Residential Sales Down 55% Since Bubble Burst

People are always asking me, "How's the market?" Here's the simplest answer I know. Take a look at the chart, below, which shows the annual value of residential sales in San Francisco over the last fifteen years.

Sale prices didn't peak until the spring of 2007, but sale volumes started falling in 2004 (see this earlier blog entry). Stated in that way, the historical trajectory of the market may be difficult to grasp. The story becomes simpler, however, when prices and volumes are combined: After peaking at $8.0 billion in 2005, residential sales have fallen in every year since. Through the first eight months of 2009, sales are running at an annualized rate of only $3.6 billion. In percentage terms, that amounts to a 55% decline since the housing bubble burst.

That's how the market is doing.

Job Seekers Outnumber Openings Six to One

Today's New York Times has a discouraging story about the job market. According to the Labor Department, there are 14.5 million people officially unemployed, but only 2.4 million full-time permanent jobs open. That means that job seekers outnumber openings by a ratio of six to one. By comparison, the jobs-to-openings ratio never even reached three-to-one following the dotcom bust. (Unfortunately, the Labor Department didn't start tracking job openings until 2000, so we don't know what the ratio might have looked like during previous recessions.)

As icing on the cake, the story adds that many companies have pared back working hours for their remaining employees. When demand begins increasing once again, they'll be able to expand output without creating any new jobs.

Stories of idle capacity at American companies are rife. Take a look at the chart, below, which shows manufacturing capacity utilization over the last 60 years.

Capacity utilization is running at a 60-year low of 65.8%. That's 15 percentage points below the historical average of 80.9%. Manufacturing represents only about 12% of GDP, but considering the many other examples of idle capacity, I'd say that the Times story is right. It's likely to be quite awhile before unemployment falls appreciably.