Real Estate Matters: How do unemployment and the Paycheck Protection Program affect the housing market?
Q: Do you think unemployment will skyrocket when the Paycheck Protection Program (PPP) money runs out? I know many business owners who will pay employees with PPP money for eight weeks then lay them off. I will be doing that with 25% of my employees.
Can you guess at an unemployment rise number as the stimulus funds run out? I heard a restaurant guy in New York being interviewed. He said that he has 600 employees who will get paid for the 8 weeks under the PPP. After that he plans to fire them and have them go on unemployment, so he said, “What have we gained?”
I think we are in for a huge increase in unemployment after the PPP money runs out, and I’m just wondering how you think this will affect the housing market, stock market and the economy overall.
A: Other than the housing market, which we’ll get to in a moment, we don’t see any silver linings with the COVID-19 situation. As of this writing, according to Johns Hopkins University, more than 143,000 Americans have died (over 625,000 globally) since the pandemic began, more than 4 million Americans (and more than 15 million globally) have contracted the disease and any progress that was made in terms of containing the virus and opening the economy appears to be regressing.
In March, the nation’s leading health experts and economists reasoned that we could all stay put, take the economic hit and let the virus run its course. We thought that the economic hit would be huge but would dissipate once the virus was under control. That hit was immediately reflected in the stock market plunge, negative economic indicators and historic unemployment numbers.
But now we’re in the middle of summer and the stock market is running extremely hot (especially certain tech stocks), while interest rates are at all-time lows. Around 32 million people are unemployed, and yet thanks to the unprecedented unemployment assistance, fewer people are defaulting on credit cards, mortgage and student debt payments this year than last year.
So, what about the housing market? Well, even in 2019, we were in a seller’s market, with not nearly enough homes being put on the market for all the buyers who wanted to purchase. After a momentary pause in March and April (when Sam saw new real estate deals come to a halt), it looks like the COVID-19 pandemic has intensified the desire many people have to buy a home.
A report from real estate brokerage Redfin shows 27.4% of Redfin.com users looked to move to another metro area in the second quarter of 2020 (a complete shift for millennials and Gen-Zers, who were looking to stay in diverse, urban areas for the lifestyle benefits). These users want a roomier house with some sort of outdoor space and are willing to drive farther to get it (especially if they can now work from home).
And the housing market is on a tear. It seems that people are trying to buy and sell as quickly as they can. Sam has experienced multiple bid situations on many of his deals. A quick internet search reveals anecdotal stories about home buyer bidding wars in Detroit, Milwaukee and Greenwich, Connecticut.
In another Redfin report, Brian Walsh, a Redfin agent located in Tampa, said, “The coronavirus hasn’t dragged home prices down; in fact we’ve seen just the opposite — prices are rising in spite of the pandemic.” Also noted in the report, the median home price in Tampa was up 8% year over year in June.