In a time where real estate is moving quickly in terms of home sales, we have gotten used to lightning fast speeds in 2021. But with job market improvement, patience will be needed.
Real estate stability depends on a healthy, robust jobs market. Without jobs, people cannot form households, buy property or continue making rent or mortgage payments. What is the outlook for the jobs market in the months to come?
Last year, the triple whammy of the recession, pandemic and financial crash all coalesced into employment taking an abrupt and sudden nosedive. Here in California, between the December 2019 pre-recession peak and by May 2020, 2.6 million jobs were lost. These job losses effectively erased the past four years of job growth.
Some jobs have been recovered throughout 2020-2021, but jobs are still 1.7 million beneath pre-recession levels, as of March 2021.
This job market slack is likely to continue for some time, according to a recent report from Fitch Ratings. A return to full or maximum U.S. employment is not anticipated by the credit rating agency until the fourth quarter (Q4) of 2022.
“Full employment” includes an employment rate that contains labor force participation rates that are up to the stabilized level of 63%, the level since 2013 but before the 2020 recession. As of May 2021, the national level is 61.6%, according to the Bureau of Labor Statistics (BLS).
Although the Fitch Ratings report also uses the unemployment rate, unemployment numbers are not the most useful metric in tracking the job market. Instead, employment numbers give more of the story since they document the number of people with jobs — able to make housing payments. In fact, those without jobs have no effect on the real estate market since they need to garner income in some way to rent or buy real estate.
The significant job market disruption that occurred in 2020 is likely to lead to some mild scarring and reduced labor supply, according to the Fitch Ratings report. For example, some older workers will be permanently discouraged from working, choosing instead an early retirement.
Upward pressure on wages over the next 18 months will also be contained.
For the effects of the ongoing recession to subside, the U.S. will require the creation of a further seven million jobs, signaling an extended period of time needs to lapse before a full jobs recovery is underway.
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The economic, job and housing market outlook
Although the Fitch Ratings report indicates a full recovery will occur around the end of 2022, California real estate professionals will need to wait a bit longer for stability to return to the real estate market.
One reason the economy is likely to remain faltering for some time is that the jobs market has not regained its historic losses experienced in spring 2020. As of March 2021, California jobs are 1.35 million below a year earlier.
Between March and April 2021, roughly 100,000 new jobs were created in California. Assuming we continue this trajectory of about 100,000 new jobs per month, we won’t return to pre-recession job levels until 2036 – 15 years!
Of course, the pace of job additions will pick up and gain momentum, thus 2036 is definitely an overshot. A more likely full jobs recovery will occur sometime after 2025, to be determined by the pace of job additions once they pick up, likely to begin around 2024. This will be further complicated by any government intervention in the form of additional stimulus or job creation programs.
For the housing market, the impending expirations of the foreclosure and eviction moratoriums are looming. These moratoriums have until now kept jobless Californians housed during the recession. But when these moratoriums expire, a flood of distressed sales will hit the market, likely in 2022, overwhelming homebuyer demand and pulling down home prices.
Home sales are not likely to recover until Californians emerge from the recession, along with the return of jobs. first tuesday anticipates the recovery to only begin when jobs experience a resurgence, either through government-sponsored programs or organically, a recovery not to begin until around 2024.
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