Is Unemployment The Reason For Home Starts Going Down?

‘Housing starts’ is the terminology used in the housing market when new homes are constructed. For builders and construction companies to be willing to make the investment of building houses or neighborhoods, they’ll wish to be confident of seeing a return on their investment before proceeding. Of course, this ROI would come from house sales.

House sales are associated extremely closely with unemployment since, to state the obvious, those without the available finance can’t afford to purchase a house. When unemployment levels are high, house sales are low and this is likely to deter prospective developers from begin new housing projects.

A person’s employment status will have a greater impact on the market and economy than a single house that they may otherwise have purchased. If fewer people are purchasing houses, then this results in an age old rule coming into effect: Supply and demand. If there is a greater supply than demand, then the price drops, and vice versa. Dropping house prices would even contribute to a developer’s decision as to whether or not to proceed with a project and if they feel as though they cannot sell the completed houses at a suitable cost then they are likely to not go ahead with any plans.

Unemployment could have a vicious circle on the economy because having no cash themselves to spend means that less money is in circulation. This has a negative effect on business and commerce as revenue is reduced and can even result in redundancies as businesses look to balance their books. A lack of housing starts would also contribute to this effect because less construction projects means less jobs.

The fact is that individuals who are unemployed cannot afford to buy a home and therefore this would result in the decrease in the number of housing starts. Several existing homeowners even come under financial stress during hard economic times and might wind up losing their homes themselves. This further decreases the cost of houses and increases the inventory of empty properties. With many existing, cheap properties already on the market there is little requirement for a developer to start constructing new homes.

With so much bad feeling about and lack of client confidence, even those who are gainfully employed are probably to tighten the purse strings should their own rainy day come about. Even those who are comfortable financially and can easily afford to purchase property with having to fear for their financial security in the future are likely to anticipate the market to bottom out before investing.

Regardless of all of the available incentives to either keep your existing house or buy a new one, the best way to stimulate a flagging housing market is to create jobs. Creating jobs will start to circulate cash in the economy again and persuade individuals to spend and invest. Though it may initially be a costly operation for any nation, decreasing unemployment is arguably the best way to kick start any sector, housing included.

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