Rising Unemployment Could Spill Into Real Estate

Dave:In the last few weeks, several reports have come out showing that the job market in the US is weak and it’s getting weaker and the labor market is tied to the housing market and to the overall investing climate in all sorts of ways. So today we’re diving into the latest labor news and how this will spoil. So today we’re diving into the latest labor market news and how it’s going to spill over into the world of real estate investing. Hey everyone. Welcome to On the Market. I’m Dave Meyer. Thank you all so much for listening to this episode of the podcast. Hey everyone, I’m Dave Meyer. Thank you all so much for being here for this episode of On the Market. I’m super glad to have you on today’s episode, we’re diving into the world of the labor market. There has been a lot of news coming out over the last couple of weeks and we need to make sense of it because there’s a lot of different reports that show us different things and each of those reports and the data that’s contained within them do have real impacts on the housing market and the investing climate.And I know that’s not always immediately obvious, but it’s definitely true. The labor market is connected to the housing market and mortgage rates in some pretty direct ways, and so that’s what we’re going to get into today. Let’s jump right in.Alright, first things. Alright, so let’s talk about the reports that have come out and there are a lot of them, and I’m going to go through a couple of different sources here, maybe more than I do when we’re talking about other subjects on this show for some important reasons, and that’s because the ways that you measure and that’s because there are many different ways that the labor market is measured because it’s so important. There’s tons of different ways that economists, analysts, government bureaucrats look at the labor market, but none of them are perfect. Each of them has a very specific measurement that captures some things, doesn’t capture everything. No collection method is perfect. And so what I want to do in this episode is look at the total universe of labor market data, all that we know about the job market and see if we can distill a trend.And if we can distill a trend even though no single source is perfect, then we can start to extrapolate what might happen and how this is going to impact investors. So that is the plan here. First up is the first thing that sort of got me to want to make this episode was that as happens every single month, the Bureau of Labor Statistics, this a government agency released the August, 2025 data and it wasn’t good. What it showed was that non-farm payrolls, this is just basically a way of measuring jobs. Added 22,000 jobs in August, and although it wasn’t good, it’s still positive that’s better than the economy losing jobs, but it was the weakest monthly gain for jobs in the US that we have seen in several years. Just a couple of years ago, we were regularly seeing 150,000, 200,000. There were a couple of prints that were 250 or 300,000 jobs in a single month, and that’s remarkable.So only seeing 22,000, although not emergency levels by any means, it is a very big decline from what we have seen over the last couple of years and has been much more consistent with what we’ve seen in the last four months. So basically may, June, July, August have all been pretty weak and that has starting to establish a trend along with that report. We also have seen that the unemployment rate, again, has pros and cons. It’s not a perfect measurement of what’s going on in the economy, but it’s an important data point that we should look at. Unemployment rate has gone up, it is up to 4.3%. It was at 3.8% back in May 4.1 in July. So it’s going up and it’s going up relatively rapidly. Should mention 4.3% unemployment rate historically speaking still super low. So I want to keep that context for everyone that we’re not in some emergency situation here, but it is important to note that it is going up and it’s gone up kind of quickly over the last couple of months. So that was the number one thing.Scratch that last thing. So those were the first two things that came out in that report. The third thing that happened was that there was revision. The third thing that happened is there were revisions to previous reports on the BLS data and we’ll talk about revisions in just a minute and how many people are questioning the data that comes out of the BBLs. We’ll talk about that in a minute, but just want to state what happened. Basically BLS, they released and revised their numbers for June and instead of showing positive growth in June, it showed actually that the economy had dropped 13,000 jobs in June. That was a pretty big piece of news because again, we have just seen amazing job growth in the United States for honestly a decade now, and so seeing a negative print for one month is a pretty important break in that trend. So that’s what was going on with the BLS data.As I said, BLS under some scrutiny we’re going to talk about that, but I wanted to just go through the other labor market data that we have right now. There is another very watched jobs report that comes out every month that’s called a DP Private Payrolls. A DP is a payroll company. If you work for a corporation, you’ve probably been paid by a DP. They do all the piping and plumbing behind a lot of payroll in the United States and they do these surveys and they have all this data that they release jobs numbers every single month and what they showed was an ad of 54,000 jobs. So BLS showed 22,000 jobs. A DP showed 54,000 jobs, and it’s important to note that basically the A DP numbers and the BLS numbers are never the same. They just have different methodologies, so you shouldn’t expect them to be the same.What you look for as an analyst in these situations are the trends the same if they’re both sort of going down a little bit every month, you kind of believe that that’s the trend even though the absolute numbers can be different. And that’s basically exactly what we’re seeing. We’re seeing a DP is also showing a similar trend to the government data that jobs numbers are going down. They show a little bit higher, especially in service industries like leisure and hospitality and construction, but they’re showing another trend. Those are the big ones. We also got other data. There’s another report that I like to look at called the Jolts, which is basically the number of job openings in the United States. That is still a remarkably high number at 7.18 million, but that’s the lowest since 2020 and we’ve sort of crossed this really important threshold with jolts because they release this ratio that is how many job openings are there in the United States, how many job seekers are there in the United States and they compare those two things and for the first time in a long time, there are more job seekers in the United States than there are job openings.It’s basically flat. We’re at 0.99% at 99%, so it’s very, very close, but this is a threshold that has really changed in the last couple of years. Back in 2022, there was 1.8 jobs for every American looking for a job. Now there is basically one-to-one jobs to job seekers. Again, not an emergency, but the trend is showing a weaker housing market. So those all came out showing a weaker housing market. And then we’ve had two other important data points come out in just the last couple of days. I’m recording this in mid-September. We got a big revision for basically the entire year from March, 2024 to March, 2025 showing that there is actually 900,000 less jobs created during that time than they had.There are actually 900,000 fewer jobs added during that period then was initially reported, which is a huge revision and showing that the labor market has actually been a lot weaker than we’ve been thinking for at least a year if not longer. Then just as of September 11th, we got new initial unemployments claims, which is basically a measurement of layoffs that spiked. I never trust one week of data too much. So we’ll see if that continues, but it’s another data point. My point in all of this is that no matter how you look at it, you want to look at government data, you want to look at private data, you want to look at jolts, you want to look at unemployment claims. All of these things, no matter how you look at it, show a weakening labor market.And although this is concerning and is something that we need to talk about, and obviously we’re doing that on this episode, this isn’t surprising when the Fed raises interest rates as much as they have when you have things like AI entering the economy, the idea that we were going to maintain some perfect job labor market is crazy. And honestly, I think the American labor market has been incredibly resilient over the last couple of years. If you had asked me would we have a 4.3% unemployment rate in September of 2025 when the Fed started raising rates in 2022, I would’ve thought it would’ve been higher or we would have already gone through a recession right now by now. So I have been continuously impressed by the labor market and seeing labor weaken at this point in the interest rate tightening cycle is not only surprising, I actually think it’s a credit to the strength of the US economy that it has taken this long for the labor market to weaken given everything that’s been going on.Now, before we move on, I do want to just talk a little bit about the BLS data because you’ve probably heard, but on August 1st, president Trump fired the commissioner of the Bureau of Labor Statistics. This is the institution in the US responsible for collecting data, responsible for collecting data across a number of things, but President Trump basically said that he didn’t believe the jobs numbers and that he felt that they were incorrect and they had bad methodology. Now, the BLS has been under scrutiny for a long time. They issue these massive revisions, the 900,000 job revision that they just put out, and that does, I think, reduce some credibility to BLS. I think that has damaged their reputation, but from what I’ve seen personally, that is, and those revisions are frustrating. No one likes them, and I do think even if they’re doing the best that they can, it does damage your credibility when you come out with these massive visions months later.But I’ve sort of dug into the methodology and basically what’s been happening at the BLS is they rely on businesses to reply to their surveys and the number of businesses that reply to these surveys has tanked. And so they’re doing a lot more extrapolation on the data than you would hope you would want. Ideally, you survey a hundred businesses, all a hundred respond to that. Now what we’ve heard is that instead of a hundred, let’s just say it’s 50 or 60 businesses, and they have to extrapolate from what they learned from those 50 or 60 what’s happening for the other 50 or 40 companies that they surveyed. And then sometimes the companies respond late and that’s how you get these revisions. And so it is frustrating. I don’t like it, no one likes it, but I don’t have any evidence that the BLS is intentionally changing or cooking the books.It’s just that getting this data is pretty challenging and although again, I don’t like revisions, I would rather a data source revise their data and admit that it was wrong than just do it once, know it’s incorrect and not revise it. And so that’s just unfortunately how it works. It’s not the best and it really stinks for investors and people who watch this stuff, but I don’t have any evidence that this is somehow malicious, but hopefully if we’re getting a new BLS commissioner, maybe they’ll be able to figure out some new methodology that will improve upon this. That said, I just want to, as a data guy, I think it’s really important that as a data guy, I think it’s incredibly important that the BLS or any government statistics agency maintains its neutrality and does not become political or lemme do that again. So we’ll see what happens with this there. Trump has nominated a new BBL s commissioner, they have not been confirmed yet by the Senate, so we don’t know exactly what is going to happen, but lemme just say, as a data guy, I hope that we figure out ways to maintain neutrality, no political affiliation to the BLS and that they’re able to improve upon methodologies and get good neutral data to the market in a timely fashion. I’ll update you as we learn more about that, but that’s what we know so far.All right, so that’s going on in the labor market. All right, so with that said, we know that the labor market is weakening, but what does this mean for real estate investors? We’re going to get into that right after this quick break. Welcome back to On the Market. I’m Dave Meyer. Thanks so much for being here. We’re talking about the labor market and how although we’re certainly not in any sort of emergency mode, the labor market is weakening and we are now going to shift our attention to what this means for the housing market and for real estate investors. The first thing that we need to look at is sort of the immediate macroeconomic implications, and as you are all living through this week, that comes with the fed cutting rates. Now we’ve known for a couple of weeks now we’ve gone for a couple months now that the Fed was likely to cut rates, but their main things that they’re looking at are inflation and labor market.And when the labor market starts to weaken, the probability of rate cuts go up. And so that’s why everyone is basically known for a couple of weeks that now that the Fed was going to cut rates and mortgage rates moved down in anticipation of that cut. And so even though the fed cut rates, a lot of the mortgage benefits to that are already baked in. Now I think now what happens from here is going to be a really interesting question because we know now that there are rate cuts in September, but what we don’t know is how many more rate cuts there are going to be. You see a lot of people speculating that there’ll be between one and three more rate cuts, and it’s really going to come down to this sort of standoff that we have in the economy between inflation and the weakening labor market.The Federal Reserve has this dual mandate from Congress. Their two jobs are to maintain price stability. That’s just legal speak for controlling inflation and maximizing employment, which is trying to stabilize the labor market. Those two things sometimes are easy to balance. If you have a really weak labor market and no inflation, then you cut rates that helps stimulate the labor market and probably won’t impact inflation or the other way around. We saw a couple of years ago inflation was insane and labor market was doing strong. That allowed the Fed to raise rates sort of really aggressively, which is exactly what we saw. But right now there is a standoff going on. We are seeing a weakening labor market and at the same time we are seeing inflation go up. Just this past week, we saw that in August the CPI, the consumer price index went up to 2.9%. Again, not emergency levels, but it went up from 2.7% a month earlier. So it’s trending upward. We also saw the monthly data at 0.4% and we don’t know if that will continue, but if we had 0.4% increases every month going forward, then a year from now inflation will be closer to 5% and that is pretty concerning.So the Fed finds itself in a dangerous position, and if you haven’t heard of this term before, we have just the inkling of what is called stagflation, which is a situation where inflation is high and you enter a recession or the labor market is weak. I want to be very clear that I do not think we are yet in a point where we’re actually in stagflation, but as a data analyst, if you look, but as a data analyst, which I am, if you were just looking at this data objectively and you see inflation going up and unemployment going down, some alarm bells probably start going off in your head about stagflation. Now there are a million things that can happen to intervene and the chance that we get into a really bad stagflationary environment, I think it’s really too early to say that that might happen.But this does put the fed in a tough spot, right? Because they can’t just lower rates with reckless abandon trying to stimulate the labor market because that can overheat the economy and push inflation up. That’s not good. At the same time, they can’t just keep rates high to fight inflation because the labor market is clearly cracking. And so what I think we’re going to see is a very measured fed response. So we’re getting a cut. I still think there’s a chance that they cut again or two this year, but I don’t think we’re going to see rapidly declining more interest rates, at least in terms of the federal funds rate, unless we start to see that inflation number come down. Now, is that going to happen? I don’t really think so as long as the tariffs stay in place. Now, I know inflation hasn’t been as bad as a lot of economists have been predicting, but I know not everyone reads this stuff I do on your behalf, but if you start to read some of the economic policy and technical stuff that’s going on, there is a lot of indication that right now businesses are absorbing the increase in prices that are coming from tariffs but have intentions to pass that on to consumers.I do think if you look at just the data of how, if you look at the data for producer, price indexes, service inflation, all this other stuff that I know not everyone else looks at, it seems likely to me that we’re going to see some steady but modest, not crazy, but modest increases inflation over the next couple of months unless the tariffs get pulled back because of the court rulings or something like that. So I think that’s going to sort of make sure that the has a somewhat steady hand and doesn’t get too aggressive in rate cuts, at least for the rest of 2025. Now, if the labor market really starts to get worse, I would not say that because I think because if push came to shove, if the Fed really finds themself between a rock and a hard place and the labor market really starts to do bad, I think they’re going to cut rates, they will favor the labor market over inflation.I think if they had to choose, they would say favor, people having jobs then having avoiding really high inflation. Hopefully it doesn’t come to that, but that’s sort of what I think. So just my take on this is maybe we get another 25 or 50 basis points by the end of the year max. I think it’s going to take a little bit longer for things to come down. What happens next year is a whole another question. We just really need more data about inflation, about jobs, and then come may we’ll see if President Trump replaces Jerome Powell with someone who is more willing to cut rates than Jerome Powell has demonstrated he’s willing to do.So. My best guess is so again, my best guess is slowly coming. So my best guess federal funds rate continues to go down a little bit. I am not sure that mortgage rates are going to go down proportionally. I hope they do. I would like mortgage rates to come down a little bit. I think that would restore some much needed affordability to the housing market. It would help commercial real estate, but as long as there is risk of inflation, the bond market is probably not going to move that much unless the labor market really cracks and really we get into emergency situation, then we will probably see mortgage rates really start to come down. But while we’re in this era where inflation is still really just sticking around and is a little bit frustratingly stubborn, I think we’re not going to see huge movement in mortgage rates for the rest of the year. That’s what I’ve been saying all year and I’m sticking with that.So that’s my take on the macro situation, but how might this spill into the housing market and what does this mean for real estate investors? We’re going to get to that right after this quick break. Welcome back to On the Market. I’m Dave Meyer talking about the labor market. We’ve talked about all the data we’ve got so far. We’ve talked about what this means to the fed and macro economics. Next, let’s talk about what is going on in the housing market. And I think for this, we have to sort of break this down because we don’t know what’s going to happen with mortgage rates. Let’s just say what happens if rates do start to come down? Well, I think it’s good news if rates start to come down. I think we’re going to start to see more activity in the housing market. It’s not some hot take.I’m sure everyone believes this. I don’t necessarily believe this is going to lead to some crazy price appreciation. I know there are a lot of people out there saying, oh, when rates come down home, price appreciation is going to go wild. I think there’s a chance that happens. I would peg that at a 30 or 40% chance, but I think there’s a chance that it just kind of picks up activity. We might just see more sellers in the market, more buyers in the market. So it’s not really going to change demand all that much, but it will increase the number of transactions, which is also super important. Right now we’re at about 4 million transactions a year in the housing market, which sounds like a lot. It’s not a lot. Normally in a normal year it’s about five and a quarter million. So we are well below a normal level in the housing market, and any increases, decreases in mortgage rates I think could really help pick up that inventory.Not going to change your appreciation at all, but for anyone who works in this industry, real estate agents, loan officers, anyone like that, this is going to be welcome and needed news because the housing market, we need more. If we want a healthy housing market, we need more transaction volume and that could really help. The other thing I would say that would come out, the other couple of things that could happen for the housing market is one, it’s easier to lock in long-term debt at favorable terms, which is amazing. I am maybe more bearish on mortgage rates than a lot of people. I think a lot of folks are saying that mortgage rates are going to go back down into the low fives or into the fours, and that might happen, but I just don’t see that in the immediate future, something really bad would have to happen.We would have to have a really bad economy for mortgage rates to go back into the fours anytime soon. And with the inflation labor market where it’s at, I just don’t see it happening. And so I personally think that there’s actually an opportunity now to lock in better refinance rates. Maybe not today, but if they dip below six, I would look at refinancing a couple of deals that I’ve bought in the last couple of years, and I think a lot of people are to do that. Just in the last week or two when we’ve seen mortgage rates go from about six and three quarters down to six and one quarter, the number of refinance opportunity applications have really gone up. And so if it goes down to six or a little bit before, that’s really going to happen too. So I think ability to buy deals with good long-term fixed rate debt, I think that’s going to be a good opportunity.It might not be as low as some people say, but if they go into the low sixes, high fives, I honestly think that’s status quo. That’s what we’re going to be for the next year or so. And so if you’re looking at deals and you find a good quote, personally, I’d lock it in. That’s how I’m thinking about it. Again, refinancing, if you have any big numbers in there, if you have anything in a seven, anything in an eight, you might want to look at refinancing in the next couple of months because this might be our window. I know again, people say mortgage rates are going to go down, and I do think they are going to data. I know people think mortgage rates are going to keep going down, and I do think they’re going to go down a bit, but personally, I’ve said this on the show before, I have fear about long-term interest rates.Not this year, not two years, not three years, but the way our national debt works, the way the bond market works, I think there is a relatively good chance that five years from now we see similar mortgage rates from where we are today. They could be higher than they are today. I don’t know that, but I think I just like calling that out because I don’t think anyone in real estate really talks about that, but I think there is a real risk that that happens. And so for me, anytime I can lock in low, relatively good rates on fixed rate debt, I’m going to look into that. Sorry, it’s so hot in this room.Last thing I’ll say, if rates do come down, I do think it’ll help commercial real estate, which has been just absolutely crushed over the last couple of years. And lower rates can sort of support better cap rates, lower cap rates, higher valuations, and could provide so much needed relief to that industry. But it’s not all good here, right? So we are about the fact that a worsening labor market could improve rates that could provide some benefits to the housing market and to investors. But there are risks to real estate investors in a weakening labor market as well. And I think we need to talk about that. The first one here is really about tenant demand risk. If a lot of people, renters in particular start losing their job, that means that there could be less household formation. Household formation is this concept of, it’s similar to population growth, but it’s a little bit different.So it’s basically like how many independent, how much independent demand for housing units are there? So for example, two people who are roommates who have been living together for years, if they decide, Hey, we’re going to go our own way, we’re each going to get our own apartment that creates a new household, or I’ve been living with my parents for a couple of years, we’re related, but I’m going to move out. That’s a new household. And that growth household growth really fuels appreciation in the housing market and it fuels rent growth because that creates demand. What happens in a recession, particularly a job loss recession, is that that household formation really slows down, and that of course could mute appreciation even more. Right now we’re already seeing muted appreciation, but we could see even more of that. We also might see less demand from tenants. If you were thinking, Hey, maybe I’ll move out of my parents’ house, you lose your job or you’re just worried about losing your job, you may choose to delay that move and not form that additional household. And this could weigh on rents growth in particular, but it could also weigh on vacancy levels and it could also weigh on vacancy levels, right? Vacancy rates might go up in certain places if that’s going to happen.Sorry. And it could also weigh in vacancies, right? There might be more vacancies if fewer people choose to form more households. Now we haven’t really seen that yet. So again, this is not an emergency. I just want to call out that if we see the labor market continue to crack and get worse and worse, that is something that you all need to pay attention to as an investor. My opinion on that is really just focusing on retaining your great tenants. So I would really think heavily about trying to raise rents in that kind of environment. I would really try and if you have great tenants, do anything you can to keep them and not have to worry about going out and finding new tenants.The other thing that you need to keep an eye out for is collections. If you in a serious job loss recession, fewer people might be able to make rent. And so you might see the delinquency rate, particularly on rents start to rise. We might also start to that in the housing market in general, in terms of foreclosures. So far, foreclosure data looks good. We haven’t seen anything like that, but that could happen. But it is something to keep an eye on both as a property manager and in terms of foreclosures in your area could increase supply a little bit. I think a lot would have to change for us to see some sort of foreclosure crisis. There’s just no evidence of that happening. But if the unemployment rate went to seven or 8%, we might start to see that, but we are a long, long ways away from that.But these are just things I think as you read these headlines and see that the labor market’s weakening, it’s something you probably want to keep an eye out on. The other thing that you want to take note of is that there are going to be geographic concentrations to this. Not every city and market is impacted by a recession the same. And so there are often markets I always pick on Vegas, I’m sorry, but I do that are more impacted by economic slowdowns, and they’re often tourism or hospitality focused places like Las Vegas. Meanwhile, a city like San Francisco, which has had its ups and downs over the last couple of years, don’t get me wrong with the AI boom and everything, all the money that’s getting invested in that, probably not going to see the same level of impact. So as an investor, I think it’s really important to keep an eye on local trends here.We always emphasize that on the show, but it’s not just about housing market data. You can get unemployment rates and job numbers for the city and market that you invest in. And for me, for the markets I’m investing in, I’m keeping a close eye on those things to just understand my market, understand if I should be thinking about raising rents or should I prioritize lowering my vacancies? Should I be concerned about foreclosures or should I be looking at foreclosures because there’s an opportunity in my market? I think as we enter this new era, this new stage of the housing market, these are the types of things that can give you an advantage as an investor, do the research, look at this data, it exists, it’s free. Dig into this stuff. And that’s how people not only survive through weaker labor markets, or if we go into a recession, who knows, but maybe we’ll go into a recession.That’s how people survive these. That’s how people not just survive these things, but actually can benefit from these things. And I just want to say that I don’t mean benefit where take advantage of people who are losing their jobs. I don’t think that at all. But I just think that as an investor, you want to position yourself to take what the market is giving you. And if the market is telling you that to prioritize low vacancy, do that. If the market is telling you that assets are going to be on sale and you might be able to scoop up a new deal at a lower rate because of what’s going on, that’s something you might want to consider. So that’s all I by that statement.So that’s what we got for you guys today. Hopefully this is helpful to you. In summary, what’s going on? Labor market is weakening. It is not an emergency. We still have a relatively low unemployment rate by historical standards, but this is something everyone needs to keep an eye on because it’s going to impact mortgage rates, it’s going to impact vacancy rates, it’s going to impact rate growth. These are all things as investors that we need to be paying attention to. But don’t freak out. We’re not at a point where anyone needs to be freaking out just yet. We have to wait and see. And I know that is frustrating for everyone. Everyone wants to know what’s going to happen, but we just don’t know. There’s still so much lack of clarity here. We just see inflation. We see the labor market starting to crack, and until more clear trends emerge, it’s really hard to make strong conclusions about any of this. So my advice is keep doing what you’re doing. Be careful. I’m going to give the same advice that I’ve been given for the last few months. I still think there are great opportunities. Fuck,I still think there are great opportunities, but I am prioritizing low risk and risk mitigation over profit right now. I’m looking for deals that are rock solid, and I’m not trying to get greedy, and that’s exactly what I recommend to anyone who asks me. It’s what I’m recommending to all of you, because in these environments of uncertainty, that creates opportunity a hundred percent. You see that all the time. The errors of uncertainty create good opportunity, but because we don’t know what happens next, you want to make sure that you’re doing deals that are very conservative and protect yourself in case something negative does happen. But at the same time, position yourself so that if things go well, rates go down, prices start to go up, that you’re in a position to capitalize on that as well. Thanks so much for listening to this episode of On The Market. I’m Dave Meyer. I’ll see you next time.