Research Looks at Impact of Unemployment Rates

Based on the most recent July 2013 Bureau of Labor Statistics Report, Research is predicting a slowdown in real estate for the second half of the year.

Irvine, Calif.—Based on the most recent July 2013 Bureau of Labor Statistics Report, Research is predicting a slowdown in real estate for the second half of the year.

“The slowdown in job creation, that includes a fairly tepid number in July and the revisions downward for the previous two months, take away a little of the steam for the demand for housing, both multi-housing and single family,” Peter Muoio, managing director of Research, tells MHN. “It filters through to household formation, which is really the organic demand for all types of housing.

According to its analysis of BLS’s July employment data, the labor market appears to have softened recently. June’s employment gain was revised slightly lower, and July’s gain measured just 162,000.

“This dovetails with other economic data points that had softened in recent months, putting the possibility of a second half slowdown back in play, especially with debt ceiling negotiations about to resume in Washington,” Muoio says. “Despite the softer payroll gain, unemployment fell 20 bps from the month prior to 7.4 percent.  A modest downtick in the labor force participation rate was the primary cause of the drop in unemployment, another concerning data point.”

The report further reveals that the United States is in a situation where it is generating jobs at a robust pace and those that are being generated are geared towards part-time employment with some evidence that it is geared toward lower-wage employment.

“This is not the recovery we should be in at this point following the recession,” Muoio says.

Muoio goes on to say that the government sequestration has played a role, especially in the Washington, D.C., area and surrounding suburbs.

“The numbers we are getting are large jumps for economic indicators for that region. It’s one of a previously strong market, one that made it through the recession unlike any other part of the country, and suddenly seems a really difficult time,” he says. “In regards to multi-housing demands, the fact that D.C. is no longer the growth engine it once was because of the government cutbacks, it’s going to likely to attract more people. In recent years, the population growth increased dramatically. Now other parts of the country are starting to see larger growth.”

At the same time the government was putting out the employment release, it was also putting out information on two really important things for multifamily housing—reports on home ownership and household formations.

“The decline of home ownership has been sort of the engine that drove the super-strong demand for multi-housing over the last several years, despite the fact the economy wasn’t so great,” Muoio says. “The latest statistics show that the decline has indeed continued modestly and we are not seeing the sort of stabilization yet. In the last two quarters of 2012, we saw home ownership rates stay flat at 65.3 percent. In the first quarter of 2013 it declined to 65.2 and the latest showed it down to 65.1.”

Each 100 basis points is about 1.2 million households shifting to the rental sector so these 10 basis point moves in home ownership are an important source of demand for multifamily housing.