If you’re in the Boston real estate business, like myself, this is not going to be a good week

Ten million Americans lost their jobs over the last two weeks, more will this week. The next announced unemployment rate on May 8th is expected to be in the double digits. Because the health crisis brought the Boston real estate market to a screeching halt, many of us are feeling the personal financial crisis now.

 How badly will the U.S. economy be damaged if people can’t buy homes?

A new concern is whether the high number of unemployed Americans will cause the residential real estate market to crash, putting a greater strain on the economy and leading to even more job losses. The housing industry is a major piece of the overall economy in this country.

Chris Herbert, Managing Director of the Joint Center for Housing Studies of Harvard University, in a post titled Responding to the Covid-19 Pandemic, addressed the toll this crisis will have on our nation, explaining:

“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 in the past?

It’s logical to think there would be a direct correlation between the unemployment rate and home sales: as the unemployment rate went up, home sales would go down, and when the unemployment rate went down, home sales would go up.

Real Estate Sellers – Have Faith in the Market

Boston real estate for sale

Boston real estate for sale

However, research reviewing the last thirty years doesn’t show that direct relationship, as noted in the graph below. The blue and grey bars represent home sales, while the yellow line is the unemployment rate. Take a look at numbers 1 through 4:

  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.

The impact of the unemployment rate on home sales doesn’t seem to be as strong as we may have thought.

Isn’t this time different?

Yes. There is no doubt the country hasn’t seen job losses this quickly in almost one hundred years. How bad could it get? Goldman Sachs projects the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. This doesn’t look good, but manageable.

How does this compare to the other financial crises?

Boston real estate for sale

Boston real estate for sale

Those with little faith believe this is going to be reminiscent of The Great Depression. From the standpoint of unemployment rates alone (the only thing this article addresses), it does not compare. Here are the unemployment rates during the Great Depression, the Great Recession, and the projected rates moving forward:

Real Estate and the Bottom Line

Let me try to end this Boston real estate blog post on a postive note. The headline of this post was to grab your attention, not to scare you.

With that said….

I’ve given you the facts as I know them. The Boston real estate market will have challenges this year. However, with the help being given to those who have lost their jobs and the fact that we’re looking at a quick recovery for the economy after we address the health problem, the Boston real estate industry should be fine in the long term. Stay safe.

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