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Peter Crabb: Jobs are key to sluggish housing market

The housing market is still holding back Idaho’s economy. Or is it the other way around?

At the national and local levels, the housing market has not rebounded despite better overall economic conditions. In a report released June 21, the National Association of Realtors said that existing-home sales in the United States decreased 3.8 percent in May as compared to April of this year. The seasonally adjusted annual rate of existing-home sales now stands at 4.81 million — well off the rate of 6.5 million seen in 2006.

The association's report added that the housing market in Western states was holding up better. May sales of existing homes in the West were unchanged at an annual pace of 1.17 million.

At the state level, the association tracks the sale of all single-family homes and apartment condos. In the most recent report for Idaho, about 42,800 homes are selling at an annual rate, up more than 9 percent over last year.

The quantity of houses on the market and selling in Idaho and the West may be stabilizing, but prices continue to fall. The median price of a home in the West was $192,300, down nearly 13 percent since May of last year.

The association also tracks the sales of existing homes in 19 metropolitan areas. The closest study area to Boise is Portland, where sales are down 16.1 percent and prices are off 7.1 percent over the past year. According to online real-estate information firm Zillow.com, the median list price for homes in Idaho is down more than 4 percent in May over last year.

Economists look at the housing market as they do any other market by analyzing supply and demand. If the market quantity bought and sold is rising but prices are falling, one of two things must be true. First, prices fall and quantity rises when supply increases and demand holds constant. The second possibility is that both demand and supply are increasing, but the supply increase is outpacing the rise in demand.

Neither scenario bodes well for improving Idaho’s overall economy. Lower home values can discourage consumer spending, the largest component of gross domestic product at both the state and national levels.

Housing demand is unlikely to catch up with supply until the employment situation improves.

The Idaho Department of Labor reported that even though the state’s seasonally adjusted unemployment rate fell in May, employers are hiring at less than the seasonal norm. Total non-farm jobs in Idaho were down 1,800 in May compared to last year.

Even with a growing economy over the next year, the level of state employment is unlikely to rise to a point that would bring back the home prices we saw in 2007. According to the most recent forecast from State Economist Derek Santos, non-farm employment in Idaho will grow at an average rate of 2.8 percent over the next 18 months, raising total employment in the state to about 638,000 jobs. This is still nearly 20,000 below the state’s peak employment of June 2007.

Idaho’s economy won’t benefit from higher housing demand any time soon. Only more and better jobs for Idaho workers will get us back on our feet.

PETER CRABB Professor of finance and economics at Northwest Nazarene University in Nampa.

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