Unemployment is Dropping. What That Means for Real Estate
- Jul 22, 2015
Real estate markets are local, and few economic indicators are more important for the health of the market than localized unemployment numbers—MSA or statewide. It’s all well and good that the national unemployment rate is now at a reasonably healthy 5.3 percent, but to communities in West Virginia (for instance), the more important number is 7.4 percent. That’s the current unemployment rate in the state and in fact the highest state rate in the nation in June, according to data published by the Bureau of Labor Statistics on Tuesday. By contrast, Nebraska had the lowest rate in the country, coming at 2.6 percent. It’s worth noting that while the Dakotas’ unemployment rates are still fairly low (3.1 percent, North, and 3.8 percent, South), the drop in the price of oil has dropped them from their former No. 1 and 2 positions.
In June 2015, payroll employment increased in 31 states, decreased in 17 and the District of Columbia, and was unchanged in two states. It’s significant that largest month-over-month increases in employment occurred in three states with a lot of major real estate markets (unlike West Virginia or the Dakotas): New York (with a gain of 25,500 jobs for the month), California (up 23,000), and Texas (up 16,700). Other states that also have major real estate markets were in the top ranks of job losers for the month, but didn’t lose nearly as many jobs as the top states gained. The decrease in employment in Illinois was 7,500 jobs, followed by New Jersey (a loss of 7,400) and Maryland (down 6,200). The BLS will provide more detail on MSA employment markets next week.
Unemployment rates in 31 states are now at 5.5 percent or below. That’s an important benchmark, because below 5.5 percent is considered a healthy employment market by the Federal Reserve. That suggests two things. One that employers might finally have to start paying higher wages to attract workers in a number of markets, considering that the supply of unemployed persons who want to work is dropping. Wage growth has been the missing piece of the recovery puzzle for some time now, and if it starts happening, that would be good for every real estate sector, but especially retail. (And it would be good for apartment renters, whose rents have been going up in recent years.)
Also, such relatively healthy state jobs numbers point to a Federal Reserve rate increase sooner rather than later, which would increase the cost of doing real estate deals, albeit slightly at first. Another indication that an interest-rate hike is entirely possible in the near future came from St. Louis Fed boss Jim Bullard, speaking to Fox Business over the weekend. He said that the Fed needs to “get ahead of the inflation curve” with a rate hike in September, and he puts the odds of such a move at greater than 50 percent.