The improving unemployment numbers since the onset of the COVID-19 pandemic may mask fundamental changes in the labor market that will affect real estate in the coming months, warns First American chief economist Mark Fleming.

The U.S. Bureau of Labor Statistics report for October showed a drop in the unemployment rate from 7.9% in September to 6.9%, as 638,000 jobs were added to the labor market. The economy has added jobs for six consecutive months, but Fleming noted that employers are adding those jobs at a slowing rate.

“COVID-19 cases are on the rise and there is increasing likelihood of a further impact on economic activity, which may trigger a corresponding increase in unemployment in impacted industries,” Fleming said. “The pandemic’s economic impacts continue to strike some industries much harder than others.”

First American constructed a Beveridge Curve to examine whether a skill mismatch was in place before the pandemic and how the economic fallout from COVID-19 has affected that mismatch. The graph looks at five time periods – the pre-recession time frame from December 2000 to December 2007, the Great Recession from January 2008 to June 2009, the recovery from July 2009 to April 2017, the pre-pandemic period from May 2017 to March 2020 and the pandemic months from April 2020 through September 2020.

The curve shows a shift toward prevalent job mismatches has been occurring since the Great Recession, and the pandemic has made those structural changes more pronounced.

Currently, demand for jobs is outpacing the number of job vacancies. However, uncertainty in the labor market and in the economy in general may cause the curve to shift, resulting in skill mismatching. This means the workers who are available don’t have the skills needed to fill the jobs that are open, leaving those positions unfilled and employers struggling to find the workers they need.

“We know that the hardest hit industries in the recession employed lower-wage, less-skilled workers, while many of the more resilient industries, where labor demand remains strong, are seeking to hire higher-skilled workers,” Fleming said.

The housing market has experienced a V-shaped recovery since business ground to a halt back in the spring. The workers who have felt the most pain from the recession are those in the service sector who tend to be low-wage, less skilled employees. They are more likely to be renters than owners. Although existing homeowners and potential homebuyers may be in a better financial position, the prospect of a long-term slowdown could harm the housing sector.

Fleming noted that statistics from the months that have passed since the pandemic’s onset do not necessarily indicate a trend, but that the mismatch between workers and the needs of employers may persist and ultimately depress the housing sector.

“You can’t buy what’s not for sale, and it’s also likely you won’t buy if you don’t have a job,” Fleming said. “While this is not the story today, a long-term economic decline resulting in structural unemployment could begin to impact the one sector that has thus far proven resilient to the economic impacts of the virus.”