Does job growth strengthen a region’s housing market?

In 2015, home prices in the DC region appreciated more slowly than in any of the other 15 largest metro areas in the US. We also had pretty weak job growth last year, with the number of jobs increasing by just 1.6 percent over 2014. So weak job growth means a lousy housing market, and vice versa, right? Well, maybe… but maybe not.

Both the media and analysts often use home price appreciation as a way to discuss the strength of a housing market. The graph above shows the relationship between home value appreciation in 2014-2015 and job growth in 2013-2014 for the nation’s 15 largest metropolitan areas.

The biggest thing to note: There is no discernible pattern. Over the last 15 years, in fact, the correlation between job growth and home value appreciation is practically zero.

From 2000 to 2001, the DC region had the fastest home price appreciation among the country’s 15 largest metro areas, but but the region ranked only eighth in terms of job growth. And between 2014 and 2015, the Dallas area experienced the fastest growth in home values but had relatively slow job growth— Dallas came in at only 9th place in terms of job growth.

So if it’s not jobs, what factors are important for helping us understand where the Washington DC region’s housing market is headed?

I’ll offer three suggestions:

1. The characteristics of new residents matter. Older households are more likely to be owners and impact the for-sale market, while young people are more likely to rent or buy smaller, less expensive houses. If young people are fueling our population growth and filling our new jobs, they won’t have much of an impact on home prices. Conversations about our housing market should consider the demographics—age, household composition, etc.—of people coming to the region.

2. (Relative) housing affordability matters. Nearly 300,000 households in the DC region pay more than half of their income on housing. The region is one of the most expensive places in the country to raise a family. If it becomes harder to afford a place to live, fewer people will come—and stay—and the housing market won’t look as strong. To predict where home prices are going, we need to look at affordability, both for owners and renters. If nobody can afford a place to live, the housing market will “soften.”

3. The types of jobs matters. Maybe it is jobs after all but it is the types of jobs that makes a difference to predicting the performance of the housing market. Better paying jobs—for example, professional and technical services jobs—might lead to more home sales and higher prices. Even if our economy looks like it’s growing, adding low wage jobs won’t make our market look strong if we’re measuring it by home price growth.

Now, this is just looking at prices or home values on the for-sale side of the market. What else explains this seeming lack of a relationship between metro area home price appreciation and job growth? What factors will help us explain where the region’s housing market might be headed?