Why Housing Starts Are Even Worse Than They Look

NEW YORK (TheStreet) -- May's housing starts data may have missed forecasts by only 4% or so, but they fell about 20% short of what the economy needs for a truly robust jobs recovery.

The Census Bureau said Tuesday that builders broke ground on new homes at an annual clip of 1 million. That's better than last May's 915,000, but 7% below the results for April and 4% less than the 1.036 million mean forecast as reported by Econoday. 

That means that Tuesday's market will be driven by talk of the Federal Reserve having yet another reason to hold interest rates at super-low levels for even longer -- unless policy makers are distracted by today's inflation report that showed a pickup in prices.

But for Wednesday and beyond, the real tragedy of housing numbers like this is that they aren't strong enough to support a jobs recovery.

The economy -- read, the jobs market -- needs about 1.2 million housing starts a year to reach full employment, give or take the now-familiar arguments over work-force participation. Each new home started represents three to four new jobs (though with apartments, which accounted for slightly more than one-third of May's starts, the number is more like two jobs).

Another 200,000 starts a year, generating as much as 800,000 jobs, would bring unemployment under 6% by itself. The boost a 5.8% number would give consumer confidence would do most of the rest of the work of bringing joblessness to a very reasonable 5.5%.

It's really just arithmetic: The work force is about 155 million workers, and you can calculate what shifting that many people to the employed column would mean as well as I can.

But that 1.2 million starts -- which would have represented a gain of almost 25% from 2013 -- increasingly seems not to be in the cards as the spring home-selling season slips away.

The reasons are well known. Wages need to rise more to boost affordability, because mortgage rates are unlikely to go down as growth accelerates. Relief on student loan burdens, such as President Obama's plan to expand interest-rate subsidies, would help at the margin. That would be the case even though most borrowers who stop at a bachelor's degree should pay off their loans about when they reach normal home buying age, which historically has been about 31, according to National Association of Realtors research. 

At a minimum, mortgage rates need to stay low -- buyers are already more spooked than raw numbers about employment and home affordability say they should be. With the Fed's Open Market Committee meeting this week, discretion about making sure they don't get any more spooked would be the better part of economic valor.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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