WASHINGTON (MarketWatch) — The intense pace of job destruction finally moderated in May as U.S. nonfarm payrolls declined by 345,000 — the fewest jobs lost in eight months, the Labor Department reported Friday.

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This headline raised hopes in some quarters that job creation might begin to improve before the real estate sector. We beg to differ, since real estate is already showing recovery signs, as existing and new-home sales have essentially stabilized, though prices are still falling in some areas.

In fact the unemployment rate rose to 9.4 percent, a 26-year high, as more workers flooded into the market looking for work. So the May jobs picture was a mixed result, especially since Barron’s pointed out that the Labor Department’s so-called ‘birth-death’ rate added an additional 220,000 jobs. These are jobs attributed to natural population growth that hasn’t been confirmed. Those jobs may or may not be there, in other words, and so subject to revision.

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New-home sales have finally stopped declining in April, inching up 0.3 percent, after falling for the past 18 months, as the graph shows. The number of completed but unsold new homes slipped to the lowest level since May 2001, though still a 10.2-month supply due to the slower sales rate.

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Existing-home sales have been climbing since January, mostly due to record affordability—a combination of extremely low prices and interest rates. The National Association of Realtors Affordability Index is now at 175 percent, which means that a median-income family can now afford a home that is 175 percent of the national median home price of $169,800.

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Lastly, the change rate in existing-home inventories has been declining since 2007. There is still a 10.2-month supply, but that is also because of the extremely slow sales rate. When sales approach a more normal sales rate, then existing-homes should drop to a more normal 6-8 months supply, the graph tells us.

This is while the jobs picture won’t improve substantially until more than 16.4 percent (25 million) workers who have stopped looking for work and/or work part time can begin to find jobs again. Right now, that inventory of unemployed workers is still growing, and so it looks like real estate will be the first sector to improve. That in turn will improve employment for construction workers, for starters. Construction spending has already risen the past 2 months (March and April) for the first time since 2006.

Harlan Green © 2009