Once the coronavirus crisis winds down, the pool of prospective homebuyers may remain stout despite the unprecedented spike in the U.S. unemployment rate, according to Odeta Kushi, deputy chief economist at First American Financial Corp.
It normally stands to reason that high unemployment, especially of the magnitude seen so far during the COVID-19 crisis, will reduce the number of prospective homebuyers in the market, Kushi said. But if the economy is able to bounce back relatively quickly, the nature of the losses to this point could leave a wide swath of the homebuyer pool intact.
Take the April 2020 jobs report, for instance. Of the 20.5 million total jobs shed across the economy, 7.7 million were in the leisure and hospitality sector. Of that 7.7 million, about 5.5 million were in food service.
Although it’s impossible to discern how many of these workers were planning on buying a home in the near term, a vast number of people affected by the millions of lost jobs in leisure and hospitality figure to be renters, rather than current homeowners or would-be homebuyers. Service-sector workers are disproportionately young and without a college education — diametrically opposite to the typical homeowner. According to First American’s data, owning a home correlates closely with being older and carrying a degree.
“The young and less educated are clearly more impacted by the service-sector consumption contraction, but the young and less educated are also less likely to be homeowners or potential homebuyers,” Kushi said.
To quantify this, First American calculated the homeownership rate among the population most vulnerable to pandemic-related job losses in the service sector. In this case, First American defined “COVID-19 vulnerable” workers as those who are 25 years old or younger and have not attained a college degree.
The difference in the average homeownership rate between the non-vulnerable and vulnerable groups is nearly 54%. And although it’s possible that layoffs will spread on the same scale to other employment sectors before the pandemic subsides, the current share of homeowners and prospective buyers among those who have lost their jobs is smaller than the share of homeowners and would-be buyers across the general population.
“The purchase market will not go unscathed, as demand has slowed due to the economic uncertainty and labor-market decline,” Kushi said. “Yet historically low mortgage rates have brought some prospective homebuyers back into the market, as evidenced by the fourth straight week of rising purchase applications (according to data from the Mortgage Bankers Association).
“Our analysis shows that the nature of this service sector-driven recession is unlikely to result in a one-to-one decline in homeownership demand because those being impacted disproportionately by this recession are much less likely to have been house hunting in the first place. In fact, the data indicates that homeownership demand may be delayed, but it’s not dead.”
