The White-Collar Recession Means More for Real Estate Than You Think

0:00AI is coming for the labor market, or so every expert seems to be saying. From Elon Musk to Jack Dorsey to Sam Altman, a major disruption in the labor market, one that disproportionately impacts white-collar workers, could be heading our way. And if it does, it will ripple through the entire real estate market, impacting everything from regional housing demand to rent prices and, yes, even to mortgage rates. So today on On the Market, we're diving into a recent report detailing which jobs are the most likely to be impacted, how this could play out in housing, and what real estate investors should do about it.

0:44Hey everyone, it's Dave Meyer, Chief Investment Officer at BiggerPockets. Welcome to On the Market. Today on the show, we're going to dig into what is being labeled the white-collar recession. Basically, most of the studies and information that we have are showing that AI is coming for our jobs. Well, not actually all of our jobs, at least not yet, but some industries do seem particularly vulnerable, and that really matters for real estate investors and for the broader economy. What recent evidence shows is that we may be at a sort of turning point for the jobs market. And this may not be the type of normal labor cycle that we've seen in the past where layoffs are sort of temporary and then they recover when the economic cycle shifts.

1:31Instead, we might actually be looking at sort of a generational shift in what industries are hiring, which industries are shrinking payrolls, and which are going to pay the most in the future. And if all of this does indeed happen, the implications are far-reaching for the economy and the housing market. So in this episode, what we're going to do is we're going to cover first a new report from Anthropic, which is an AI company. They make a tool called Claude, if you've ever heard of that. They use their own data to show what industries are being impacted so far and which might be impacted in the near future.

2:08We're going to talk about the current state of the labor market, and then we'll shift into talking about what this means for housing, what regions and asset classes could be impacted, and what you should do about this with your own investing and portfolio. So let's get into this. First up, let's talk about the state of the labor market as it stands today. We just got the jobs report actually last week for February, and it wasn't good. There's really no way to mask it. It was a bad report. Non-farm payrolls fell by 92 ,000 jobs in February alone, and unemployment ticked up to 4.4%. Now, it's important to remember 4.4%, still very low, historically speaking.

2:49A lot of people might point out unemployment rates, not a great metric. It's not, but it is important that it is going up. I mean, it signals that things are not heading in the right direction. We also saw some downward revisions for jobs from previous months, just making the whole general labor situation a lot less stable. Now, of course, not all industries are impacted the same, just like In real estate, not every market is impacted by macro trends the same. Same thing happens in the labor market. And we are not seeing uniform weakness. What we're seeing is particular weaknesses in what are known as white-collar jobs.

3:27Never heard of this term. Basically, these are things like finance or insurance or tech or just general business. They tend to be higher-paying jobs, and they are a big part of the economy. According to some studies, these kind of jobs account for 40 % of US GDP, that's super high, and 20 % of all employment. Now, normally, you know, for decades, honestly, these industries added jobs very steadily. Of course, recessions are sort of the exception there, but like during normal times, these industries in general were growing. However, over the last three years, they have on net cut jobs despite the fact that the economy has been growing and GDP has been growing.

4:10So the idea that white collar jobs are going to be impacted isn't new. It's actually a trend that has been developing for years. From 2010 to 2019, these industries were adding a lot of jobs, like 570 jobs per year on average. But in the last three years, they're losing an average of 190 ,000. So that's a really big shift. You're talking about a net shift of 750 ,000 jobs per year. In just the last couple of years, we've just seen postings for these kinds of jobs go down from the beginning of 23 to beginning of 2025. White collar job posting fell 36%. We've seen software developer jobs being absolutely crushed.

4:54They've dropped more than twice the overall rate. And it's not just software developers, business analysts, market research, data entry people all getting impacted. Now, you might be thinking this happens, right? Layoffs happen. And that is absolutely true. They are an unfortunate part of the economic cycle. But there is some reason to believe, both from evidence and just logic, that this economic cycle or the cycle in the labor market might be a little bit different. If you look at the types of layoffs that are happening, you see that we're moving from times where companies would make big announcements, huge layoffs that would happen kind of infrequently.

5:30You know, every couple of years they'd announce they're cutting a couple thousand jobs for a big public company. Now what is happening is that you're seeing more frequent, smaller kinds of layoffs, people where they're laying off 50 or 100 people at the time. Now, not all companies are doing this. We've seen massive layoff announcement from Amazon to UPS to Starbucks. Those are still happening. But if you just look across some of the trends, you're seeing more frequent, smaller layoffs in economy-wide. And these are being called, quote, forever layoffs because they kind of just are cycling. Like people are constantly worried about their jobs because they don't know when the next layoffs are coming.

6:07And these forever layoffs now account for the majority of layoffs. And that's why you may not have noticed that this is happening over the last three years. I know a lot of attention is getting called to it now because of AI, but this has been happening for three years. We should note, ChatGPT has been around for about three years, three and a half years, so maybe there is a correlation there. But the reason it hasn't been so noticeable is that it's more of a slow bleed, right? This isn't an event. It's kind of something that's just been happening, and that makes it a little bit harder to track.

6:39So why is this happening? Now, I mentioned AI, and obviously we're going to get into that in just a minute. We're going to go deep on the AI I think in a minute. But I actually think there are three different things converging here all at once. First and foremost, in 2021 and 2022, companies overhired, right? Remember how tight the labor market was back then? People were jumping from job to job. People were getting massive raises. There is just not enough labor for the demand during that booming economy. And frankly, I just think companies overhired. So starting in 2023, about three years ago, and we started seeing these things happen, they were just cutting back.

7:16You know, corporate speak, people like to use the word right sizing when they're laying off because they're saying they overhired and they're just getting it back to the right size. I hate that term, but I do think it's kind of true right now that we are seeing companies sort of revert back to what their payroll should look like instead of what they are hiring for in 2021 and 2022. Then this sort of continued, right? In 23 and 24, we got a lot of automation. a lot of AI, new software, and they found that most companies found that they could just basically keep cutting jobs, even if it's slowly, 20 here, 50 here, 100 here, they could keep doing that.

7:54And now the third thing is in 2025 and 2026, we're getting more AI advances that allow them to hire even less or lay off even more, or they're just anticipating that more AI disruption is coming, or AI capabilities, I should say, And so they don't need to hire as much. And that brings us back to the big news from last week when Anthropic, the AI LLL company that makes the product Claude, released a new report using their own data detailing where they think the labor market is going to be disrupted most. And it's kind of scary. I gotta be honest with you. I looked at this report and I was like, wow, this is really gonna change the entire face of our economy if it comes true.

8:39Let's just remember here before I dive into this, this is one company and they're finding there's not really evidence that this is happening at scale just yet, but I do think the data is good enough that we should be talking about it. So I'm going to dive into it and you actually may have seen this chart. It's been circulating on social media a lot. I actually put on my own Instagram. You can check that out at the data deli. We'll also put in the show notes, but basically it's this big radial chart that shows two different things. there is one thing it's the blue on the chart if you're actually looking at it that shows the potential for ai to disrupt the industry and then there's a much smaller sort of red area on the chart and that shows where ai is actually being disruptive here today and when you look at this chart you see that the potential for disruption is just massive at least according to anthropic in certain industries.

9:34When you look at business and finance, tech, legal work, arts and media, office admin, architecture, engineering, sales, life and social science, all of these are showing that the majority of their work can be done by AI. That is a little bit scary, right? We are seeing huge numbers of industries that potentially could be completely disrupted. Now, I think it's important to call out that that red section where we're seeing, is it actually disrupting? Not really, right? Most, the biggest ones are sort of in tech, business, and finance. They're saying about 30 to 40 % maybe disruption at this point, but they're pointing out that that could get much bigger.

10:20But again, really important to call out that the disruption is not happening yet. What I take away mostly from this report is that they're saying they think that these industries may be entirely disrupted by LLMs. Now, they're not saying 100 % replacement of humans, but they're just saying there's going to be a lot of overlap between what an LLM can do. That's a large language model. That's something like ChatGPT or Cloud where you talk to it, what a large language model can do and what a human can do. Now, the reason this is sort of perpetuating the fears of a white collar recession is because the industries that I just named are basically the highest paying industries out there.

11:01The most at-risk workers earn 47 % more on average than workers with no AI exposure and tend to have graduate degrees or advanced degrees as well. Now, if you look at the other end of the income spectrum, it's totally different. It is not really hitting industries like construction, agriculture, healthcare, manufacturing, transportation. All of those, at least Anthropik is saying, their tool clot based on what they're seeing, how people are using it, what is required in those fields, at least as of now, they're not likely to be impacted. Remember here, we're talking about large language models.

11:36These are like the question and answer talking format things that you see in ChatGPT or Claude or Gemini or whatever. We're not yet talking about robotics. That might be in a year or five years or 10 years. I don't know, but we're not talking about robotics. So just keep that in mind. So big picture here, white collar industries likely to be impacted according to Anthropic. Other industries, lower paying industries, more of the trades, those kinds of things, not going to be impacted by LLMs anytime in the near future. Now, of course, not all of this has played out yet, but we are starting to see some declines in hiring.

12:11But as of right now, it is mostly hitting younger workers, not due to layoffs, but due to declines in hiring. They're actually seeing, I saw some data that There's a 16 % fall in employment among workers aged 22 to 25 in exposed occupations. And that's basically what Jerome Powell has been saying, right? He, if you listen to the Fed chair, he's been saying that we're in a, quote, no hire, no fire economy because layoffs haven't been huge, right? Like I said, we're getting this slow grip of layoffs, but not these huge events or cliffs where there's massive layoffs all at once. Sure, individual companies are doing that.

12:47But if you zoom out and look at the whole economy, we're not seeing like mass waves of layoffs across tons of different companies at the same time. So that's why it's been described as this no hire, no fire economy, which is where we are today. But if you believe this data and you look at some of the trends, they're suggesting that things could get worse and unemployment might go up. Now, I want to remind you all, too, of something that I've been saying for a while, why I've been fearful about the labor market and been making episodes about this, because one, it has a lot to do with housing markets, which we're going to talk about in a minute.

13:21But I also believe that the nature of this economic cycle of what's going on in the labor market is not really something that the Fed can fix. Right. We talk about this all the time. Oh, the Fed, they should lower rates so that the labor market does better. I don't know. I don't really think companies are all of a sudden, you know, if you lower the federal funds rate by 50 basis points, are they all of a sudden gonna be like, you know what? I'm not gonna use Claude, not gonna use ChatGPT. I'm gonna go hire someone again. I don't think so. I just don't see that happening. Normally the Fed lowers rates to encourage companies to expand and hire, but is that really going to matter if jobs are being replaced with AI?

14:02Hiring is not slowing because interest rates are high, in my opinion. There are in some and maybe in manufacturing, maybe in some areas. But personally, in tech, I don't really see that as the reason why hiring is slowing. And I just think it's more because either AI is disrupting things or companies are banking on AI disrupting things. So I find this report fairly compelling. And it's not this alone, right? Like I'm looking at this just logically. I'm talking. I have a lot of friends who work in tech or in white collar jobs. If you combine this with the trends that we're seeing in employment, the revised down jobs numbers over the last couple of years, this report, and just logic.

14:37Like if you just use an LLM, you can see that this is going to replace some level of work, right? I believe that this is something that we should prepare for. Is it going to happen exactly like this? We don't know. Probably not exactly like this either, but it is something I think we should at least be talking about and preparing for. So after this quick break, we're going to talk about how this could spill over into the housing market and what you should do about it. We'll be right back. You know that moment when you open your bank app and brace while it loads? The credit cards, the subscriptions, the we basically lived off delivery this month realization.

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18:04Welcome back to On the Market. I'm Dave Meyer. Today, talking about the potential for a white collar recession. We talked before the break about jobs data that we've gotten in the beginning of this year and a report from Anthropic about what industries could be impacted the most. So in this next section of the show, we're going to presume that Anthropica is right, and we're going to see rising unemployment in white collar industries. Now, again, we do not know if that's going to happen. The unemployment rate overall remains pretty low, but I believe that there is risk. I'm not freaking out, but I do think there is risk here, and it's something we need to watch and something we need to talk about the potential consequences of.

18:42So let's get into it. In a scenario where job losses mount in these white collar industries, the way I see this could possibly spill into the housing market, sort of like the order of operations, the mechanism for how it could move into housing is first and foremost, sales volume is probably going to drop because buyers step back. If all of a sudden we see a lot of layoffs, this is what happens anytime there's large increases in unemployment, we see sales volume drops. Then we'll probably see lenders start to tighten their credit, right? They won't be as willing to give mortgages to people who might be losing their jobs.

19:20That can negatively impact the market. Sellers could start selling, but I think they are probably more likely to cling to their low rate mortgages unless they are forced to move. Because as a reminder, just the way things have gone in the last couple of years, for a lot of people, paying your mortgage is cheaper than renting. So it doesn't really make sense to panic sell your house and then move into a rental if you're just going to be paying more. So I do think that's an important thing to remember here that sellers, unless they are forced to sell, are likely to hold onto their homes. We'll definitely see days on market start to rise as demand drops and credit tightens, and we'll probably see prices decline.

19:58Not everywhere, of course, but in areas with high concentrations of white collar workers, I do think we will see price declines in those market if this all plays out. And I think it's important to remember that what I just said, those things happening, would be happening in addition to a market that is already slow. We saw pending home sales fall 6 % year over year through February, 2026, and it was already slow in 2025. That was the largest decline we have seen in a while. The typical home now taking 67 days to go under contract, which isn't crazy, but it's a week longer than it was last year, and it's the slowest it's been since 2019.

20:41We also, you know, before unemployment goes up, are seen people worried, right? Two-thirds of people in a recent survey said that they were either somewhat or very worried about possible jobs cuts in their workplace in the next year, and over 60 % were worried about losing their own job or having their hours reduced. And so if you just look at these things, I think there is a chance unemployment goes up. But the fact that people are fearful alone is already suppressing transaction volume even before those actual job losses could potentially accelerate. So just remember that we're starting from a very slow point and it could get even slower.

21:21So my main thing is that it will probably suppress overall demand in the housing market. But I also think it could really impact one of the more active parts of the housing market right now. We've talked about on the show. I've done whole episodes on the quote unquote K-shaped economy that basically wealthy people are spending a lot of money. People on the lower end of the income spectrum are not spending a lot of money. And that is reflected in real estate too. We see luxury homes selling pretty well right now. High income people still buying houses. And if the professional class or these white collar workers that, you know, sort of anchor the, let's call it the top half of the K.

22:00It's not half, but let's call it like the upper leg of the K. It's usually about 20 percent in most analyses. 20 percent. If that starts to erode, you know, the upper tier of housing market could start to lose its floor and start to drop down a little bit. And again, transaction volume will be impacted as well. So just keep a lookout for those things if demand starts to decline. But don't freak out just yet because demand going down, this is what people on social media and YouTube often get wrong is that demand going down does not mean a crash. And there are important things to remember here on top of just demand.

22:36First is supply, right? You got to think about which way supply is going to go. Now, a lot of people might say people are going to panic sell their homes and there is a chance that could happen. But I actually where I'm sitting right now, I think supply could go either way. I think it's possible that inventory actually goes down. If people are scared, they don't want to move, they don't want to rent a house that's more expensive than their current mortgage, that could actually lower total new listings and that could offset lower demand. That would lower transaction volume, right? When demand and supply shrink at the same time, that can lower transaction volume.

23:12It does lower transaction volume, but it means that pricing could actually stay stable. It might fall a little bit, but it's not going to go into any sort of freefall. So I think that is a very likely scenario that we see, even if demand declines. Now, of course, it could go the other way. I think if things get really ugly, if we see a huge spike of employment, as I've been talking about for a while, I remember at the beginning of the year, I said I thought there was about a 15, 20 percent chance of a crash. And that would happen if we saw a huge spike in unemployment. So if we see a spike in unemployment, we could supply go up.

23:46People start to panic. They can't make their mortgage payments. that's when we see the potential for bigger price declines. Not going to say a crash because I think it's far too early to predict anything like that. We don't really have any evidence of forced selling right now. But I do admit that the risk of bigger price declines happens to be going up. I thought, you know, I said last week on the show, I think it's gone from about a 15 % chance of a crash to about a 20, 25 % chance of a crash. And I'm saying 10 % price drops or bigger. but I think the risk that we see, you know, two to 5 % declines is pretty high, but that's what I predicted back in November before any of this data came out.

24:24So I think that correction probably still the most likely outcome, but just want to remind you all, keep an eye on the supply side because that tells us where prices are going. You can't just look at demand in a vacuum and say what's going to happen. You have to look at both. And I think what will happen with supply depends on how severe. If we see unemployment hit eight, nine, 10%, probably going to see big declines in the housing market, but we're a long way away from that. We're at 4.4%. And although eight doesn't sound that different, it's very different in a historical context. 8 % unemployment rates are very rare.

24:58And although it can happen, it doesn't look like we're imminently approaching that. So that's number one thing to look at in addition to demand is the supply side. The second thing to remember, super important here is mortgage rates. If there is a huge increase in employment and we see a traditional recession, or even without, even if they don't call it a recession, because you know I think that's stupid, but whatever they decide to do, if we see a big increase in unemployment, it is probably going to bring down mortgage rates. That is the one thing, other than quantitative easing, that could really bring down mortgage rates in the foreseeable future.