When it comes to the job market and real estate, the relationship is generally correlative: when one rises, so does the other, and when one falls … well, you get the idea. Even with an unemployment rate of 3.5% (as of September 2019—the lowest in nearly 50 years), fears and predictions of an upcoming recession loom. As real estate investors and property managers prepare for a possible recession in the next one to two years, here we’ll discuss what you need to keep in mind.
Economic Factors Affecting the Housing Market
There are many factors affecting real estate today, such as demographics, interest rates, the economy (including the state of the job market), and government legislation. For the purpose of this post, let’s focus on the economic factors affecting the housing market. The overall health of the economy has a major impact on real estate markets. In general, the economy’s health is measured by such indicators as GDP, employment data, etc. To put it simply, when employment is down, people have less money to spend on everything from basics like housing and food to extras like entertainment.
Investors should note that some sectors of the real estate market bode better than others when it comes to changes in the health of the economy. For example, commercial real estate properties with office tenants who have long-term leases are less phased by the changes in market conditions. But for tenants who rely on consumers to spend money, such as retail or hotel businesses that need to make sales/rent out rooms, the economy’s health is more important.
What Factors Are Triggering the Recession?
Over the summer, the US set a record for the longest economic expansion, but according to economists, that will likely end in 2020. When Zillow Economic Research surveyed more than 100 real estate and economic experts in July, more than half said they expect the next recession to begin in 2020. Another third expects it to begin the following year.
The predicted triggers of the recession? The panelists predict that trade policy, a geopolitical crisis, a stock market correction, or a combination of these will be to blame. Although the panel does not believe the housing market to be a factor in causing the economic downturn, they predict home-buying demand will decrease in 2020.
There are also factors affecting demand and supply for housing when faced with an economic downturn. The supply of homes, of which new constructions hit a record high in August for the past 12 years, could soon far outweigh the demand as homebuyers will be less likely to purchase a new home. On the other side of the residential market, the demand for rental properties will likely increase.
Bottom line: When people are out of work, they don’t have a steady paycheck to afford a home, let alone sign a new lease (with the exception of proof of funding from investments).
Top Five Industries with the Most Jobs Available
In September, Glassdoor published its most recent Job Market Report, which indicated that the top five industries with the most jobs available are: Government, Accounting and Legal, Restaurants and Bars, Construction, and Aerospace and Defense.
One sector of the real estate market that has seen an increase in jobs is construction. In fact, Glassdoor reported a 13.7% increase in construction job openings last month. Some of the major companies hiring for these positions are D.R. Horton, HD Supply, and Aecon. The strong job growth in the construction industry is a sign of the times—a boom in housing starts has flooded the marketplace in recent years.
Top US Cities for Job Growth
The Glassdoor report also highlighted the best cities for job growth and high employment rates, with Boston, Philadelphia, Atlanta, Washington, D.C., and Seattle in leading the way. As far as the top cities for job growth, Boston saw an 8.4% year-over-year growth, with more than 152,000 open jobs. That compares to the overall US job growth of 3.5% in September, with total open jobs just under 6 million. (The Job Market Report compares employment and compensation data in September 2019 to the same month last year.)
These top five metropolitan areas for job growth have also seen growth in the real estate market. According to LittleBigHomes.com, the Boston real estate market forecast for the next three years is positive. Zillow predicts home prices will rise by 0.5% by May of next year.
Stay in the Know
The US job market has a major impact on real estate investments, and the industry as a whole. As a real estate investor, it’s important to stay on top of what’s happening in the industry. INVESTimate® – a Mynd Investment Platform will keep you updated on all the latest news, trends, and government policies affecting the US real estate market. Subscribe to our newsletter.