Job Market Stability Brings Relief to Housing Market

Since peaking at 11.0% in August 2009, Bay Area unemployment has been trending slowly downward. January's reading of 10.3% is the lowest since May of last year. Nationwide unemployment peaked at a (seasonally adjusted) rate of 10.1% in October 2009. January's reading came in slightly lower at 9.7%.

Most economists expect unemployment to remain high for the remainder of 2010. That's not good news for the housing market (especially in areas with a lot of underwater homeowners), but stable unemployment is far better than rapidly rising unemployment. Take a look at the chart, below, which shows the recent trajectories of home prices and unemployment in the Bay Area.

Bay Area home prices remained stable until the job market began to deteriorate. Prices then fell rapidly as unemployment rose, but stabilized once again when unemployment plateaued. (A similar course of events played out during the 2001 recession, although the current price decline has been far more severe.)

Some smart economists believe that the U.S. economy is not yet out of the woods, and could slip back into recession later this year. Let's hope that it doesn't work out that way. If so, then Bay Area housing prices may have reached a point of stability.