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Bullish Bear: Housing and Labor

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Candi Choi
October 15, 2020

During the 2020 Pandemic, the housing market has become a seller’s market where buyer demand outpaces the houses for sale. In certain regions, houses have only been on the market for less than 20 days and the final sale price far exceeded true market value. This leads to increased market values and higher than normal costs of living. The United States has grappled with similar dilemmas during historical recessions. The year 2020 is no different. The pandemic has provided several economic challenges especially to the labor market. Without discounting health stability, quarantined or not, society is in a position where it’s too costly to make life decisions with merely stop-gap solutions.

“While the housing market has had v-shaped recovery, the labor market hasn’t rebounded yet [in October 2020] to its pre-pandemic levels,” according to Nadia Evangelou in the National Association of Realtor blog Weekly Economists Outlook; Weekly Jobless Claims. The housing market dipped when the pandemic quarantine began. As states re-opened, the number of housing contracts increased by 18% between September-October. Therefore, the pandemic has had minimal impact on buyer demand in the housing market.

In September 2020, the pandemic impacted 19.4 million workers who were unable to work due to their employer closing or losing business, according to the Bureau of Labor Statistics. The overall labor force participation rate continues to decrease, currently at 61.4%. States have seen historically high unemployment rates in 2020; rates that averaged 15% across the United States. Thus, the pandemic has pushed the working classes from job stability.

Prior to COVID-19, household size has decreased to an average of approximately 2.5 people per household between the years 2018-2019, which increased the demand for smaller housing units. Rental units, condominiums and townhouse prices have increased above true market levels due to the demand for that size house. These home types are considered, “Starter or entry-level,” for first time homebuyers. The treasury has provided help with low interest rates during the pandemic. However, it is people who already have wealth that are able to buy more properties, more expensive properties or increase their contract offer price to outbid other potential buyers.  

A typical comparative market analysis for home sales barely meets the mark for understanding the true market value of a home. For instance, Zillow recommends amongst other variable, including homes nearby the seller’s home that sold within the last three-six months, within three miles of the seller’s house, price per square footage and comparing that number to the homeowner’s desired sale price. It is still an approximate 5% margin of error. When someone buys a nearby home over the asking price, it increases the housing comparatives for the whole area. Therefore, even at asking price, potential buyers are quickly removed from negotiations.

The CARES Act and stimulus are money dispersal mechanisms that encourage more spending in the market, but there is variation in domestic and public priorities with no guarantee that the money will circulate to where the government intends. Further, landlords and governments have provided deferrals for payments. Those deferrals have affected both credit and the ability to pay off payments in the arrears. Eventually, landlords and governments will develop finance enforcement mechanisms to offset losses. Thus, the middle to lower working classes will have a harder time obtaining housing, credit or financial stability in the future.

The low-interest high-demand housing market allows the wealthy to spend more while working classes are increasingly pushed from participating in the economy. There must be a balance between housing prices and what people can actually afford. Actors in the housing market (realtors, brokerages, appraisers, etc…) need to provide a total economic analysis for housing sales. The CARES Act and stimulus have limits to benefiting the public financial cycle. More so, stop gap mechanisms like deferring fees, interest and payments decrease the working class’ ability to obtain financial stability and status in the future. Instead, a longer-term solution is required. Perhaps, a rent-to-own style mechanism for first time homebuyers. Consequently, allowing people to continue to live within their means and restore their financial capacity.


Author: Candi Choi holds an MPA from Virginia Tech with specialization in local government management. She has experience with real estate, local budgeting, policy, planning and constituent affairs. Her contact email is [email protected]

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