The Psychological Link Between Housing And Jobs

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The experts say the housing market's recovery will be closely tied to the jobs market. If they're right, then 2012 purchase market is about to heat up.

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44% Drop In First-Time Unemployment Claims

An "Initial Jobless Claim" is the first time an unemployed person files for unemployment benefits. It's a fair, near real-time gauge of the U.S. jobs market. When Initial Jobless Claims rise, fewer people are working. The reverse is also true.

Since peaking in mid-2009, the number of Initial Jobless Claims is down 44 percent.

This is consistent with recent jobs market data. Over the same period of time, the economy as whole has added more than 2 million jobs, including 243,000 last month alone. The national Unemployment Rate is now down to 8.3%.

More workers gives lift to the economy and to housing.

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Linking Jobs To Housing : A Tight Connection

The link between employment and housing exists on two fronts -- an economic one and a psychological one.

The economic link is relatively straight-forward. A person with steady, full-time work earns verifiable income and lenders require such income to be mortgage-eligible (with the notable exception of the HARP Refinance and FHA Streamline Refinance programs).

When a formerly unemployed person returns to work, therefore, that person regains the ability to buy a new home and many of them do -- especially when an out-of-town relocations is involved, or when a family has outgrown its current home either via the addition of babies or elderly parents.

The influx of buyers shifts the housing market's supply-and-demand forces. All things equal, more buyers in a market means home prices rise.

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There's a psychological connection between employment and housing, too.

It's not just out-of-work Americans that don't look for new homes -- it's fearful Americans as well. When people have concerns about losing a job, or taking a pay cut, they're are just as unlikely to move as people without a job at all.

The same for people unsure of their future.

See, when the job market recovers, it lessens those fears and draws out new buyers -- even those with an "underwater" home in need of a short sale. A rising jobs market takes home values right with it.

See The Market Turnaround First-Hand

The Initial Jobless Claims rolling 4-week average is at its lowest level since 2008. Fewer Americans are losing jobs, and more are finding permanent placement. It's one more reason to be optimistic for this year's housing market. Plus, mortgage rates are low.

Today's homes are cheap and affordable. It's a winning combination -- so long as it lasts, anyway.

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