Thursday, March 31, 2011

Employment: Regional Comparisons and Impacts on Housing

Total employment in the state continues to fall, as noted last week. Employment trends in different regions of the state, however, so this entry looks at which regions of the state have the highest unemployment rates, and which regions have recovered the most in their labor markets.

Regional employment trends can also provide us with some insights into local housing demand since, all things being equal, those areas with the most robust labor demand will also have the strongest demand for housing. This would be reflected in apartment vacancy rates and in median home price and home sales transactions, among other indicators.

The first graph compares unemployment rates in Colorado's metro areas:

The regional unemployment rates for February 2011 are:
Colorado Springs, 10.5 percent
Denver-Aurora, 9.7 percent
Fort Collins-Loveland, 8.3 percent
Grand Junction, 11.5 percent
Greeley, 11.2 percent
Pueblo, 11.6 percent

The unemployment rate is a reflection of both the total number of employed persons and the total size of the labor force, so the unemployment rate can decrease even in times of falling total employment if the size of the labor force decreases as well.

To provide some additional context, we can look to see how far below total employment levels are below the most recent peak in employment in each region. The peak time differs in each region. For example, the labor market peaked in mid-2007 in the Colorado Springs area, but it did not peak until late 2008 in the Grand Junction area.

The following numbers reflect how far below the most recent peak are the February 2011 employment totals:

Colorado Springs MSA, 9.3 percent
Denver-Aurora MSA, 8.4 percent
Fort Collins-Loveland MSA, 7.8 percent
Grand Junction MSA, 14.1 percent
Greeley MSA 10.1 percent
Pueblo MSA, 6.1 percent

Pueblo has only fallen 6.1 percent from peak levels, although Pueblo already had a relatively weak job market during the peak period, which would explain why Pueblo continues to be among the areas with the highest unemployment rates. The Fort Collins Loveland area, on the other hand, is now only 7.8 percent below its peak, and is also the metro area with the lowest unemployment rate.

Impact on Housing

The metro areas with the most job growth should generally also be the areas with the most demand for housing. We do see this reflected to a certain extent in the apartment vacancy data.

The Fort Collins-Loveland area had the lowest vacancy rate of any region during the fourth quarter of 2010, with a rate of 4.1 percent. The metro Denver area had the second-lowest vacancy rate of 5.5 percent. This coincides with the fact that the regional metro unemployment rates are lowest in the Fort Collins Loveland area and in the metro Denver area. Likewise, the areas with the highest unemployment rates, Pueblo and Grand Junction, have the highest metro-wide vacancy rates of 10.2 percent and 7.5 percent, respectively.

By this reasoning, Greeley, which has a relatively high unemployment rate, should also have a high vacancy rate. However, we find that Greeley has a relatively low rate of 5.1 percent.

To explain this, some industry professionals have suggested that rental housing has benefited from the high demand in the Fort Collins-Loveland area. That is, as rents have increased in the Fort Collins-Loveland area, renters have looked to the Greeley area for more affordable rental housing. This may in turn be driving down vacancy rates in spite of a lack of job growth within the Greeley area itself.