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CNBC.com
Surge in Joblessness May Deepen US Housing Slump
By Albert Bozzo Senior Features Editor
05 Sep 2008 12:16 PM ET
The surprising jump in August unemployment couldn't have come at a worse time for the already struggling housing market.
So far, the real estate slump has resulted mainly from over-inflated housing prices coming back to earth and the resulting credit crunch. Now, with the economy slowing and joblessness rising, housing is likely to get hammered even more.
“If people are worried about losing their jobs—or are losing their jobs—housing is the kind of purchase you can easily postpone,” says Nigel Gault, chief US economist at Global Insight. Gault. “We're at a point now where the broader economy is slowing down and unemployment is rising. The broader economy couldn’t hold up indefinitely as housing was plunging.”
On Friday, the government reported that the US unemployment rate zoomed to a five-year high of 6.1 percent in August as employers slashed 84,000 jobs. That reinforced worries that consumers would pull back even more on spending, including buying a house, and push the economy into a recession.
“Absolutely,” says Dean Baker of the Center for Economic Policy research. “We're now going to see an add-on effect from job losses.”
To add insult to injury, the jobs market is expected to get worse before it gets better.
Outplacement consultancy Challenger, Gray & Christmas recently forecast that “uncharacteristically heavy job cutting over the summer months could lead to the largest post-Labor Day downsizing since 2002. The firm adds that if the pace of the last three months continues through December, annual layoffs will exceed one million for the first time since 2005.
It’s already the case that some of the worst "bubble boom" housing markets and the economy’s geographical weak spots have unemployment rates well above the national average.
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