Home Purchase
Is the Surge in Household Real Estate Wealth Adding to Unemployment?
January 4, 2022
3 min read

The strength in the current US residential housing market is most likely a long-term positive for the overall health of the US economy and has created a tremendous amount of wealth for homeowners. Strong housing demand, along with rising equity markets, and government stimulus were all a tremendous boost to US household wealth over the last year and a half and helped many homeowners weather the COVID financial crisis. The Wall Street Journal recently commented on this strength: “Home prices and stocks have soared, in part because of stimulus from the Fed. From the start of 2020 through Sept. 30 this year, U.S. households’ total assets soared 22% to nearly $163 trillion, Fed data show. Households have built up a $2.7 trillion stock of “excess savings”—the amount above what they would have had there been no pandemic—as of Sept. 30, 2021, according to Moody’s Analytics.”[1]

This magnitude of wealth creation coming out of the extremely challenging year that was COVID 2020 is unprecedented and bodes well for the entire US economy going forward. Thankfully, the US economy has – thus far – been able to avoid damage similar to that which followed the housing crisis of 2008/09. In the aftermath of that crisis, high levels of unemployment and an economy in recession both contributed to historical levels of residential home foreclosures. Thankfully, that has not been the case this time around.

However, paradoxically, the strength in housing could be exacerbating heightened levels of unemployment. In the midst of the COVID crisis in 2020, the US economy experienced the highest unemployment figures since the Great Depression of the 1930’s. Much of that employment rebounded once the worst of the business restrictions were lifted. However, unemployment remains stubbornly high for an economy that is otherwise firing on all cylinders. As detailed in the article, “Federal Reserve Chairman Jerome Powell said last week that booming stock markets, home prices and savings are probably leading some people to stay home rather than return to work, with perhaps some couples moving from dual- to single-income households. That is consistent with past research showing that willingness to work depends on one’s finances.”1

The interesting thing to note here, is that the continued lower employment participation rates are not limited to any one age or economic demographic. From the article: ”Many older workers retired early. But even among prime-age workers—those between 25 and 54—participation remains down more than a percentage point. Some economists believe the extra cash is one reason for this. Felipe Schwartzman, a senior economist at the Federal Reserve Bank of Richmond, wrote in November that the wealth likely relieved some people of the need to work, giving them the option to hold out for a better job or stay home.”1 If this is true, then with continued strength in both the residential real estate and stock markets, one might expect the lower levels of employment to continue.

As we have stated in the past, the health of the residential housing market is intimately tied to industries that span the entire U.S. economy. These can include skilled labor, construction, building materials, plumbing and electric, banking, insurance, and retail. When the US residential housing market is strong and healthy all of those sectors see a boost in economic activity. As the US economy begins to emerge from this latest crisis, the strength in the residential home market is emerging as a significant support system for millions of homeowners and bodes well for a strong bounce back with consumers.

Under normal conditions, a lower level of employment participation may lead to questions regarding the underlying strength of the economy as a whole. However, in this situation, it might actually lead to the opposite conclusion. While the current housing boom is unquestionably creating challenges for families looking to rent or purchase a home, the strength in the underlying fundamentals of the housing market is a significant plus for US consumers and the economy as a whole.

 

[1] “Vast Household Wealth Could Be a Factor Behind U.S. Labor Shortage” by Josh Mitchell, The Wall Street Journal, 12.19.2

Chris Jones
Chris Jones

Chris oversees business development, investor relations, and capital partnerships. With 25 years of experience in alternative investments, Chris has raised $250 million in assets. He’s served as Chief Compliance Officer, co-managed a Fund of Funds, and worked in operations and trading. Chris has been instrumental in growing four companies. Through firms like Sapourn Financial Services, Dekker Capital Management, and Diamond Peak Capital, he’s delivered solid absolute returns across varied market cycles.