New research published today by home co-investing company Unison proposes a new way of understanding the economic impact of the pandemic and the long-term effect it will have on home prices in select U.S. cities.
“Resilient” industrial sectors where businesses have been able to maintain productivity during the pandemic and adapt to the market environment (such as financial services and information technology) have enjoyed a higher level of job stability, while “vulnerable” industrial sectors like retail, manufacturing and hospitality have experienced much more severe levels of job loss. Based on historical analysis, cities with high concentrations of vulnerable job sectors will experience slower recoveries in housing prices, according to Unison’s report.
“Historically, cities with high concentrations of jobs in resilient industrial sectors experience the quickest recovery in housing prices,” said Unison VP of Research Brodie Gay. “Furthermore, as a result of shelter in place ordinances, the home has become a center for commercial and retail activity. Working and shopping from home are the new norm. Real estate capital is beginning a secular rotation out of undiversified retail and commercial spaces like malls and large office buildings. Investing in diversified residential real estate, with a tilt towards resilient cities, will provide institutional investors better, more balanced exposure to the U.S. economy.”
The report shows that based on previous recessions, increases in unemployment generally correlate with drops in home prices, and the two factors are geographically linked. For example, during the Global Financial Crisis of 2007-08, Las Vegas, NV experienced a 10% rise in unemployment rate alongside a 62% drop in housing prices, whereas Dallas, TX’s numbers were far less severe with a 4% increase in the unemployment rate and a 10% drop in housing prices. Cities that have high proportions of jobs in vulnerable sectors have also seen huge unemployment spikes during COVID-19, meaning Las Vegas and other cities like it will likely experience similar drops in housing prices again. Furthermore, cities that depend on these at-risk industries will likely experience slower job recoveries and more challenging housing markets.
Unison’s research ranked the 20 top cities from the S&P CoreLogic Case-Shiller 20-City Index in order of anticipated resiliency (from most resilient to least resilient): Boston, Washington D.C., New York, San Francisco, Atlanta, Minneapolis, Chicago, Cleveland, Tampa, Charlotte, Denver, Dallas, Phoenix, Los Angeles, Seattle, Portland, San Diego, Detroit, Miami and Las Vegas.
Select vulnerable cities outlined in Unison’s report include:
- Las Vegas — With the highest concentration of construction (7.7%) and leisure & hospitality (31.8%) jobs, Las Vegas leads in at-risk sector employment share (62.6%) and is likely to see the weakest home price performance.
- Miami — Miami’s heavy concentration of leisure, hospitality, and retail jobs makes it vulnerable to shocks in discretionary spending. Partially offsetting the grim tourism outlook is the potential rebound in local commercial activities, as Florida is among the states most eager to reopen its economy.
- Detroit — Detroit has the highest concentration (14.3%) of manufacturing jobs among the 20 metro areas explored. Synonymous with Motown, “Big-3” automakers Ford, General Motors, and Fiat Chrysler sit atop Detroit’s list of employers.
- San Diego — San Diego is second in concentration of jobs in the leisure and hospitality industry (16.2%), behind only Las Vegas. It also has the third highest concentration of manufacturing jobs, behind Detroit and Cleveland, and is third in construction share, behind Phoenix and Las Vegas.
Select resilient cities outlined in Unison’s report include:
- Boston — Boston lists numerous prestigious universities and hospitals among its top employers, as well as some of the largest insurance and investment management companies in the world.
- Washington D.C. — Government agencies make up close to a quarter of jobs in Washington, D.C., with more government-related jobs in law, defense contractor, non-profit organizations anchoring the employment landscape.
- San Francisco — At first glance, San Francisco appears to be a one trick pony, since a big portion of the jobs look like “tech” jobs. Lost in the high-tech fanfare is the fact that San Francisco is the second largest financial center in the U.S. and home to firms like Wells Fargo, Visa, SoFi, and Square.
- New York — Despite its status as a major tourist destination, only 12% of New York City private sector workers are employed in the hospitality sector. New York’s economy is anchored by its world-leading financial services sector. Following close behind are robust education and healthcare systems, that actually make up more than a quarter of private sector jobs in the city.
“Job resilience is one of the key drivers of housing demand in both the short and long-term,” said Unison CEO Thomas Sponholtz. “The ownership-occupied residential real estate portfolios we construct for institutional investors are geographically diversified across markets with a limited supply of new housing units and strong demand due to high concentrations of jobs in resilient industry sectors.”
Unison is a San Francisco-based company that is pioneering a smarter, better way to own your home. Until now, the only way to finance a home was by taking on debt. Through home co-investments, we help homeowners access their equity flexibly with no monthly payments or interest. We enhance home affordability, reduce debt, and deliver a less risky way for homeowners, investors, and society to think about their most important asset – the home. For additional information, visit www.unison.com or follow us on Facebook, Instagram, LinkedIn, Twitter and YouTube.
About Unison Investment Management
Unison Investment Management is the market leader and pioneer in home co-investing, with $817 million in assets under management. Over the last 14 years we have invested in more than 7,500 homes at the equity level across metropolitan and suburban areas that have strong housing demand and limited housing supply. Unison provides institutional investors efficient, diversified access to the world’s largest asset class – owner-occupied residential real estate – while providing low correlation to traditional asset classes. We also enhance home affordability, enable retirement, reduce debt, and deliver a smarter and safer allocation of housing exposure for homeowners and investors.
Unison Investment Management serves as the asset management arm of Unison. For more information, visit unisonim.com