The Promoting Effect of Housing Prices on Employment: Evidence from the United States

In this study, we will address the relationship between housing prices and the unemployment rate within the United States housing market. Our research question, simply, is what will happen to the unemployment rate as housing prices change, while including confounding factors such as labor force and unemployment benefits. The economic relevance to this question comes in a multitude of ways, but most importantly this relationship allows readers to understand and follow the impacts that both micro-economies and macro-economies can have on a certain rate of unemployment. We expect to see unemployment drop as housing prices rise. Through our economic “story”, we hypothesize that in an area where housing prices are high, consumers have more money in their pockets because their houses are worth more. That leads to higher consumption and specifically a boom in the local economy. When there is an economic boom, there comes expansion as well within sectors, which leads to more jobs and, in turn, a drop in unemployment. We find strong empirical evidence to support this hypothesis as that a 1% increase in the cyclical component of housing price leads to a 0.08% decline in unemployment rate.