Daily Forecast Update: The Tax Credit, Employment

November 06, 2009

By Lawrence Yun, Chief Economist

Good news. The home buyer tax credit will be available through the middle of next year and to more potential buyers. The income limit is raised and many move-up buyers also will qualify.
Home sales are expected to get a boost by roughly 20 percent. More importantly, inventory will likely fall to 6 to 7 months by the middle of next year, which will mean that there will be modest home price gains by then.
Rising home values - given that they have overcorrected - to more economically justifiable levels will mean no further destruction in middle-class wealth. Rising home value will also mean lower foreclosure pressure. Official NAR forecast will come out next week with more detailed figures.
Bad news. The unemployment rate zoomed to double digits - now at 10.2 percent. It will likely go up to 10.4 percent before reversing. The jobless rate unfortunately will remain stubbornly high for quite some time.
By November 2010, the unemployment will likely be at 9.5 percent, which will impact mid-term election results with more than usual number of incumbents losing out.

Thank you to all who have responded to the Call-to-Action. Despite consistent opposition to the home buyer tax credit from the academia, newspaper editorials, and think tanks, Congress overwhelmingly passed the bill with the President expected to sign into law today.
A further decline in home value could have translated into $700 billion wealth destruction for middle-class home owning families, thereby hindering economic recovery. But with the tax credit, the rising home sales will help nudge up home values rather than continuing to over-correct. A $10 billion impact on the federal budget deficit from the tax credit will easily get recovered as the economy gets boosted.

Job losses continued as expected. There were 190,000 fewer payroll jobs in October compared to the month before. With 7 million job cuts in the past two years, the current total payroll employment at 130.8 million is even below the total jobs that existed in 2000. The country has about 25 million additional people in 2009 compared to 2000 to 2009, yet the total jobs have remained unchanged. The silver lining is that the pace of job cuts is less sharp now than in the first half of the year. With the increase in GDP, it is inevitable jobs will turn net positive in a few months.
Total construction jobs fell to below 6 million for the first time since 1998. At peak, there were 7.8 million people employed in construction in 2006.
Aside from much fewer payroll jobs, a separate the household survey showed 589,000 fewer jobs in October from the month before. The unemployment rate as a result shot up to 10.2 percent.
The average hourly wage was $18.72 in October, up 5 cents from the month before. Compared to one year ago, wages were up 2.4 percent. By historical standards, the increase is tame and unlikely to apply consumer price inflationary pressures.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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