The government is pouring trillions of dollars into unemployment funds and distributing economic assistance to citizens across the country, in addition to implementing a suite of policies to prevent evictions and foreclosures. Initial efforts and forecasts for job recovery at the start of the year indicated recovery could be a long way off, but June’s latest job hiring numbers, as reported by the Bureau of Labor Statistics, shows jobs are back. Yet many employers are still having difficulty filling positions due to lack of applicants, leaving us to question: Are jobs alone enough to save real estate gridlock?
The current job market
Unemployment is higher than it has been over the last 11 recessions that the United States has experienced since around 1950. Continued weekly unemployment insurance claims have started to stabilize, going from over 20 million in early 2020 back down to 3 million. However, April saw a record high of $48 billion paid out in unemployment benefits, which could have been double that if it weren't for administrative delays, according to the Hamilton Project, part of the Brookings Institution.
There were 9.2 million job openings in the U.S. as of the last business day of May 2021, and there are currently approximately 9.5 million unemployed. Obviously, not every unemployed person is able to be employed or is qualified for open positions, but there seems to be plenty of opportunity.
In fact, 94% of retail stores surveyed by Korn Ferry said they were having trouble filling positions due to lack of applicants. Many companies have even resorted to sign-on bonuses -- and we aren't talking elite corporations and higher-level positions. Companies like Burger King, Amazon, and Kubota have all advertised bonuses to entice people to apply, with hourly wages far exceeding minimum wage.
The factors at play in the real estate market
Facing previously high levels of unemployment and economic uncertainty over the past year, the federal government put several policies into action that significantly impacted how real estate investors are able to manage their properties. Moratoriums on foreclosure and eviction; business closures; rental assistance that is paid to the renter, not the landlord; and unemployment assistance have left a significant number of investors in the position of being unable to maintain cash flow on their residential or commercial properties. Unless they have the reserves to cover costs for nonperforming assets, they themselves could be faced with default. This is not an ideal situation and certainly not good business.
At the same time, real estate prices and rental rates are soaring, in part because of a housing shortage and in part because of a low interest rate environment fueling a shopping frenzy in an undersupplied market. These hikes are putting those who suffered a loss of income in a particularly tough position for holding on to property while income is down or being able to afford a new property in the current market.
Will plentiful jobs fix the situation?
In theory, hiring and more job openings should spur positive economic activity, but there still seems to be a disparity between openings and hired employees, particularly in the service industry, which means many people remain unemployed and businesses continue to not be able to operate at full capacity because of a lack of workers.
The key here is filling jobs in the sectors that need it the most, meaning the service, retail, and entertainment industries and employing the lower- and medium-income wage earners -- both demographics and industries that were impacted the hardest during the pandemic. Ultimately, when employment and operational levels return to pre-pandemic levels, it should spur the government to lift the emergency initiatives. But right now, no definitive end is in sight, meaning the real estate market may remain unbalanced for a while longer.