October 12, 2020

In April, the number of jobs in the economy sank an unheard of 13 percent compared to last year. By July the loss was ‘only’ 7.7 percent and the possibility of a further quick recovery seemed possible as states re-opened their economy. But in August the loss was still 6.9 percent and now in September still 6.4 percent.

The monthly improvement is becoming smaller and smaller. This suggests very strongly that the COVID recession will last well into next year, which means that a lot of the lost jobs will be lost for good. In the Great Recession of 2008 job loss was never worse than 5 percent; but a year from now we could still be looking at a 3 to 5 percent job loss range.

Keep in mind that many businesses and industries (airlines for example) have so far received government aid to keep employees on the payroll. At some point that will end, and at some point state and local governments and other budget-constrained institutions like colleges and hospitals will be forced to lay workers off. Even as some industries do better, some will do worse.

What this means for real estate is that home prices in many markets will be flat, that more people will rent, and that the financial situation of both homeowners and renters will be weaker. This isn’t evident yet; home prices in the second quarter were up 4 percent over last year, pretty good. But investors should plan for a more unsettled real estate situation in the next couple of years. Both a risk and an opportunity.

The 6.4 job loss in September, compared to last year, included losses of 5 percent in manufacturing, 3 percent in retail, 1 percent in finance, 5.8 percent in business services, 3.2 percent in healthcare, 18 percent at restaurants, and 3.7 percent in government. In many of these sectors there was almost no improvement from last month.

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