No other factor impacts real estate demand more than job growth does. Even more, the quantity and quality of the new jobs in a local area lays the foundation for new household formation, people moving into the area, and those moving out.
Housing economists pay close attention to jobs at local to national levels. Employment is so important because it indicates what the housing market will look like in the near future. Flat or negative job growth points to a slowing economy, while increasing jobs often lead to an expansive period for investors.
Employment levels and trends are fundamental to the Federal Reserve’s interest rate policies. Sluggish growth often prompts the Fed to lower interest rates in order to stimulate job growth. In turn, increased demand and investment dollars ripple through the economy and the economy reenters a growth cycle.
Why Job Growth Means Better Investments
Jobs and Household Formation
A job equals a paycheck that eventually helps people afford a home, whether it’s owned or rented. People who live alone, cohabit, marry, or divorce fuel the demand for housing when they have stable employment. How many jobs it takes to make enough to rent or buy depends on the local area and the debt load of the labor force.
The millennial generation is a good example of the need for some restraint when using jobs to predict where the real estate market is headed. This group entered the job market during the Great Recession when it was at its worst in decades. Consequently, this generation is having a harder time achieving home ownership as they age into their 30s, and is more likely to rent for longer periods. High student debt loads also contribute to their inertia as renters, which bodes well for residential investors.
Understanding Local Job Growth
Finding the Jobs Reports
The Bureau of Labor Statistics (BLS) is a federal agency that collects and compiles jobs data from each state and county in the U.S. and aggregates their findings into metro areas. Their website, bls.gov, shows monthly jobs by location, type and median annual wage, along with percent changes from one time period to another.
Quality vs. Quantity
As you review the jobs data for your area, pay attention to the wages and the total numbered employed in that sector. As an investor, the wage distributions and how fast their sectors are growing will give you a good sense of where the market is going. By reading the jobs data, you can decide which housing niches offer the greatest return for your investment, along with the lowest risk.
Fine-Tuning Job Growth
Economists assign numeric factors to job types that reveal how important the job is to the local economy. Besides the wages paid to the workers, some jobs create more jobs, referred to as the job’s multiplier.
Jobs in manufacturing and construction typically have the highest multipliers because their businesses need additional materials or services to do their work. When you see either sector growing, chances are more jobs will follow in supporting sectors.
Besides the multiplier, pay attention to state and federal government employment. Jobs at universities, research entities, or the military lend economic stability to a region and are a critical element for assessing the local investment climate.
All real estate is local, and learning as much as you can about your market will help you understand where, when, and how you should invest. One of your best sources of information is a trusted local real estate agency. These professionals stay on top of local conditions with regard to where the opportunities might be and the types of properties in demand.
Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.