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December 2010, Vol. 133, No. 12
The U.S. housing bubble and bust: impacts on employment
Kathryn J. Byun
Kathryn J. Byun is an economist in the Division of Industry Employment Projections, Office of Occupational Statistics and Employment Projections, Bureau of Labor Statistics. Email: Byun.Kathryn@bls.gov.
Employment Projections Program data are used to estimate employment impacts due to the recent housing market cycle, and alternative “nonbubble” demand scenarios indicate that at the peak of the bubble, in 2005, approximately 1.2 million to 1.7 million residential-construction-related jobs were attributable to “bubble-related demand”.
Several years ago, conditions in the U.S. economy—such as ease in the credit market—worked to create a prime situation for the first national bubble in U.S. home prices since that which preceded the Great Depression.1 Generally, housing demand is restrained as prices rise in the market because buyers can no longer qualify for traditional loans. New “affordability” mortgage products considerably relaxed this restraint, thereby allowing the recent boom period to continue much longer than previous expansionary periods. Nontraditional loans were increasingly granted with fewer requirements for buyers to provide documentation to verify that their income could support the mortgage payment.2 Moreover, these loans were often granted with little or no down payment. Mortgage-backed securities also contributed to the bubble by increasingly financing these high-risk loans throughout the bubble years.
By late 2005, the rapid growth of investment in residential structures had come to an end. Shortly thereafter, other indications of the oncoming bust became visible. First-time home buyers were increasingly priced out of the market, mortgage rates rose by roughly 1 percent, affordability of homes decreased substantially, and speculators pulled out of the market. The market correction has been much more abrupt than the onset of the bubble. Roughly a decade of growth of investment in residential structures was eliminated over just 3 years—from 2005 to 2008. Home prices, as measured by Robert Shiller’s real price index, have fallen considerably from their peak in 2006 to levels more consistent with earlier data. Whether or not the bottom of the cycle has been reached is not yet clear, as recent housing data remain relatively mixed.
2 See Shayna M. Olesiuk and Kathy R. Kalser, “The Sand States: Anatomy of a Perfect Housing-Market Storm,” on the Internet at www.fdic.gov/bank/analytical/quarterly/2009_vol3_1/AnatomyPerfectHousing.html (visited Dec. 1, 2010).
Compensation of residential and nonresidential construction workers.—Apr. 2010.
Recent employment trends in residential and nonresidential construction.—Oct. 2006.
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