Don't assume rising mortgage rates will scuttle the revival in housing.  It'll take rates near 6% before demand is badly dented.  Recent hikes…with 30-year fixed mortgages climbing from 3.35% in early May to 4.15% in July…doubtless spooked some potential buyers and temporarily dampened buyers' ardor. And continued volatility, as markets await a definitive move by the Federal Reserve to phase out its bond purchasing program, will keep some buyers on the fence. But…

Home values will keep climbing, and interest rates are still historically low, holding serious sellers and shoppers in the market.  Plus, for cities where buying has been frenzied, the slight slowdown will help smooth out extreme price spikes.

***

Come 2016…housing starts at a more normal pace of 1.5 million a year, roughly the level they were before too-easy credit spurred an unsustainable boom. 

But construction employment will be slower to recover.  From 2000 to 2006, payroll numbers for home builders grew from 2.7 million to 3.5 million…a remarkable 30% increase…while all nonfarm employment increased only by 3%.  Then, as the housing market crumbled, 1.4 million home building jobs disappeared.  Since hitting bottom, the number of jobs is up about 6%, and it'll continue to swell.

In 2016…still a few hundred thousand jobs shy of the pre-boom 2.7 million.  And regaining peak home building employment…a pipe dream.  Construction payrolls were overfat during the boom.  Now, companies are being cautious and staying lean, using overtime to eke out more work rather than putting more workers on payrolls.

***

Local governments are adding jobs again…up 46,000 in April through July and likely to total 100,000 or so net new positions by the time 2013 comes to an end. 

Revenues are stabilizing after the long downturn.  Property tax collections…about three-quarters of local government income…are up with rising home prices and fewer foreclosures.  Sustained, if slow, economic growth is also buoying revenues.

State governments will likely turn the corner on employment shortly.  From April through July, state payrolls dropped by an additional 26,000 positions.

The Kiplinger Letter – Vol. 90, No. 32