"As the McMansions Go, So Goes Job Growth"
by Daniel Gross

Source:  The New York Times, November 20, 2005.
http://select.nytimes.com/search/restricted/article?res=FB0612FD355A0C738EDDA80994DD404482

             The term "McMansions" is used to describe newly built luxury homes in relatively large developments.  The "Mc," of course, refers to the fast food chain McDonalds, and implies that these homes are relatively standardized products with little variation so that they can be produced quickly and efficiently.

             So why is the housing market so important to the economy, especially job creation?  As Daniel Gross explains in this article, housing is a labor-intensive industry.  And that labor is not easily "outsourced," meaning done overseas.  Not only is construction labor local, so are many of the related industries.  Buying and selling homes creates work for real estate agents and mortgage bankers.  People fix up their old homes to sell them and spend a lot of money fixing up their new home.  The old sofa may be replaced and a refrigerator updated.  This spurs demand in retail sales (and not just at home improvement centers).  Therefore, the purchase of a new home, especially a newly built home, has ripple effects throughout the economy.

             In recent years, rising home values have prompted many consumers to "trade up."  That is, they have been selling their homes and using their profits to buy bigger.  Low interest rates have encouraged them to buy now, pay later.  Since the stock market has only slowly recovered from a sharp decline in 2000, many households have concluded that real estate is a better investment.

             But just like the stock market boom of the 1990s, the real estate boom of this decade could be cooling down.  If so, those ripple effects would create bad news for jobs in all the affected sectors.

• What is the difference between "housing starts" and "housing permits," two important economic indicators according to this article?
• Think about the jobs created in construction, real estate sales, and retail sales.  Do technological changes have much impact on productivity in these industries?  What does this mean for job growth?
• Have you or anyone in your family bought a home in recent years?  What kinds of purchases were made for the new home?