We have been sounding this note for quite while; Slate’s Dan Gross also wrote this up a few weeks ago. But to give credit where its due, Asha Bangalore of the Northern Trust Company was the first Wall Street firm to quantify this (Her work is what led to my post ); Then a month later, Merrill wrote up something remarkably similar.
Now, a few weeks after NT and Merrill, the NYT writes up a broader but clearly related line of thought, based upon research from Economy.com.
Here’s the ubiquitous excerpt:
" . . . what might be called the real estate industrial complex, the economic engine that has become one of the few reliable sources of growth in recent years. Encompassing everything from land surveyors to general contractors to loan officers, the sprawling sector has added 700,000 jobs to the nation’s payrolls over the last four years, according to an analysis by Economy.com, a research firm.
Combined, the rest of the economy has lost nearly 400,000 jobs over the same span, which stretches back to the start of the most recent recession, in 2001.
For all its benefits, the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years. Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy’s largest single sector, slightly bigger than the industries and services that supply health care, according to Economy.com."
click for larger graphic
Graphic courtesy of NYT
The Times (unfortunately) is even behind in recognizing the potential risk to the economy: They noted "the newfound power of real estate has also left the country vulnerable to a housing slowdown, which many economists expect over the next few years."
You can wait a few years, or you can recognize the early signs now. As we wrote back in April (and before), the most vibrant sector of the economy — the real estate complex — is already showing some signs of slowing. If you watch mortgage apps, new home starts, and total sales, there is evidence of a plateau already.
The keys to a real estate slow down will be mortgage rates first, followed by unemployment. If either of these rise appreciably — or if overbuilding creates enough supply — it will be the beginning of the end for the hot sales and commensurate momentum of the sector.
Boom in Jobs, Not Just Houses, as Real Estate Drives Economy
By DAVID LEONHARDT
NYT, July 9, 2005