By Clare Trapasso | Jul
22, 2020
The U.S. housing market has defied the odds
during a public health crisis, economic recession, and the highest unemployment
since the Great Depression. Home prices are surging nationally as buyers duke
it out over a very limited number of properties for sale. However, there are
fears the already battered economy is on the verge of taking yet another hit.
COVID-19 cases are spiking in many parts of
the country, which could lead to a second round of shutdowns, furloughs, and
layoffs in some areas. The additional $600 that more than 17 million people are
getting in weekly unemployment benefits is set to expire at the end of this
month if Congress doesn't act soon. And several large companies have announced
tens of thousands of job cuts on the horizon.
Can residential real estate remain unscathed
in the face of this looming financial pain?
Most experts expect the market will remain
strong—at least in the short term. The blockbuster combination of record-low
mortgage interest rates, which dipped below 3% for the first time ever this
month, hordes of still-employed buyers descending on whatever listings they can
find, and a brutal housing shortage have kept prices high.
"I don't expect an immediate impact on
the housing market," says realtor.com® Senior Economist George
Ratiu. "The housing market's summer season will remain hot. It's going
gangbusters. In the late fall and winter, it could cool off as the market tends
to be a lot slower and more small businesses close."
Congress and the White House are attempting to
bang out another coronavirus stimulus plan by the end of the month. This will
likely provide another jolt to the economy. But it's not yet decided what this
This likely won't be the last time the
government is called on to step in. Another wave of foreclosures could deal the
housing market a blow, knocking down prices and making families homeless. But
that wouldn't materialize until at least next year, after the maximum 12 months
of mortgage forbearance runs out for homeowners with government-backed loans.
The hope is by that time, laid-off homeowners will have returned to work and
can make their payments or the federal government offers additional assistance.
"Will there be some fallout? Of
course," says Matthew Gardner, chief economist of
Windermere Real Estate. "But I don't think it will be enough to cause
[housing] prices to drop.”
Additional
unemployment benefits have helped keep the economy afloat
The additional $600 a week in unemployment
benefits has helped sustain unemployed workers and their families—as well as
the economy itself. If it isn't renewed or the amount is cut significantly,
"it can be catastrophic," warns Edgar Ndjatou, executive
director of Workplace Fairness, a national organization that educates the
public on worker rights.
Normally when people lose their job, their
spending drops by about 7%, according to a recent JPMorgan Chase & Co. study. But this time, those
receiving the boosted unemployment benefits increased their
spending by about 10%.
"In many parts of the country, it goes a
long way," says Ndjatou.
While the fate of the unemployment benefit
isn't likely to affect the housing market directly, the impact of its
disappearance could trickle down to homeowners and potential buyers—and
possibly even lead to more layoffs and corporate cost cutting, according
to Gregory Daco, chief economist of Oxford Economics, a global
economics consulting firm.
"There are a host of industries that
depend on people and businesses spending money," says Ratiu.
More than 51 million Americans have filed for
unemployment since the beginning of the crisis in March, with about 17.3
million continuing to collect unemployment as of July 11. In plain English:
Nearly 1 in 5 workers received unemployment in June—five times more than the
previous record, according to to JPMorgan Chase.
Buying a home is such a monumental financial
commitment, of course, that those who lost their jobs or a substantial chunk of
their income are much less likely to be looking to buy a home.
For some, the extra $600 a week contributes to
the most money they've ever brought home. More than two-thirds of Americans who
lost their jobs, 68%, are receiving more in unemployment than they did at their
previous jobs, according to a May University of Chicago study.
"The life support the economy was on is
being removed," says Taner Osman, manager of regional
economics analysis at Beacon Economics, a Los Angeles–based economics
consulting firm. "If you withdraw this level of income from the
economy, this is going to act as a drag on the recovery."
More layoffs on the
way
The unemployment picture may currently be
looking a bit brighter as states have reopened and some workers are back at
their jobs—but the layoffs are far from over.
Many economists expect the double-digit
unemployment rate, which hit a high of nearly 15% in April before falling to
roughly 11% in June, to continue through the year and probably into the next.
New rounds of layoffs could hurt workers in higher income brackets this time
around. But those job losses could be offset by folks going back to their jobs
in newly reopened industries such as shipping, warehousing, or manufacturing.
"Whether things get better or worse, it's
not going to be a big movement one way or another," says New York
University economics professor Lawrence White.
Big-name companies like LinkedIn, Wells Fargo,
and United Airlines are slashing jobs. This week, LinkedIn announced it was
eliminating 960 jobs, roughly 6% of its workforce. Wells Fargo is planning
layoffs later this year that could total in the tens of thousands, according to
Bloomberg Law. United Airlines could let go of up to 36,000 workers, while
American Airlines could cut up to 25,000 workers.
COVID-19 is compounding the struggles of big
retailers as well. They're shuttering stores and letting go of lower-paid
clerks along with higher-paid corporate staff. Tailored Brands, the parent company
of Men's Wearhouse and JoS. A. Bank, announced this week that it will lay off
20% of its corporate staff and could close up to 500 of its stores. J.C.
Penney, which filed for bankruptcy earlier this year, eliminated about 1,000
corporate and management positions. Macy's let go of nearly 4,000 corporate
workers.
Small businesses are also suffering, with more
than 100,000 shuttering for good.
"It's going to be a roller coaster,
unfortunately, because of these scale-backs of reopenings," says Holly
Wade, director of research at the National Federation of Independent
Business. Even when they can reopen, "there are still small-business
owners who are experiencing declining sales or sales far below pre-COVID-19
levels.”
Renewed lockdowns
could be headed to a city near you
Some cities that have reopened could be closed
for business again soon. Los Angeles is on the verge of another citywide
stay-at-home order. Many cities have imposed new restrictions on businesses
like bars, gyms, and restaurants. The mayors of Houston and Atlanta attempted
to close down their respective cities, but their plans were vetoed by state
governors.
If COVID-19 cases continue to tick up and
businesses are forced to close once more, it could keep down the already
insufficient number of homeowners putting their properties up for sale, and
intensify the housing shortage.
However, even a new round of shelter-in-place
orders or business closures likely wouldn't bring the market to a standstill.
Homes can now be shown virtually, and much of the paperwork done online. So
unless real estate is deemed a non-essential business, the
industry could emerge just fine.
"If there is a second lockdown, it will
be bad for the economy," says Lawrence Yun, chief economist of
the National Association of Realtors®. "But the housing market shouldn’t
suddenly see a drop-off.”
Clare Trapasso is the senior news editor of
realtor.com and an adjunct journalism professor at the College of Mount Saint
VIncent. She previously wrote for a Financial Times publication, the New York
Daily News, and the Associated Press. She is also a licensed real estate agent.
Contact her at clare.trapasso@realtor.com.
Follow @claretrap
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