I don’t want to go backwards...

What Happens If Unemployment Doubles?

There’s a question I’ve been asking myself lately.

Not as a macro discussion. Not as some economic debate. But in a very practical way as I look at deals and think about buying real estate today.

The question is simple:

What happens if I buy real estate today... and unemployment doubles next year?

It’s a fair concern. Between AI headlines, tech layoffs, and constant recession predictions, there’s a growing narrative that a major employment shock could be coming. If unemployment spikes, the assumption is that housing will crash, rents will collapse, and investors who bought today will regret it.

Underneath all of that noise is a very simple fear.

I don’t want to go backwards.

I’ve worked too hard over the years to move forward as an investor to make a decision today that could set me back five years. My guess is I’m probably not the only one thinking about this. A lot of investors have taken hits the past couple years — flips that didn’t work, deals that barely penciled, refinances that stopped making sense when rates jumped.

The last thing anyone wants right now is one bad decision that erases years of progress.

So I’ve been spending some time thinking through this question.

What actually happens if unemployment spikes?

What Actually Happens When Unemployment Rises

Most people assume rising unemployment automatically destroys real estate. History tells a more complicated story.

When unemployment rises, three things typically happen at the same time:

That third one is important. Just because more people need rentals doesn’t mean rents go up.

Rent prices are limited by income, not just demand. If unemployment spikes, people don’t suddenly have more money to spend on rent. Instead they adjust their housing situation.

They get roommates. They move in with family. They move to cheaper neighborhoods. They trade down in housing.

Rental demand can increase, but the ability to pay higher rents often decreases. That’s why during most recessions rents tend to flatten and sometimes fall slightly.

The Investor Trap Scenario

Now let’s walk through the real concern.

You buy a property today. Next year unemployment spikes. Then a few things happen at once: property values soften, rent prices flatten or drop, and suddenly your property no longer cash flows.

At the same time, selling the property would mean taking a loss.

Now you’re stuck.

That’s the nightmare scenario many investors are trying to avoid. Not because the deal was terrible, but because the timing was wrong.

The Real Risk: Liquidity

What actually destroys investors during downturns isn’t price declines.

It’s liquidity.

Investors fail when they cannot float their properties long enough for the market to recover. This usually happens when debt is too aggressive, reserves are too thin, or the portfolio relies on appreciation to survive.

You rarely go broke because a property value drops temporarily.

You go broke because you cannot survive owning it while the market is correcting.

The Government Wildcard

There’s another variable in this cycle that makes things harder to predict.

Government intervention.

If unemployment spikes dramatically, history suggests the government usually steps in with some form of stimulus. That could mean expanded unemployment benefits, mortgage assistance programs, stimulus checks, or aggressive interest rate cuts.

And when that happens, something interesting can occur.

Money floods the system. Inflation returns. Asset prices rise again.

We saw exactly this during COVID. Unemployment exploded, stimulus followed, and real estate prices surged shortly afterward.

So ironically, a major unemployment spike could actually lead to higher asset prices later, depending on how policymakers respond.

Nobody knows. But it’s a possibility.

The Affordability Question

This leads to something I’ve been thinking about more lately.

“If unemployment rises, what type of housing holds up best?”

Historically, it tends to be affordable housing.

During economic stress people don’t stop needing housing. Instead they move down the price ladder. Luxury housing weakens first, while entry-level housing tends to hold up better.

Rental demand shifts toward smaller homes, lower price points, and workforce housing. In other words, affordability often becomes more important during uncertain economic cycles.

The Real Question Investors Should Ask

The wrong question is: “Will unemployment rise?”

No one knows that.

The better question is: “If unemployment rises... will my deal survive?”

When I evaluate deals right now, I ask myself a few simple things:

If the answer to those questions is yes, the risk becomes manageable. If the answer is no, the deal might be too aggressive.

Buying Today...

If unemployment never spikes, buying real estate today will probably look like a great decision.

If unemployment does spike, I’ll still be happy I bought...so long as I bought correctly.

That means I didn’t rely on appreciation to survive. I bought in strong locations, maintained liquidity, and structured the deal as a long-term asset.

Because the risk isn’t buying real estate before unemployment rises. The risk is buying real estate that cannot survive unemployment rising.

Markets will always give us reasons to hesitate.

Today it’s AI and unemployment fears. Tomorrow it will be something else.

But the investors who succeed long term usually follow a simple rule: Buy good assets that can survive being wrong for a while.

Because if you survive the cycle...

Compounding eventually does the rest.

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Announcement

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