With many signs in the housing market pointing upward, and the stock market on what—for the most part—can be considered a roll, the darkest blotch on the economy right now is decades-high unemployment. And in California—Long Beach in particular—it’s about as dark as it gets.
California’s unemployment rate climbed to 11.9% in July, the highest rate on modern record, as the unemployment rate rose from last month’s rate and well above the rate of 7.7% a year ago, an Employment Development Department report issued on Friday shows. California was tied with Oregon for the nation’s fourth-highest unemployment rate. Los Angeles County’s overall rate was 12.5%, with 622,900 people listed as unemployed.
Unemployment in Long Beach reached 13.7%. Essentially 33,200 people are listed as unemployed in Long Beach, or about one in seven of the city’s total workforce populous. Unemployment is up from 12.5% in Long Beach for June, the EDD report shows.
What does this mean for what appears to be a recovery in the residential real estate market? Primarily this: even when lending standards were at their loosest, having no job has always been and always will be a big, fat disqualifier on a home loan document. And with so many people jobless—and many more in fear they could lose their jobs—a big chunk of the population has been remanded, one way or another, to the market’s sidelines.
Indeed, joblessness, and the fear of joblessness, is likely to be a major drag on any housing recovery that Long Beach and the rest of California is about to experience. Still, there is strong anecdotal evidence from Realtors who say sales continue to surge, and that multiple offers on listed properties has stopped being the exception. This is all likely due to low home prices, rock-bottom interest rates and declining housing inventory. But if these bleak job figures continue, how the unemployment pictures plays out in the long run is a question that can only be answered by time.
“I do believe in my 20-plus years I’ve never seen a better time to buy,” says Phil Schaefer, with Seven Gables Real Estate. “The tax credit seems to really be working for a lot of first time buyers.”
Schaefer says he recently wrote two offers on homes, and “on each property there were at least two to four other offers. I sold one for $610,000—it was listed at $595,000. There is a lot of activity and multiple offers are common.”
Steve Goddard, president-elect for 2010 of the California Association of Realtors, agrees that it only stands to reason that high unemployment numbers will impact a housing recovery. “If people don’t have a job, they don’t want to buy a house,” he says.
However, Goddard believes that instead of being impacted by unemployment, the housing market will positively impact jobless rates. “As the housing market recovers, construction jobs will start being created,” he says. The lull in housing construction has cut into housing inventory, cutting it to less than four months worth in California, according to CAR figures. “That’s longer than the typical time homes are spending on the market,” Goddard adds. The historical average for home inventory in California is roughly seven months, according to CAR figures.
“We’re certainly ready to start building houses,” says Goddard.
Additionally, Goddard notes that California homebuyers have access to the Mortgage Protection Plan, which pays up to $1,500 per month on your home payments for up to six months if you lose your job. “And it’s free,” Goddard adds.
George Harper, owner of GH Building Consultants in Long Beach, believes high unemployment is hurting sales in one area of the market: fixer-uppers. “There’s a reluctance to reach to buy a house if people are unsure about their job,” he says. And if a property requires work, and therefore a monetary investment, people are going to think twice not only about buying a home, but buying a home that could require an additional investment down the line. “That could really produce a lag in fixer-uppers,” he adds.
Harper conducted a property inspection last week, and after he talked to the buyer’s agent, based on the report he issued, “they decided to not buy the property,” he says. “The fixer-uppers, they’re being passed up and people are starting to look into the amount of money and work they have to put into them.”
In cities around Long Beach where the median income is low and where so many first-time buyers flocked to get into cheap properties at the height of the real estate rush, the unemployment employment picture is even worse. In Compton, unemployment reached 20.9%, the EDD report shows. In Cudahy it hit 17.2%, in Paramount unemployment was 18%, and in South Gate it was 15.8%.
And don’t look for a recovery in jobs in lockstep with a recovery in the economy. That’s according to comments made by Los Angeles’ economic guru, Jack Kyser, for Realty Bites a few weeks ago. Kyser noted that while Southern California, along with the rest of the nation, is likely at the bottom of the economic cycle, “we will see a slow, jobless recovery.”
Whatever the case, less jobs is never a good thing. And in the last dozen years of interviewing Mr. Kyser often, I’ve never known him to be anything but dead on target with his predictions.
Jack, if you’re reading this, no offense, but I’m hoping you’ve got this one all wrong.