Will Wisconsin Unemployment Crush Home Sales?

    Will Wisconsin Unemployment Crush Home Sales?

    Apr 07, 2020

    Unfortunately, millions lost their jobs or have had their hours cut these past couple weeks. Unemployment rates will be updated again on May 8, 2020, and it is expected to reach the double digits. Many people are pressured by a personal financial crisis, because of the economic impact of this health crisis.

    The President of the Federal Reserve Bank of St. Louis, Bullard, explained that the government is trying to figure out ways to help people who lost their jobs and the companies that have been forced to close (Matthews, 2020).

    Examples would be your bars, restaurants, small shops, etc., as many larger retailers have been allowed to stay open.

    In a recent interview, Bullard stated:

    “This is a planned, organized partial shutdown of the U.S. economy in the second quarter. The overall goal is to keep everyone, households and businesses, whole.”

    That sounds great and all, but we still don’t know when all those unemployed people will be able to get back to work.

    Additional concern: How will the U.S. economy be affected if people can’t buy houses?

    The housing industry is and always will be a major component of the overall U.S. economy. The concern is whether or not the growing number of the unemployed will start a housing market crash, and lead to more unemployment as there becomes a greater strain on the economy (Herbert, 2020).

    The Managing Director of the Joint Center for Housing Studies of Harvard University, Chris Herbert, addresses the impact the crisis will have on the nation from his post “Responding to the Covid-19 Pandemic,” stating:

    “Housing is a foundational element of every person’s well-being. And with nearly a fifth of US gross domestic product rooted in housing-related expenditures, it is also critical to the well-being of our broader economy.”

    How has the unemployment rate affected home sales historically?

    You would think this would be an easy connection. If unemployment rates go up, then home sales must go down. If the unemployment rates went down, then home sales would surely rise.

    However, history shows us that there hasn’t been a direct relationship over the past 30 years, and you can visually see it in the graph below.

    The home sales are represented in blue and grey, and the yellow line shows you the unemployment rate. Look closer at numbers 1-4 below:

    1.    The unemployment rate was rising between 1992-1993, yet home sales increased.

    2.    The unemployment rate was rising between 2001-2003, and home sales increased.

    3.    The unemployment rate was rising between 2007-2010, and home sales significantly decreased.

    4.    The unemployment rate was falling continuously between 2015-2019, and home sales remained relatively flat.

    This shows you that direct correlation between the unemployment rate and home sales doesn’t seem to be as strong as we may have thought.

    Isn’t this a little different than the past?

    Absolutely! We haven’t seen things on the job loss scale get this bad in almost 100 years! How bad do we believe it can get? The unemployment rate is expected to be around 15% in the third quarter of 2020, back to single digits by the fourth quarter, and then just over 6% percent by the fourth quarter of next year according to Goldman Sachs projections. This is not an ideal situation for the housing industry, but it is manageable.

    Compared to the other financial crises.

    I have read about and heard some people mention "The Great Depression". Our times do not compare if we are talking about the issues related to unemployment rates. The following graph will show you the unemployment rates during the Great Depression, the Great Recession, and the projected rates into the future:

    What's are the main points?

    The facts are presented above as we know them. Yes, there will be challenges in the housing market due to the current crisis. However, the housing industry should be fine in the long term, as has also been addressed in prior articles. This is because we are expecting a quick recovery for the economy after the health crisis is addressed, and help has been given...and is coming.

    Stay healthy and safe out there my friends,

    ~ Steven RedBeard Vertz, the Largest Beard in Real Estate.

    WizardofRealEstate.com

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    References:

    Herbert, C. (2020, March 24). Housing Perspectives - Research, trends, and perspective from the Harvard Joint Center for Housing Studies: Responding to the COVID-19 Pandemic. The Harvard Joint Center for Housing Studies. Retrieved from https://www.jchs.harvard.edu

    Matthews, S. (2020, March 22). Economics: U.S. Jobless Rate May Soar to 30%, Fed’s Bullard Says. Bloomberg. Retrieved from https://www.bloomberg.com