking for the recession in the housing market to spread to the overall economy, that's what to watch for. If the backlog of units under construction clears while demand remains low and we start seeing construction unemployment rise, then recession risk goes up meaningfully. But it's likely we wouldn't see that until we're well into 2023.
(COMMENT, BELOW)
Previously:
• 08/18/22 Future remote workers need to network more --- in college
• 06/17/22 Housing market cooldown will only lead to more dysfunction
• 05/27/22 Welcome to our be-careful-what-you-wish-for economy
• 05/04/22 The Amazon economic indicator says inflation is easing
• 01/20/22 Don't call me on Friday. That's my 'me time'
• 01/06/22 2022 is the year to buy your first luxury electric car
• 06/03/21 The post-pandemic boom will have a sequel in 2022
• 05/31/21 Florida may lose some of its boomer shine
• 01/11/21 Colleges bet on football in their own K-shaped recovery
• 12/31/20 Just send the bigger bucks already
• 08/24/20 Young people can't buy homes until older owners . . . move on
• 08/18/20 Our pandemic love affair with e-commerce could soon sour
• 08/10/20 Booming 'zoom towns' should ease city housing costs
• 07/11/20 With a Biden economy, will America be condemned to relive the '70s?
• 07/14/20 Renting and homebuying swap roles in the covid-19 market
• 07/13/20 Markets may have a reason to rise along with covid-19 cases
• 04/27/20 U.S. economy may have hit the coronavirus bottom
• 11/12/19 The 2020 economy should feel a lot better: What to, realistically, expect
• 04/23/19: Gen Z is likely to temper aging socialist millennials
• 03/25/19: All signs point to a housing boom ahead
• 02/19/19: Trump's economic gamble might make sense
• 02/15/19: Scaring off Amazon will backfire for the Left
• 01/29/19: The 2020 election will shred the Obama coalition
• 11/15/18: Amazon proving the 'rich get richer'?
• 11/13/18: How gerrymandering can reduce the partisan divide
• 10/22/18: The politics of the next recession will be a disaster
• 08/02/18: The future of the US looks a lot like ...
• 05/05/18: Brick-and-mortar stores may start to make sense again
• 05/05/18: College admissions season is about to get much easier
• 05/03/18: Changing housing needs of millennials will change economic development
• 02/13/18: The big idea for Middle America is to think small
• 02/07/18: Dems are caught in a tax bill trap this year
• 10/25/17: Good times have come to Trump-leaning states
Sen is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.