SoCal Multifamily Sales Pulse - June 26, 2022 - July 2, 2022

• 05 July 2022
• Mike Lembeck

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Here's What's Happening In The Market, Here’s What This Means For You

Jobs Are Nearing a Pandemic Recovery

The chart below shows the number of individuals employed in California. Gray bars represent periods of recession.

17.5 Million people are employed in California as of May 2022. While employment is still recovering from the pandemic, this is 232,000 short of the pre-2020 recession peak achieved in December 2019. 

The 2020 recession was officially the shortest on record, cut off by the huge amounts of pandemic stimulus pumped into the economy during 2020-2021. But with government support now gone and the Federal Reserve faced with corralling pandemic inflation, the recession is returning for an encore - and soon. Until then, expect a full recovery of jobs lost in the pandemic just as the recession returns, likely as we head into 2023. 

Business Bankruptcies to Explode Without Stimulus

The charts below shows the number of personal and business bankruptcies filed nationwide each quarter. Gray lines indicate an economic recession. Dashed lines are RPI's (Realty Publications, Inc.) forecasts. 

Bankruptcies declined abnormally during the pandemic period. Without fuel from stimulus and inflation, bankruptcies would have risen significantly in 2020-2021. Just 6,100 business bankruptcies were filed in California during 2021, a fraction of the 63,200 California filings during the 2011 peak year following the 2008 recession. 

But today, the economy has started to contract as it ushers in the second act of the 2020 recession. Expect a cyclically disproportionate rise in bankruptcy filings in the next three years, likely exceeding the aftermath of the 2008 recession. For the housing market, leveraged owners who see the equity in their property disappear often file bankruptcy petitions when job loss occurs. Watch for personal and business bankruptcies, beginning to rise in 2023 and peak in 2026.

The Mean Price Trendline's Tether on Home Prices

The chart below shows home price movement in California's three price tiers - the blue line is the mean price trendline, the historical equilibrium level to which property prices cyclically return. Gray bars indicate periods of recession. Dashed lines are RPI's forecast. 

Home prices today are far elevated from the mean price trendline, mostly due to pandemic conditions. Without a serious price correction, the forward trend in rising mortgage rates will bar acquisition of property by an even higher percentage of families. The support given property prices in the pandemic is gone. 

Expect home prices to drift lower by the end of 2022, not to find a bottom until 2025. By then, prices will reach the mean price trendline. The timeline may well be shifted by global events and any government stimulus occurring during the coming recession. 

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