In theory the Chicago real estate market should be driven by the local employment picture more than anything else. It comes down to the demand for housing – how many people CAN buy a home and also WANT to buy a home. And, with the exception of the small retired and independently wealthy population, it’s really only people with jobs that can qualify to buy homes and when people have good jobs they tend to also want to buy homes. Although migration might also come up in a conversation about the real estate market ultimately even that is captured in the employment numbers since most of the people moving in or out of Chicago will have jobs.
And take note that what I’m talking about here is the number of people employed in the area, not the unemployment rate. The unemployment rate won’t directly impact the housing market because you can have a strong housing market with a high unemployment rate as long as the number of people with jobs is rapidly growing – e.g. lots of people are being transferred to the area by growing companies while long term residents can’t find jobs.
Well, the graph below, provided by the Bureau of Labor statistics for the Chicago metro area, pretty much sums up the employment* picture and it is a real pretty picture. As you can see area employment peaked around 2000 with the dot com bubble and peaked again in 2007 during the housing bubble and even a bit afterwards. From that last peak to the trough the Chicago area lost a total of around 453,000 jobs and I don’t think it was a coincidence that the housing market cratered during roughly the same period.
However, since the bottom Chicago area employment has been steadily recovering and July (June and July are typically the seasonal high water marks for employment here) came close to hitting the all time record high in employment – off by only 32,000 jobs. And compared to last year at this time we have added 64,000 jobs so I would imagine that it won’t be long until we start showing gains relative to 2007.
In total 421,000 jobs have been added since the bottom so it should be no wonder that the housing market is doing as well as it is. However, one thing is not exactly clear from the data. From statistics 101: correlation does not prove causation. So we don’t know if the rise in employment has historically driven the housing market or if the improving housing market has driven employment up. I believe it is the former but let’s face it…new home construction creates a heck of a lot of jobs. Just try hiring a masonry guy right now.
* Best I can tell the BLS defines employment as basically working in a paid position for any portion of the pay period that includes the 12th day of the month.
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.