If a recent Rutgers report is true, it could be awhile before apartment owners see fundamentals bounce back to where they were just a few years ago. Despite projections that the nation may be emerging from the recession, the report's authors (and Rutgers professors) don’t think jobs will return to 2007 levels anytime soon.
James Hughes, dean of the Edward J. Boustein School of Planning and Public Policy at Rutgers, and Joe Seneca, a professor at the school, say that it might not be until August 2017 that the economy recovers enough to push unemployment below the 5 percent clip last seen in 2007. “We have to recover those jobs lost, plus add jobs for a labor force that’s growing at 1.3 million people per year,” Hughes says.
It doesn’t help that recessions are getting longer, not shorter. After the 1990 and 1991 recession, the economy didn’t produce jobs for 12 months. After the short 2001 recession, job losses continued for another 20 months.
“In the '80s, the recession ended and jobs returned simultaneously,” says Paula Poskon, a senior research analyst with Robert W. Baird. “In the '90s, the recession ended and unemployment didn’t peak until a year later. In the early part of this decade, that time gap lengthened to 24 months. That’s attributable to productivity gains.”
The kinds of jobs that were lost could also thwart a recovery. In the past two years, Hughes says the service sector accounted for 50.7 percent of total job losses. In the previous two recessions, this sector accounted only for about 17 percent of total private sector job losses.
When (and if) these jobs ever come back are huge questions. “This is the first time we’ve had a knowledge worker recession,” Hughes says. “That leaves a lot of uncertainty. In manufacturing and construction, there were layoffs and then they brought them back. We don’t know if these job losses [in the knowledge sector] are permanent.”
Even if the losses aren’t permanent, there needs to be a sustained run of good fortune to push unemployment back up to levels seen in 2006 and 2007. The report says a 2017 recovery will require approximately seven consecutive years, or 92 months, of sustained growth of 2.15 million jobs per year. “A recovery of this duration, and one with this level of sustained annual job growth, would be comparable only to the two longest expansions in the nation’s history—the then-record-long expansion from 1961 to 1969 and the now new record-long expansion of 1991 to 2001,” the report concludes. “Given that the average length of the 11 economic expansions of the post–World War II era is 58.5 months, or 4.9 years, sustaining an expansion from late 2009 through 2017 will be a daunting task indeed.”
Poskon believes that households won’t form and apartments won’t see a rush of demand until those jobs return. “Housing demand comes back to household formation,” Poskon says. “The pace of household formation is all about job growth. If you aren’t having substantial job growth for the next two years, what does that mean for household formation and what does that mean for pricing power?”