Key influencer of home prices: jobs

This probably won't come as a tremendous shock: Falling unemployment gives a boost to home prices, according to a report from the American Institute for Economic Research.

The Massachusetts think tank said it looked at 20 metro areas from 1990 to 2009 and found that a 1 percentage point decrease in the unemployment rate results -- on average -- in a 3.7 percent increase in home prices.

"This suggests that the sluggishness of the housing market recovery is directly related to the slow improvement in unemployment," writes research fellow Shelly X. Liang.

There's an element of the-chicken-or-the-egg in that low home sale numbers depress construction employment, she notes. But "it appears that the direction of causality runs stronger from jobs to housing," she writes.

The institute's brief write-up didn't delve into details, including which metro areas were studied. But Maryland's unemployment rate, in case you're wondering, was 6.6 percent last month, up from 6.5 percent in February -- though employers added jobs, people streamed into the labor force faster.

Maryland's rate got as high as 8 percent in late 2009 and early 2010, according to the U.S. Department of Labor. So it's down more than 1 percentage point without an increase in home prices over that period, but the rate is still quite elevated compared with the 4 percent or so that Marylanders are used to.

Another finding from the American Institute for Economic Research report: "The price of a house last year was an important predictor of this year’s price."

If you see a 1 percent increase in home prices one year, you will, on average, get a 0.8 percent increase the year afterward, Liang says. But the "momentum" effect works both ways.

In other words: "Rising prices lead to more rising prices. It also means that declining prices lead to more declining prices."

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