How Massive US Unemployment Affects Real Estate
Q: More and more people are filing for unemployment now. How will this impact real estate? Cameron, Essex Fells, NJ
A: The job market serves is one of the most important factors that determine how many people will buy homes. In general high unemployment creates lower expected future income and lower demand for housing overall. People who have unfortunately lost their jobs are unlikely to buy homes in the near future. While wealthy buyers may be shielded from the economic downturn that the pandemic has caused, they may be hesitant to spend money on property as we face economic uncertainty.
The effect of the coronavirus on the housing market is hard to forecast, a lot depends on how deep the economic recession plunges and how long it lasts. One key question going forward is how many of the jobs already lost will be lost permanently?
The hardest-hit housing markets will likely be those with the highest percentage of jobs in tourism, leisure, and hospitality, the industries that have been most affected by high unemployment due to the novel coronavirus.
People without significant savings are typically the ones most negatively impacted by economic downturns–these people are often renters. Renters often spend a larger share of their income on housing and have fewer savings set aside to ride out a crisis. Consequently, tenants of rental properties represent a vulnerable group to the immediate effect of the coronavirus pandemic. High unemployment is not only likely to affect the housing market but also the rental market.
Some fear that a prolonged coronavirus enabled recession will revive a trend that rose after the 2008 housing crisis: Renters consolidating and moving in with friends or family which in turn will result in landlords losing tenants and rental income.
Currently, in many local markets there is a severe shortage of properties for sale–this trend has lasted for several years and may offset a reduction in demand for housing.
Thanks for your question, Cameron.
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