Record Job Growth in June Precedes Infection Surge, Business Closures

 

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EMPLOYMENT JULY 2020
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Research Brief
Record Job Growth in June Precedes
Infection Surge, Business Closures
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Job growth increases as economic restoration continues. The labor market recovered further in June as unemployment fell 220 basis points to 11.1 percent and 4.8 million people returned to work, the largest monthly job gain on record. While the pace of rehabilitation is accelerating, total employment still lies 9.6 percent below its pre-pandemic level with 14.7 million fewer jobs in the market than in February 2020.

Restaurants, hotels and warehouses rapidly rehire. June job gains were broad based as most major sectors reported growth. The recovery was strongest in the leisure and hospitality industry as nearly 1.5 million people returned to their roles at food service and drinking places, a 19 percent increase over last month. Accommodation employment also rose by 22 percent as the hard-hit hospitality sector continues to incrementally improve. U.S. hotel occupancy, which had bottomed out at 21 percent in early April, exceeded 46 percent during the last full week of June. Another positive indicator for tourism generally, employment in scenic and sightseeing transportation spiked 19.8 percent last month. Hiring in the trade and transportation sector overall was strong, with most of the added jobs tied to storage and warehousing. The need to maintain inventories amid supply disruptions paired with greater e-commerce spending has re-emphasized the importance of warehouse and distribution space.

Renewed business closures cloud job outlook for July. While numerous reopenings supported record hiring last month, employers face more challenges ahead. A surge in new coronavirus cases, especially in Texas, Florida and Arizona, has forced some businesses such as bars and gyms to close again while other areas pause reopenings. Employees who recently returned to work may find themselves furloughed again, with federal unemployment benefits set to expire before August unless Congress provides additional stimulus. More people with impaired financial security could have ramifications for commercial real estate, especially apartments, as individuals prioritize what bills they can pay.

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Developing Trends
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Falling underemployment hindered by reduced hours. While more people are returning to their jobs, not everyone is working full time. The number of people who want to work more hours but cannot due to unfavorable business conditions and other economic reasons remained above 9 million last month, about double the February total. Underemployment is nevertheless declining, as indicated by the U-6 underemployment rate, which includes those working reduced hours. The measure has declined from a record high of 22.8 percent in April to 18.0 percent in June, slightly above levels reported after the Great Recession.

Messengers help keep properties trading.
In contrast to most other employment sectors, the number of courier messengers has not declined since February. Despite numerous health concerns, commerce is continuing to take place, including commercial real estate transactions. Couriers ferrying documents back and forth helped $10 billion worth of commercial real estate trade in May.
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7.5 Million
Jobs Recovered Since April 2020
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11.1%

Unemployment Rate as of June 2020
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Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics

 

Unexpected Job Growth Recorded As Nation Begins Reopening

 

 

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CANADA EMPLOYMENT JUNE 2020
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Research Brief
Unexpected Job Growth Recorded As Nation Begins Reopening
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Canadians slowly return to work as restrictions are lifted. Employers added 290,000 jobs in May as the economy bounced back to life, though large challenges and a long road to recovery lie ahead. Economic shutdowns resulted in job losses of more than 3 million in March and April, far exceeding the 426,500 jobs lost from the 2007-08 financial crisis. The unemployment rate reached a post-war high of 13.7 percent in May, presenting substantial challenges in addition to the potential for a second virus outbreak. Last month’s employment gains were led by Quebec, where restrictions were lifted earlier than other provinces, building optimism as the nation advances through the health crisis.

Job gains laying the groundwork for gradual recovery. Activity picked up in the construction and manufacturing sectors as workers returned to job sites and factories reopened, adding back 73,700 and 79,100 jobs, respectively. Much of the construction gains were in residential building as housing starts climbed back to pre-virus levels last month, supporting a broader economic recovery. Job growth in the sector will also help to keep more commercial projects on track this year, though some deliveries will still be pushed into 2021. With manufacturing production ramping up, industrial properties will continue to perform well as they have already proven to be resilient through the health crisis as Canadians accelerate adoption of ecommerce.

Businesses eager to reopen. A considerable increase was registered in the wholesale and retail trade segment with 107,000 workers rehired as the provinces slowly allow retail stores and other services to resume. Last month’s job gains build momentum for the economic recovery and may lift consumer confidence to encourage spending. As more businesses resume activity and Canadians become more comfortable with shopping and dining out, this will bolster property fundamentals in the hard hit retail sector. Heavy debt loads for some firms though will push them over the edge, driving store closures and bankruptcies to pressure vacancy higher in certain segments.

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Developing Trends
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Some property owners eligible to receive financial support. A broad fiscal stimulus package has helped businesses to maintain operations, avoid layoffs and rehire employees. The Canada Emergency Commercial Rent Assistance program provides assistance to property owners with small business tenants facing financial hardship. The aid package covers 50 percent of monthly rent for April, May and June, with the tenant paying up to 25 percent of their share and the remainder being forgiven.

Temporary lay-offs a bright spot for the recovery.
A much larger share of those currently unemployed than prior downturns are classified as temporarily laid-off, strengthening the employment outlook as many should return to work soon. In May, there were 1.1 million workers on temporary lay-off, many of which will likely be back on payrolls by next month as the lockdowns are lifted. The resumption of economic activity bodes well for all asset classes and will bring investors off the sidelines should trends continue.
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290,000
Jobs Added in May 2020
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13.7%

Unemployment Rate as of May 2020
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Sources: Marcus & Millichap Research Services; Statistics Canada

 

Lifted Lockdowns and Fiscal Stimulus Support Employment Growth

 

 

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EMPLOYMENT JUNE 2020
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Research Brief
Lifted Lockdowns and Fiscal Stimulus Support Employment Growth
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Labor market rebounds as restrictions begin to ease. Employers added 2.5 million jobs in May to bring the unemployment rate down to 13.3 percent, indicating the worst of the economic fallout may be behind us. Economic shutdowns resulted in job losses of 22.1 million in March and April, pushing the unemployment rate to 14.7 percent, the highest since 1948. While the employment gains are very encouraging, uncertainties and a long road to recovery for America’s labor market remain, broadly impacting commercial real estate over the coming months.

Gradual reopening favors some of the most impacted sectors. The leisure and hospitality sector, and others that were some of the quickest to shed jobs in March, brought many of those workers back onto payrolls in May. Restaurants and bars, a subsector of leisure and hospitality, led the jobs recovery by adding 1.4 million staffers in May, although continued losses in other parts of the leisure employment sector offset a portion of these additions. PPP loans and individual stimulus payments have helped to keep retailers and the service industry running, which could backstop property metrics as more firms will be able to meet rent and mortgage obligations. President Trump signed more support on June 5 through the Paycheck Protection Program Flexibility Act, which reduces the amount of the loan required to be spent on payroll from 75 percent to 60 percent. The changes allow for higher allocation of funds toward other business expenses, including rent, mortgage payment, utilities, and loan interest, benefiting property owners that have experienced a decline in collections.

Positive development outlook as workers return to the job site. The construction sector recorded some of the most robust gains last month, increasing payrolls by 464,000 to recover nearly half of April’s losses. The inclusion of construction activity in phase one of reopening plans supported the rehiring and will help to keep more projects on track this year, though some deliveries will still be pushed into next year. Much of the job gains were in residential building, supporting a broader economic recovery.

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Developing Trends
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Plans in the works to move millions of unemployed back onto payrolls. If the effects of the pandemic continue to weigh on the U.S. labor market, Congress is considering several approaches to speed the transition from the unemployment ranks back onto payrolls through cash incentives. Proposals include a $450 bonus for those who return to work and an expanded wage subsidy for employers, which would cover up to 80 percent of wages and benefits. Additional fiscal stimulus is also under consideration.

Rapid rehiring can build momentum for a strong recovery. The potential for a second wave of the virus lingers on the horizon, which could further impact employment and postpone the economic recovery. Should last month’s job gains endure, though, the downturn would be the shortest since the 1930s. With the underpinnings of the economy robust heading into the natural disaster, the potential for a strong recovery from the crisis has a higher likelihood, bolstering commercial real estate.

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2.5 Million
Jobs Added in May 2020
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13.3%
Unemployment Rate as of May 2020
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Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics

 

Buyers and Sellers Adapting to Changes In Home Buying as Site Tours Are Limited

 

 

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HOUSING APRIL 2020
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Research Brief
Buyers and Sellers Adapting to Changes In Home Buying as Site Tours Are Limited
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Apartment owners benefit from retreating home sales. The sale of existing homes in March posted the largest month-over-month decline in more than four years, retreating 8.5 percent. Yet sales are up 0.8 percent on an annual basis as properties in escrow before the shelter-in-place restrictions move through the pipeline. Purchasing is expected to continue to slow into the spring buying season due to more complicated logistics, employment uncertainty and limited inventory. These factors benefit apartment owners as many potential homeowners remain in the rental pool longer.

Buyers refinance as interest rates fall. Interest rates have been volatile during the past month. The rate on a 30-year mortgage fell to 3.45 percent in the week ending April 10. The attractive rate resulted in mortgage applications rising 7.3 percent from one week earlier, with refinancing comprising 76.2 percent of the total. During economic uncertainty, many homeowners are taking advantage of low interest rates to reduce mortgage payments.

Coronavirus changing purchasing process. Stay-at-home regulations due to the pandemic are slowing single-family sales, but closings are still completed. Restrictions on site visits vary from state to state and by jurisdiction, prompting more sellers to use virtual home tours to get properties noticed. The inability to visit houses in many locations has some owners delaying listings until conditions are more favorable. This is maintaining a tight supply of for-sale inventory as well as preserving home prices. Meanwhile, buyers in the market can take advantage of low interest rates and reduced competition as most online “ibuyers” like Zillow, RedfinNow and Offerpad have moved to the sidelines. Some buyers may not be able to tour the home until they are in escrow, which has resulted in many purchase agreements containing a COVID-19 clause or addendum stipulating that closings can be extended or be canceled due to COVID-19 delays with deposits returned. In many cases closings are done by drive-through or curbside. Due to social distancing restrictions throughout the home buying process and delays in receiving appraisals, transactions are taking longer.

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Developing Trends
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Fewer permits pulled. In March, building permits on privately owned housing units declined 6.8 percent from the prior month but are up 5.0 percent from one year ago. The monthly downturn heading into what is typically the most active home buying season may be an indication of less builder confidence in the near term.

Housing starts decrease. Housing starts were also down in March, dropping 22.3 percent from February, though they remain up 1.4 percent on an annual basis. These figures reflect a downturn in overall home purchasing activity as economic upheaval has many potential homebuyers taking a wait and see approach.

Prices sustain upward trend. Although sales activity slowed, home prices continued to climb as a for-sale supply shortage limited buyer options. Fewer owners are choosing to sell as they shelter in place. Home prices are up 8.0 percent from last year.

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$280,600
Median price of existing single-family home in March 2020
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29

Days to Close in March 2020
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* Through March 2020
Sources: Marcus & Millichap Research Services; Joint Center for Housing Studies of Harvard University; Mortgage Bankers Association; National Association of Realtors; National Association of Home Builders; Real Page, Inc.; U.S. Census Bureau