Slowing home market to ripple through job market
By Barbara Hagenbaugh and Noelle Knox, USA TODAY
Mon Mar 20, 6:38 AM ET
With the allure of easy money, thousands of Americans flocked to jobs in the real estate industry during the boom years.
"You saw it - there were dollar signs in their eyes," recalls Nick Vayonis, a former real estate agent in Los Angeles, where median home prices rose 145% in four years. (Graphic: Impact of housing-related jobs)
He left the business a year ago, just in time, he says. Home sales have declined nationwide for the past five months, and sales in Southern California fell to their lowest level in five years in February, DataQuick reported Tuesday.
"I could see the ebb and flow. It wasn't going to be like that forever," says Vayonis, 40, who just opened a coffee shop in Canton, Ga., near Atlanta with his wife Anne-Marie, also a former agent.
As the housing market slows, there will likely be a lot of stories of people who are bailing out of their real estate jobs and other professions related to housing - appraisers, mortgage brokers and home construction workers - and many not by choice. This could send shock waves through the job market and the economy.
That's because housing helped drive the economy out of the last recession. Almost four out of every 10 jobs created in the past four years were in housing-related fields. At the end of last year, a record 9.8% of U.S. workers were employed in the real estate industry, up from 8.2% a decade ago, according to Moody's Economy.com. Only the health care industry added more jobs.
"Job growth is the main engine for consumer spending," says Scott Anderson, senior economist at Wells Fargo in Minneapolis.
"If we don't get the job creation that we need to sustain spending, the economy could be in trouble as we get into '07," he says. "If we don't get any help from these other (non-housing) sectors, longer-term the implications are slower job growth, which means slower consumer spending, which would eventually discourage businesses from spending. You'd have this downward spiral in growth."
Belt-tightening starts
While it's too early to tell how deeply the housing industry will contract, many companies are already seeing some business evaporate.
Last month, Washington Mutual said it would close 10 mortgage processing centers and fire 2,500 employees. In November, mortgage company Ameriquest handed out 1,500 pink slips. The housing industry is braced for more belt-tightening.
"At best, people should prepare for no pay increase and no bonus, something they have been getting a lot of. At worst, they should be thinking they may need to change occupations," says Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pa.
While it's painful for those involved, Zandi calls the slowing in housing "a necessary adjustment." The economy had gotten so dependent on housing that it needed to come down a bit to make the economy more evenly balanced.
"Housing has been flying high, and it's now coming back down to earth," he says.
Existing home sales fell in January for the fifth month in a row, and home builders Toll Bros. and KB Home say more buyers are canceling their orders. In all, home sales are expected to fall 8% from last year's record, according to a group of economists surveyed by USA TODAY in January.
That's going to make it harder, for example, for the nation's 2.6 million real estate agents to make a living. In a "normal" real estate market, the median income for an agent in business for two years or less is $12,852, according to the National Association of Realtors. (However, it picks up rapidly after that, with agents making about $47,187, after three to five years.)
Your income "is very unpredictable," says Janice Hofferber, who left her job as a Wall Street stock analyst in 2003 and tried her hand as an agent in Bay Head, N.J. She quit last September and became an investment adviser for Smith Barney. "You're not really building a business, you're building a reputation," explains Hofferber, 41. "There's no recurring revenue. Every year, you start at zero again. That wasn't really attractive."
It was no easier in the mortgage loan business, says Toney Goucher, who closed his restaurant in Arkansas and became a mortgage broker in 2002. When he joined Leader One Financial in Kansas, home sales were hot, interest rates were low, and anyone who wasn't buying was refinancing. Last summer, the market started drying up.
"It seemed like every month, we had another interest rate hike, and it got harder and harder to find clients," recalls Goucher, 55. "I joined organizations and networking groups to find more business. I called on Realtors every day - cold calling - I just didn't enjoy what I was doing anymore."
Goucher threw in the towel and put on an apron. After traveling to St. Louis for a conference, he opened Fat Toney's barbecue restaurant there in January.
Picking up the slack
So far, the economic impact of the downturn in housing has been soft. Other sectors of the economy are adding jobs. In February, employers added workers in a broad number of industries, such as retail, health care, restaurants and bars and state and local government. If that continues, those jobs will help take up some slack if people in housing-related fields find themselves out of work.
Plus, many economists expect housing to slow, but not to slide dramatically.
"We don't expect housing to completely collapse," says Anthony Chan, chief economist at JPMorgan Private Client Services, adding that the housing market might regain some momentum in 2007.
There are also a few trends that could reduce the blow to the economy:
•Construction. Although residential construction is weakening, commercial building is picking up, thanks to demand for new roads, government office buildings and retail shops. More than 768,000 people had jobs in the non-residential construction industry in February, the most in more than three years.
"The commercial market now seems to be on a pretty good upswing, and if housing loses ground, which I think is very likely, we will see some of those workers move into the non-residential side," says Dave Seiders, chief economist for the National Association of Home Builders.
Many of the skills used in home construction are transferable to commercial building.
"A carpenter can just as easily work in a non-residential building as ... a residential building," says Michael Montgomery, an economist at Global Insight in Lexington, Mass.
•Hurricanes. Hurricanes last year damaged or destroyed 700,000 homes on the Gulf Coast, according to the Federal Emergency Management Agency, based on the number of families receiving federal housing aid.
Although it's unclear how many of those homes will be rebuilt, the process of rebuilding homes, businesses, roads and other infrastructure will likely create jobs for years to come.
•Refinancing. About 25% of outstanding mortgages in the fourth quarter were adjustable-rate mortgages, according to the Mortgage Bankers Association.
For those who got into the mortgage brokerage business, that's good news. Many homeowners will likely want to refinance their mortgages in the months and years ahead to lock in a fixed rate as interest rates are expected to rise, but not by a lot.
"That will kind of prop things (up) for awhile in terms of activity," Montgomery says
And plenty of people who got into the real estate market are determined to ride out any downturn.
One of them is Steve Wydler, 37, who left his job as a lawyer at AOL's headquarters in Virginia in December 2002 to join his brother, Hans, an entrepreneur with a Harvard MBA who is a real estate agent.
The two are getting their brokers' licenses in Virginia and Maryland so they can operate throughout the Washington, D.C., area. They now employ three people and work with four other agents as a team. He makes more money now than he did at AOL.
"Personally, I'm not scared," he says. "We're not in it for the next sale. We're in it for the long haul."
But back in St. Louis, at Fat Toney's, Goucher says he has already gotten a couple of calls from mortgage brokers he knew in Kansas asking about possible franchise opportunities for his barbecue restaurant.
"They say, 'You're lucky you got out.' "
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