National headlines are celebrating recent large job additions, but the full story is much more complex.
Shelter-in-place orders instated to protect residents from the coronavirus (COVID-19) caused many businesses to close, many temporarily and some permanently. As a result, job losses piled on at an unprecedented rate beginning in March 2020, peaking in April and remaining level in May. Then, in June 2020, 4.9 million of these jobs returned and the U.S. unemployment rate decreased to 11.1%.
Here in California, the total unemployment rate was 14.9% in June 2020, down from April when unemployment was at a record high of 16.4%. For perspective, the state’s unemployment rate hit an historic low in February 2020 of 3.9%, according to the Bureau of Labor Statistics (BLS).
The rapid return of jobs has led to some optimistic forecasts for the economy. But parsing out the different types of unemployment tells a more worrisome story, illustrated vividly by the Los Angeles Times.
From May to June 2020, the number of temporarily unemployed workers decreased from 15.0 million to 10.6 million, a 29% decrease. However, the number of permanently unemployed workers rose from 2.2 million in May to 2.8 million in June, an increase of 28%, according to the BLS.
The job bounce must come down
Despite the sunny picture depicted by media outlets focusing on June’s record job gains, today’s job losses are of grave concern to the real estate market.
Jobs are the single most important factor in regards to residential and commercial real estate sales, pricing and leasing. That’s because, without a reliable income, homebuyers cannot purchase, renters cannot pay rent and homeowners cannot pay their mortgages. Further, sellers feel less certain about listing their homes and landlords are unable to make their financial obligations when tenants don’t pay. In order for stability to return to real estate, first, the jobs need to return.
When will the rising tide of permanent job losses subside?
Some believe that an end to social distancing (achieved through a vaccine, or perhaps through a conscious choice to ignore the mounting deaths) will bring a swift rebound from our current economic recession. However, what will happen instead is an action morbidly referred to by economists as a dead cat bounce, in which the economy hits bottom but appears to show signs of life, rebounding quickly, only to fall flat. In this metaphor, the economy was never fully revived, rather it was propelled upward by sheer momentum, which ultimately is not enough to sustain it.
But simply hanging up “open for business” signs will not be enough to induce consumers to return to their old ways. In the short months since social distancing and sheltering in place began, consumer behaviors have changed, becoming more reliant on virtual activities and more cautious in general. For example, despite job gains in June 2020, consumer sentiment dipped in July, with more surveyed consumers reporting lower expectations for the future, according to the University of Michigan Survey of Consumers.
For real estate professionals seeking to survive the 2020 recession and the long recovery still to come, this information can prepare you to expect an elongated slowdown. A business upturn is likely toward the end of this year, but don’t be fooled. The coming months will resemble the 1980 recession, which ended quickly but was followed by a second, steeper recession in 1981-1982.
first tuesday forecasts the economy won’t even enter a sustainable recovery until 2022-2023. Until then, prepare for the reduced home sales volume to continue and for prices to weaken.
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