How do employment rates affect real estate?

Question

Hello! My name is Stacey and I am new to BP. My main concern is how you should approach certain areas with relatively high unemployment rates. I want to buy a property near my hometown. However, the unemployment rate there is around 13%. Do you think it would be a bad idea to buy a property in that region?

Stacey Manley · Answer

@Darrell Shepherd and @Giovanni Isaksen thank you both so much for the timely and in depth responses. Based on the demographic map posted, I'm in the >5% area (Southeast Georgia). Based on the population data, the area seems to be at a very stable state, with growth and unemployment considered. There does not appear to be a surplus of empty houses in the area either. I will definitely take all this information into consideration before making any decisions. Again, thanks so much!

Darrell Shepherd · Answer

Watch the trend.  I could be 15% and heading down and be a smart play, or it could be 5%, but three factories are about to close and you'll get killed when everybody leaves.

Jobs definitely drive prices, but if 13% is normal and housing is stabilized, you can be fine investing there.  When I was looking at apartments one of the biggest factors we looked at for appreciation potential was job growth in the area.

At the end of the day values are based on supply and demand, so the unemployment 'rate' isn't as important as housing supply and trends IMO.  Same pretty much goes for rent rates.  Are people moving into or out of the area?  Is there downward pressure on rental rates (lots of empties)?  etc.

Giovanni Isaksen · Answer

@Stacey Manley to expand on @Darrell Shepherd 's final point, there are some additional factors we look at that drive demand. The first is population growth, particularly the 18 to 34 age population growth, who represent the bulk of apartment renters. The NAHB was just out with a chart on this at the state level in an piece about the age of the housing stock:

http://eyeonhousing.org/2014/02/05/the-age-of-the-housing-stock-by-state/

Now this chart is based on Census data and uses the under 45 cohort instead of specifically the 18-34 YO group but you can clearly see where the young population is growing.

On the other hand... in another NAHB article based on research into where 18-34 YOs live

http://eyeonhousing.org/2014/02/04/young-adults-living-with-parents-up-sharply/

shows that a good sized portion of that population is still (or has returned to) living with their parents:

This trend has accelerated since the financial meltdown. The positive case says this is pent up future demand and when these young people complete school and land good jobs many will move out into apartments.

The state by state map of where the most and least 18-34 YOs are living with their parents shows three states that overlap with the first map, above, and may be good places to look for growing apartment demand; Colorado, Idaho and Wyoming:

Good hunting-