August 18, 2020

As we get more actual data about the economy it’s possible to see where real estate markets may be headed. It now looks to me that we’re in a holding pattern that can easily persist for the next year. The main consequences of this pattern are that home prices will hold steady while demand for rentals increases.

That’s a delicate balancing act because greater demand for rentals usually means less demand for homes and therefore lower prices. I think this time the demand for homes will fall off only enough so that prices stay the same. We’ll know more later this month when home price data for the second quarter are available.

The holding pattern I see is that even though consumer spending recovers, large numbers of people will remain unemployed. The pandemic isn’t going away, and even when it slackens there will be permanent changes to the job market that will mainly affect lower-income workers, increasing the income disparity problem. Probably this will eventually lead to government action such as a giant infrastructure program but the effects won’t kick in for years.

The overall job loss in July (compared to July of last year) was 8 percent, better than the 9 percent in June and 12 percent in May. The losses were 2 percent in finance, 4 percent in healthcare, 5 percent in retail and government, 6 percent in manufacturing, 7 percent in business services, and still a whopping 20 percent at restaurants.

Note the persistent loss in business services, only slightly better than last month; it’s the largest sector of the economy.

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