Friday, October 8, 2021

Real Estate Market Trending Against Economic Factors

The real estate market normally would be affected by swings in the local economy. The underlying economy is strong with unemployment low and demand for goods and services high. But lurking under the surface is a concern that has some economists a bit spooked. Workplace participation is plummeting, recent stats from the Dept. of Labor show only 61% of available labor is employed and roughly 11 million jobs remain unfilled. The trend is leaning towards a worsening rather than improvement. This is not sustainable and without some form of "intervention" a recession is inevitable. Service sector businesses have an abundance of demand that they logistically cannot serve due to supply chain issues and a lack of willing labor. 

Typically this lack of employment would lead to a slowdown in market demand for homes. So far the saving grace for housing has been that new housing is suffering from the same labor and supply chain shortages causing a slowdown in new inventory, thus exasperating the tight inventory conditions and keeping home prices trending up, rather than down.

Government continues to coddle those that refuse to enter the workforce to take jobs that are now paying 15-25% over the typical wages pre-pandemic. Half of the homeless population on the West Coast could be working a full time job by the end of this month making enough money to house and feed themselves if only they had the initiative. The other half theoretically could be employed as well, but that half needs genuine help to either overcome drug addiction or mental health issues. Governments need to clean up homeless camps, offer the addicted and mentally ill real opportunity for help and kick the rest out. With no other option those that are able will in fact go to work. There is a basic human need to survive, but so long as camping on the street, begging in the park, and free money from the government continues to be viable, the problem of both homelessness and failing business in a roaring economy will continue until the suppression of local and national economics leads to recession.

If businesses fail because they cannot find employees to serve a major demand for their product or service, that is a government induced problem. There is no need to continue the excessive government payments to unemployed persons when 11 million jobs are out there waiting for workers. The bar is as low as it has been in decades for employability. Nearly anyone with a pulse can earn $15 an hour in our local market and that is enough to pay for half of a two bedroom apartment or to rent a comfortable room in rental house along with food and other necessities.

Until local government pulls its head out from that dark area in the aft section, homelessness, crime, and other social ills will continue. On the national front it is time for the feds to stop handing out money to people that do not need it. The moratorium on eviction and the increased unemployment payments although a bit too generous, made sense in April of 2020 when governments were forcing business to shut down under the threat of what was then a bit of an unknown threat from the COVID 19 virus. By February of 2021 the pandemic conditions were stabilizing and workplaces started to reopen in earnest. That is when the unemployment payment bonus should have stopped and the moratorium on evictions should have stopped shortly thereafter. But they did not. This is why we find ourselves in the most unusual of economic situations with a huge demand for goods and services and a complete inability to serve that demand.

If this economic stagnation continues, interest rates will rise and that will close the door to a large portion of the buyers, then prices will likely soften. If employment returns to pre-pandemic levels or at least close to it, the real estate market should continue to be very healthy. Therein lies the mystery... what will the government do?


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