What effect will new jobs have on the housing market

It’s all about jobs today and the news coming out of the Labor Department Friday isn’t too shabby.

The economy added 200,000 jobs in December, dropping the unemployment rate to 8.5 percent from 8.7 percent in November. The economy may not yet be the lean, mean jobs-creating machine we’re all hoping for, but today’s report is still encouraging by many standards.

That being said, does the recent improvement in the jobs outlook help housing? Sort of, experts say.

It’s true that a dropping unemployment rate tends to spur housing demand, as more people get jobs and can afford to rent and buy homes. But with more than 13 million Americans still without jobs, demand for housing will likely remain muted for the time being. That’s especially true given that unemployment remains quite high among 25- to 34-year-olds, a prime age group for housing demand.

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“That’s when people form households and make a decision about whether to rent or buy, and often buy their first home,” says Jed Kolko, chief economist at real estate website Trulia.

The recession hit that age group really hard, and unemployment among that age group remains high at 9.4 percent (up from 9.2 percent in November). Fewer than three of every four people in that young age group are employed, according to recent data, which strips out a huge population that could potentially buy homes and rent apartments, soaking up the nation’s excess housing supply.

Only when job prospects turn around for that age group will we see the “pent-up demand” economists talk about translate into more home buying. That in turn will give the housing market the boost it needs and could touch off home price increases, which could help millions of Americans get their head above underwater mortgages.

Still, the jobs report bodes well for housing overall, primarily because good numbers from the Labor Department make Americans feel more secure about their own jobs or can give the public a morale boost if they are on the hunt for employment.

[Read: Report Shows Private Sector Hiring at 10-Year High.]

“Jobs matter a lot for building confidence and inducing households to go forward with their plans to buy a home,” says David Crowe, chief economist at the National Association of Builders. “It’s just as important to the people that have kept their jobs [as it is] for those who got a job.”

That means some Americans who were holding off on buying a home might be more likely to make the jump now, given the more stable employment and economic outlook.

“Improving job conditions provide additional confidence to those that have been hesitating to buy,” Crowe adds.

Obstacles still await would-be buyers deciding to jump into the real estate fray, but a boost in confidence could go a long way, especially given other improving gauges of the housing market such as home sales and new construction. While the impact might not be immediate, experts say the trend is heading in the right direction. That means more buy-shy consumers could start sticking their toes into the hostile real estate market waters soon.

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