It’s a beautiful day here in Las Vegas. 77 and sunny, high of 84, not a cloud in the sky and no gale force winds. Just a lovely, lovely day. Then I get in front of my computer, and find this story from Mises.org. Granted, it’s a couple of weeks old, but I don’t check Mises every day, or even every week… so it’s new to me. I suspect it’s new to most of you too.
The title of the post is “The V-Shaped Recovery Never Happened” and it is a takedown of glowing media reports that the American economy is just bouncing back full-force:
In a display of unconvincing enthusiasm, NBC reported today that payroll employment “surged” in February. Specifically, total nonfarm payrolls (seasonally adjusted) grew 379,000 month over month, which was above the expected increase of 210,000.
That might sound great to some, but a closer look suggests jobs growth is quite a bit more sedate than the media narrative suggests. Moreover, a look at the job growth situation in recent months is a helpful reminder that the “V-shaped recovery” we were promised last spring never happened.
What follows are two charts, along with explanation, that just ruined my perfect morning. Yet, I do not think it sadism for me to share this article and those two charts with you, because it is something that we in the real estate industry have to really think about.
In a real way, I’m nervous and fearful… but not really sure why I’m nervous and fearful. So it’s a form of therapy perhaps for me to write this and work this out with all of you.
Let’s get into it.
The Charts and the Argument
The two charts are these (from the article itself):
and
The basic argument of the author, Ryan McMaken, Senior Editor at Mises, is that the V-shaped recovery did not happen in employment, and that we might be measuring the wrong things to get at economic growth:
Fed chairman Jerome Powell has also admitted that the unemployment rate was likely close to 10 percent in January. Not surprisingly, Kashkari predict no “liftoff” for the economy until 2022.
Taking all this together, it’s pretty clear the United States is still very much in the midst of a jobs recession.
Yet, CNBC tells us that the economy is “on fire” because GDP totals may surge in the upcoming first quarter data. “Economic growth in the first quarter could hit 10%,” CNBC triumphantly proclaims, claiming the economy has “roared back” and is set to defy even the rosiest expectation. But unless something changes big time in the jobs situation, we’ll have to start looking at GDP the way we look at stock prices: something that reflects a lot of optimism and growth in some sectors of the economy but which has very little to do with the personal finances and job prospects of millions of ordinary Americans.
I urge you to read the whole thing. Because those charts strongly suggest that employment is not back at all.
The first chart makes it clear that while employment has rebounded from the very trough during the Lockdowns, it is nowhere near where it started back in Q1 of 2020. The second chart makes it clear that unemployment claims are at what seems to be a permanently elevated level even after coming down from the insane heights of the Lockdowns.
Add on to that the oft-repeated observation that the official Unemployment Rate does a very poor job of measuring actual unemployment, and we have real problems:
Although the official rate is 6.2 percent, the Washington Post’s Heather Long notes that the Minnesota Fed’s Neel Kashkari admitted “the true unemployment rate is around 9.5%”
Why the gap? It is a result of several factors, including falling response rates to the Labor Department’s employment surveys, the fact many have simply stopped looking for work, and ambiguities in the data over whether or not someone is only temporarily unemployed.
In other words, the official unemployment calculation excludes a great many people who would like to have jobs, but who gave up and stopped looking for work. Many others are only technically “temporarily” unemployed but in practice are jobless. The official data says many of these people are “on leave.”
Seems to me that there really is no debating the numbers as they are.
Thing is…
There Has Most Definitely Been a V-Shaped Recovery in Housing
We in the industry know for a fact that there has most definitely been a V-shaped recovery in housing. I saw this early on when I wrote the COVID and Real Estate paper based on market data and interviews with market participants. But data since then has shown it clearly. For example, Redfin has done some fantastic work in looking at the impact of COVID on the real estate market.
In everything other than active inventory, we have a V-shaped recovery in housing. More listings, more homes sold, higher median price, everything.
We know now in March of 2021 that buyers are facing one of the (if not THE) most difficult and painful markets we have ever seen. Again, Redfin is a fantastic source on this. Here are some of the stats from the story:
- The median home-sale price increased 16% year over year to $331,590, an all-time high.
- Asking prices of newly listed homes were flat from the previous 4-week period at $349,973, and up 11% from the same time a year ago.
- Pending home sales were up 28% year over year.
- New listings of homes for sale were down 12% from a year earlier.
- Active listings (the number of homes listed for sale at any point during the period) fell 42% from 2020 to a new all-time low. This is the largest decrease on record in this data, which goes back through 2016.
- 58% of homes that went under contract had an accepted offer within the first two weeks on the market This is a new all-time high for this measure since at least 2012 (as far back as Redfin’s data for this measure goes) and well above the 46% rate during the same period a year ago. During the 7-day period ending March 21, 61% of homes sold in two weeks or less.
- 45% of homes that went under contract had an accepted offer within one week of hitting the market, an all-time high and up from 33% during the same period a year earlier. During the 7-day period ending March 21, 48% sold in one week or less.
- 39% of homes sold above their list price, an all-time high and 15 percentage points higher than the same period a year earlier.
- The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, increased to 100.2%, an all-time high and 1.9 percentage points higher than a year earlier.
- For the 7-day period ending March 21, the seasonally adjusted Redfin Homebuyer Demand Index—a measure of requests for home tours and other services from Redfin agents—was up 149% from the same period a year ago, when housing demand was near the lowest point it would hit during the pandemic.
So the housing market is not just hot, it’s like surface-of-the-sun levels of hot.
How do we square this disconnect between the lack of a recovery in jobs according to Mises, and more-than-a-recovery in housing according to all of us?
Growing Divide –> Conflict –> ?
The only explanation is that the housing market is a clear symptom of the wealth gap between the Haves and Have-Nots in our society.
Those who have money, who remained employed throughout the Pandemic, often working from home in jobs that could be done remotely or in jobs deemed Essential (like real estate brokerage), have done extraordinarily well. Money is super cheap (look at interest rates), banks are desperate to lend, and most of the educated economically-literate people are thinking, “Hmm, real estate is a good hedge against inflation….”
Those don’t have money, who were laid off or furloughed due to government lockdowns, were not considered Essential, have done very, very badly. Pandemic unemployment only goes so far, and in fact creates perverse incentives for a number of people. Small businesses — the engine of jobs — have gotten absolutely hammered.
The Elites are buying houses like there’s no tomorrow; hence, the 146% increase in buyer demand. The Non-Elites have given up, or are very close to giving up.
Do we care as the real estate industry? I mean, our brokers and agents are making bank! They’re busier than they’ve ever been. Many of the teams and agents are having their best years ever and we’re not even to April yet. Do we care? Should we care?
I think we should care, because persistent economic inequality inevitably leads to social and political conflict.
One of the people I follow most and rather respect is Ray Dalio, who has been writing about this for quite some time now over on LinkedIn. In recent months, he’s really been sounding the alarm about this. Here’s an article in Business Insider that summarizes most of his points, and the key grafs:
Hedge fund billionaire Ray Dalio is warning that the political and wealth gaps in the US could lead to conflict — and even what he describes as a civil war.
Dalio discussed the state of the US economy during an interview released Tuesday with CNN’s Poppy Harlow. The interview was filmed last week, prior to his son’s death last Thursday.
The Bridgewater Associates cofounder described what he sees as three major forces underway: a wealth gap, a values gap, and a political gap, forces that he said have not existed to these degrees since the 1930s.
“History has taught us these things,” he said. “I’ve studied the last 500 years of history and cycles: large wealth gaps with large values gaps at the same time that there’s a lot of debt and there’s an economic downturn produces conflict and vulnerability and that will be with us unless the economy is good for most people — most people could be productive and effective and benefit.”
The issues, he said, stem from a lack of employment and productivity, and he said that growing unemployment and jobs being permanently lost to the coronavirus pandemic will result in “a continuation of the worsening.”
Housing is at the very center of that “large wealth gap.” So at the same time that growing unemployment and jobs and businesses being permanently lost to government action on COVID, we’re having the best real estate market ever? And REALTORS are making money hand over fist and posting their vacation photos all over social media and buying new Mercedes S-classes?
Forest for the Trees
I’ve been talking about this for a couple of years now, but in the context of Millennials, which I hold is the most divided generation we have ever seen. But now, that concern extends to all of America.
My concern is that we are so busy thinking about and talking about and fighting over small things, internal issues, and persistent Inside-Baseball things that we as an industry are missing the tremors of massive social and political change underneath us all.
For example, the industry went apeshit over Zillow acquiring ShowingTime. At the time of the announcement, I wondered why anyone cared that a big tech company acquired a small tech company. But in light of this, I wonder if this kind of distraction (that we all seem to be addicted to) is not actively harmful to all of us.
For another example, NAR is spending enormous amount of time, attention, money, and resources on identity politics issues. I’m not a fan of how NAR went about it via a Speech Code, but generally speaking, it’s not a bad thing to look at racial or gender issues. It might be, however, a bad thing if NAR is focusing only on things like Fairhaven or implicit bias training, while we have an earthquake headed our way because homes have become something reserved only for the rich, and to quote Ray Dalio, “the American dream does not exist right now, which could lead to a collapse of capitalism.”
It is a classic case of missing the forest for the trees. We’re picking lint out of our navels, while giant bears are charging towards us.
Hence, this post. It’s one thing for the rank and file broker and agent to be focused on the immediate problems and tasks right in front of them; that’s their job. It’s something else for the leaders of major companies and organizations to be looking down at their feet at a time like this. We must take a broader view, and look at the real problems — potential and actual — that are just over the horizon.
Or… I could just be overly paranoid. Your call.
-rsh
1 thought on “Two Charts To Ruin My Lovely Monday Morning”
Once again, well researched and well said. However, the one elephant in the room regarding employment is the ENORMOUS amount of government support that continues to be thrown at the issue. This distorts the entire premises of any sort of normal economic activity. While many business are failing (aka mom-n-pop restaurants and such) huge swathes of the population are still on government support. Call it unemployment, call it PPP loans for independent contractors, call it whatever, but when a person can make $50k+ sitting at home, why would they reengage with the job market?
We have seen it up close – we have been trying to hire for a new office manager position for about a month and a half now. Pay and benefits are actually higher than before the lockdowns, yet the applicants are…me-ah. The only answer to that (which I can find anyway), is that those who performed this task before the lockdowns, are receiving sufficient support from the government, and intend to stay that way until said support runs out. We have heard it over and over again.
At some point our government will lose the ability to continue to create money out of thin air. When that happens, this will all come crashing down. In the meantime, small businesses continue to struggle, with zero REAL help from the government. Sooner or later, guys like me are just going to say “screw it” and walk away. It’ll be interesting to see how politics matter then.
Can you say Atlas Shrugged?
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